Private Lender by AAPL by American Association of Private Lenders

A APL ANNUAL CONFERENCE PREVIEW

LENDER LIMELIGHT

The Official Magazine of AAPL September/October 2018

MARKET WATCH 5 Indicators the Bull Market May Be Ending

Tabitha Fitzgerald Thinking Differently Drives Her Success

MATURING HOUSING MARKET What the numbers tell us

SEPTEMBER/OCTOBER 2018

PRIVATE LENDER

CONTENTS

SEPTEMBER/OCTOBER 2018

07 WHAT'S CURRENT

Tr ending I ndu s t r y Topic s and N ew s Fr om A r ound t he Wor ld o f Pr i v a te L ending

10 BUSINESS S TR ATEGY

10 I nve s t ing in Fund s Ver s u s G oing i t A lone by Pete A smus

14 5 I ndic a tor s t he B ull M ar ke t M ay E nd T hi s Year by J ef f Levin

18 E s s ex C oun t y, NJ: C an Ea s t O r ange Mir r or t he

Developmen t Succe s s o f N ewar k? by Jason Lewis

22 Rai s ing t he St ake s on Real E s t a te in L a s Veg a s by James Har t

26 LEGAL

M or tg age Banker s Tur ning Pr o f i t Ag ain by Melis s a Mar torella, E sq.

31 A APL ANNUAL CONFERENCE PREVIEW 39 LENDER LIMELIGHT

A l way s Up f or a C hallenge wi th Tabi tha Fi t zger ald

48 C A SE S TUDY

M ar que e Pr oje c t: Ec lip s e T hea t r e

50 MANAGE & LEAD Us ing Soc ial M e dia C an C r ea te C os t l y Sel f- I n f lic te d C r i s e s by Chr is sey B reaul t

56 IR A APPROACH

Pr i v a te L ending w i t h a Sel f- Dir ec te d I R A by Clay Malcolm

62 ALTERNATIVE ANGLE

W ha t t he Fu t ur e H old s f or Pr i v a te L ender s by Rober t Greenberg

66 L A S T C ALL

I C hos e a N ew L i f e —an d H er e's W ha t H appene d wi th Randy N ewman

SEPTEMBER/OCTOBER 2018

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FROM THE CORNER OFFICE

CELEBRATING THE GIFT OF GIVING As I watch organizations like United Way or

R. MICHAEL WRENN

Chairman, Affinity Worldwide

GivingTuesday.org and even Veterans Path Up, I can’t

EDDIE WILSON

help noticing that people are donating more than ever

CEO, Affinity Worldwide

to charities. There’s no time when giving is more on

LINDA HYDE

display than it is today. Maybe we can give some of

Executive Director, AAPL

that credit to social media, where we can choose to

CHRISSEY BREAULT

celebrate generosity rather than the crisis of the day.

Editor in Chief, Private Lender Director of Marketing & Member Services, AAPL

TIM DRAPE

Senior Account Manager, AAPL

KELLY SCANLON Copy Editor

SPRINGBOARD CREATIVE Design

DANIEL DELGADO Cover Photography

CONTRIBUTORS

Pete Asmus, Chrissey Breault, Laura Chalk, Robert Greenberg, James Hart, Jeff Levin, Jason Lewis, Clay Malcolm, Melissa Martorella, Randy Newman Private Lender is published bi-monthly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.

SUBSCRIPTIONS

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BACK ISSUES

Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250.

For article reprints or permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. www.aaplonline.com Copyright © 2018 American Association of Private Lenders. All rights reserved.

With this in mind, we hope you will join us for our first

charity golf tournament on Nov. 3, so we can celebrate generosity even more. You’ll find more details on the tournament on the back cover of this issue.

Another way to give is through volunteering—the gift of time. Private Lender by AAPL greatly appreciates the volunteers who provide the thought-provoking articles you find in each information-packed issue—Clay Malcolm, Jeff Levin,

Bobby Montagne, Robert Greenberg and others. We are also grateful to those who volunteer for the American Association of Private Lenders’ advisory

committees. At AAPL’s upcoming 9th Annual Conference, these are just some

of the folks you will meet during networking events, presentations and classes. As our small, but mighty team wraps up this edition of Private Lender and

prepares for the conference, I am reminded of the reasons we do what we do. If not for the many members and partners who put aside competition

for the advancement of shared ideals crucial to success, this magazine, the association and certainly our annual conference would not exist. We are incredibly fortunate to partner with leaders who share our passion for strengthening the private lending industry.

I hope you enjoy this issue of Private Lender and that you are inspired to join us in Las Vegas in November.

LINDA HYDE

Executive Director, American Association of Private Lenders

The American Association of Private Lenders is an Affinity Worldwide Company. SEPTEMBER/OCTOBER 2018

S E E PA GE 60

PRIVATE LENDER

WHAT’S CURRENT TRENDING INDUSTRY TOPICS AND NEWS FROM AROUND THE WORLD OF PRIVATE LENDING A APL MEMBERS NAMED TO

INC. 5000 LIST

Appraisal Nation Asset Based Lending, LLC AFFINIT Y GROUP MANAGEMENT NAMED TO INC. 5000 LIST

Geraci LLP

Inc. magazine has named Affinity Group Management, a company that supports

Del Toro Servicing

The Inc. 5000 list annually recognizes privately held companies that have demon-

Intrust Funding

real estate investors, as one of the fastest-growing private companies in the U.S. strated exponential growth over the previous three-year cycle. 2018 marks the fourth time AGM has been awarded the honor. AGM assists real estate investors through the insurance program that National

Real Estate Insurance Group (NREIG) offers. The program simplifies the property protection processes, saving the real estate investors time and money. “As we were building AGM, there was no software available on the market to handle the complexities of the business,” said Becky Cole, chief financial officer of Affinity Worldwide. “We developed our own program, Tracker, to meet the demand while ensuring billing accuracy. This has supported our rapid growth.” AGM services more than 7,000 individual investors, conglomerates, bulk REO holders, wholesalers and lenders representing more than 40,000 locations in all 50 states. AGM and NREIG are part of Affinity Worldwide.

Anchor Loans RealtyShares Ohio Cashflow Lafayette Worcester Companies Affinity Group Management Renters Warehouse

NEW DIRECTION IR A OFFERS SELF-DIRECTED IR A SERVICES AT TPMD New Direction IRA, a provider of self-directed IRAs, 401(k)s, health savings

accounts (HSAs), and other tax-advantaged savings vehicles, is now a preferred custodian for self-directed IRA services at Texas Precious Metals Depository’s new storage facility. TPMD is a private underground bullion depository. According to the IRS, retirement investors may incorporate physical bullion and coins into their portfolios and retain the applicable tax benefits of their accounts. However, any account-owned precious metals must be stored in a depository or another such qualified third-party storage facility.

SEPTEMBER/OCTOBER 2018

WHATâ&#x20AC;&#x2122;S CURRENT TRENDING INDUSTRY TOPICS AND NEWS FROM AROUND THE WORLD OF PRIVATE LENDING EQUIT Y TRUST

Equity Trust is offering customers the ability to invest in cryptocurrencies for their IRAs. The firm now

CURRENCIES

Ethereum, Ethereum Classic, Litecoin and Ripple. Equity Trust already offers other alternative investments

OFFERS DIGITAL

allows customers to use its Equity Trust Digital Asset Platform to buy and sell Bitcoin, Bitcoin Cash, to retail and institutional customers, including real estate, private equity and precious metals.

ABS APPOINTS NEW CHIEF

MARKETING OFFICER

Elizabeth Morales is the

new chief marketing officer at Business Software (ABS).

ABS provides loan servicing

software for private lending. Morales brings more than

20 years of leadership and marketing experience to her new position. 8

PRIVATE LENDER

COREVEST CLOSES SIXTH SECURITIZATION AND

L AUNCHES BUILD-TO-RENT PROGR AM FOR INVESTORS CoreVest, a specialty finance company that provides innovative debt solutions to residential real estate investors has closed its sixth securitization of commercial

mortgage loans secured primarily by single-family rental properties. The CoreVest American Finance 2018-1 Trust offering was backed by 117 loans totaling $236.8 million. The loans are secured by 3,068 rental units in 29 states. CoreVest has securitized more than $1.2 billion of mortgage loans, making it the largest and most prolific private issuer of bonds backed by loans to residential investors. The company has also launched a new loan program, Build-To-Rent Complete, that is tailored specifically for build-to-rent investors. The program provides construction financing for the development of new rental properties along with long-term financing once projects are completed and stabilized. CoreVest is offering this program to seasoned investors with loan sizes ranging from $3 million to over $25 million.

STEVEN K AUFMAN RECEIVES MOST

ADMIRED CEO AWARD

ZeusLending CEO

Steven Kaufman has NOBLE CAPITAL AND IMPACT HUB ADDRESS AUSTIN’S AFFORDABILIT Y CRISIS

Noble Capital has sponsored Impact Hub’s Affordable Housing Accelerator since it launched in August 2017. Noble is now partnering with Impact Hub to support the second round of the

Affordability Accelerator. The program provides training and mentoring from industry experts in the tech, real estate and civic sectors, in addition to free workspace for startups, nonprofits and individuals with sustainable solutions to the city’s housing affordability crisis. Up to 10 groups or individuals will be selected for the 2018 Affordability Accelerator. Participants are selected on their plan’s viability, their background and experience, clear goals for the next 12 months and the ability to measure their plan’s effectiveness.

been honored with

the Houston Business Journal's inaugural Most Admired CEO Award. A judging

panel selected 35

for-profit leaders and 13 nonprofit leaders

ZIKHER REBR ANDS AS LENDTECH As part of a rebrand, Zikher has changed its name to LendTech. The company has also

announced its first major software update. The LendTech version 2.0 release, along with

from the Houston area to receive the award.

the rebrand, is designed to enhance the company’s core mission to make advanced digital lending technology accessible and easy to use for banks, credit unions and private lending institutions.

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Investing in Funds Versus Going It Alone Funds can help you diversify your risk and save you time. by Pete Asmus

PRIVATE LENDER

hen you decide to invest, it’s important to conduct an appropriate amount of due diligence.

That due diligence takes time. But how much time do you have, and how much do you know about the business you want to invest in? A direct investment in a company is different than investing in either a public or a private fund with a group of other investors. When you invest directly in a company—whether you start a

Diversification means spreading out your investment dollars across multiple investments as opposed to putting all your eggs in one basket. The theory is that if something negative should happen to one investment, you’re only losing a portion of the total money you invested. If you put every dollar into a single investment that goes south, you risk losing everything.

new company, buy an existing one or simply provide a startup loan as a silent investor—you’re making a large commitment. On the other hand, while investing in a fund is still a commitment, it’s not nearly a commitment of the same scale.

DIVERSIFICATION Just about any investment adviser, financial planner or retirement expert will recommend diversification. It’s probably the most widely cited way in which to protect your investments.

When you invest in or run a single company, you’re not diversifying. But when you invest in funds, you can spread your dollars out across multiple funds. Many funds themselves will even internally diversify, meaning that they’ll invest in multiple ways. A single mutual fund of stocks, for instance, may invest in telecommunications, utility, biotech and real estate companies. That’s four industries for the entry price of a single investment.

AFFORDABILITY If you start your own business or purchase an existing business, you’re talking about a major financial commitment— one that could easily cost you thousands of dollars. Plus, there are often financial overruns, meaning that the actual costs are greater than what you anticipate. In these instances, you’re solely responsible for

the overages, and if you can’t afford them, the business simply stops operating. When you invest in a fund, however, the burden is on the fund manager. You invest a set amount and if the company needs more money, you are under no obligation to provide additional funds. Additionally, instead of having to front the entire cost yourself, you need to invest only a small portion of the total funds required. The remainder of the capital will come from other investors. This allows you to save money and spread your dollars out across multiple funds, increasing your level of diversification.

TIME When you operate your own business, you alone are the responsible party. While the idea of being your own boss may sound exciting at first, it’s a huge responsibility. You’ll need to interview contractors; hire, train and manage employees; prepare financial reports; develop and implement marketing campaigns; purchase inventory; assess market conditions; understand contracts; and be a salesperson, bookkeeper, receptionist, and more until you can afford to bring on other people and start outsourcing tasks. Plus, you’ll

have to actually do whatever it is that your business does. Fund managers, on the other hand, are like your employees. They work for you, taking the time burden off your hands. All the daily tasks become their responsibility instead of your own, freeing you up to do other things—whether that's working a full-time job, starting a business in another industry or spending more time with loved ones. Time is one thing we cannot create more of. Using it efficiently is critical to success in both our professional and our personal lives.

PROFESSIONAL MANAGEMENT Not everyone can be an expert at all things. Especially if your goal is to maintain a diverse portfolio of funds, it can be challenging to find the time to develop the skills to be an expert in multiple industries. When you invest in a fund, you’re investing in its management. This is key. You’re investing in the resources of the manager, their skills, their problem-solving skills and their industry expertise. You don’t have to be an expert, because someone you trust is. Of course,

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“Time is one thing we cannot create more of. Using it efficiently is critical to success in both our professional and our personal lives.”

if you don’t trust a particular fund manager to manage your money, then you probably shouldn’t invest with them in the first place.

PUBLIC, PRIVATE, REGULATION D, REGULATION A

Don’t be afraid to speak directly with fund managers, to meet them in person, so they can get to know your goals and objectives and see if and how they match those goals and objectives to your funds. Just as not every investment is right for you, not every investor is right for a given investment fund.

If you decide to invest in a fund, you will not be lacking for options. When most people think of investment funds, they think of a mutual fund or an exchange-traded fund (ETF). Like all funds, these are simple financial offerings where a group of investors pool their money together toward

PRIVATE LENDER

a common goal. Mutual funds can invest in businesses, stocks, bonds, municipalities or a combination thereof, while ETFs are designed to emulate a stock market exchange or index such as the Dow Jones, Standard & Poor’s 500 index, Russell 2000 or NASDAQ. Public funds are those that are available on public stock markets such as the New York Stock Exchange or the NASDAQ. Here, everyday people and fulltime traders alike can readily

invest in individual stocks, bonds, commodities or more collectively, in funds.

PRIVATE FUNDS— REGULATION D Private investment funds are those not readily available for trading on a public stock exchange. They must be purchased privately through the issuing entity. You can’t simply use an online brokerage account.

of an accredited investor is someone (1) with a net worth of more than $1 million, not including their primary residence or (2) who has an annual income for the past two years of $200,000 if single and $300,000 if married. Additional conditions may apply. Some companies may choose to engage in “general solicitation” or marketing of their fund. Others may choose to accept a limited number of non-accredited investors into their fund, but not be allowed to engage in any advertising.

PRIVATE FUNDS— REGULATION A+

These funds get their name from the Securities Act of 1933 legislation that describes them. Without getting too technical, there are different types of Regulation D, or “Reg D” funds. The most common are Rules 506(b) and 506(c) of Regulation D. Depending on the type of offering a company issues, they may or may not be able to publicly advertise their funds or accept money from non-accredited investors. A simplified definition

A much less commonly used type of private investment fund is a Regulation A+ fund. Traditionally, it would cost $100,000$300,000 and as much as two years to get these funds set up. That leads most fund managers to avoid them in favor of the much simpler Reg D options. Like their Reg D counterparts, Reg A+ funds are private, and investments must be made directly with the issuing company. But unlike with Regulation D, Reg A+ funds can advertise both openly and publicly as well as accept an unlimited number of non-accredited investors. However, the filing requirements are more strin-

gent and more similar to those of a publicly traded company. Also, there are two different types or “tiers” of Reg A+ offerings. Tier 1 offerings can raise up to $20 million in a 12-month period (with an average historical raise of $5 million). Tier 2 offerings can raise up to $50 million (with an average historical raise of $16 million). The trade-off here is that Tier 2 offerings impose limits on the amount that non-accredited investors can contribute to the fund. Specifically, a nonaccredited investor can invest up to 10 percent of their net worth or annual income, whichever is greater. Accredited investors and non-accredited investors who participate in Tier 1 offerings have no such limitations. With the ability to raise money from non-accredited investors, advertise openly and the costs and time required to start up a Reg A+ fund decreasing, we anticipate there will be many more of these popping up in the years to come. To date, however, there have been just over 100 Reg A+ filings, with approximately half of them being abandoned before launch and closer to 20 percent actively operating today. Some have achieved their goals, while others have stopped raising money for other reasons, such as hitting their expiration date (12 months from the launch date). ∞

ABOUT THE AUTHOR

PETE ASMUS Pete Asmus is a real estate

investor who specializes in marketing, branding and

raising capital. He has a well-

established history of securing capital for projects such as

flipping high-end residential

properties and creating small

businesses. He has personally purchased and invested in

mobile homes, single-family

homes, restaurant franchises, and commercial buildings.

Pete has spent the last decade learning, teaching and speaking, making connections and

building relationships with top deal makers in the industry. Additionally, he is an editor

at Investor Quarterly and an

award-winning radio host. He also manages a database of

more than 2.5 million investors and owns the world’s largest

LinkedIn real estate investment group with over half a million members. He is the author of

“Force Your Dreams into Reality,” “The Question Factor” and

“The Stock Market Refugee.”

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INDICATORS THE BULL MARKET MAY END THIS YEAR What does that mean for lenders?

PRIVATE LENDER

by Jeff Levin

As this long summer stretch ends, you can bet investors will be pouring over their portfolios. Just a year ago many bearish prognosticators thought the Dow certainly could not sustain its momentum through the first half of 2018, only to be proven wrong. As of this writing, the Dow is up over 5 percent from its position at the start of the year, bumping up against the 26,000 mark. But bears are bears; they don’t growl silently. In fact, there are quite a few signs in the marketplace that suggest an end to this long bull run.

It raised interest rates in June

Earlier this summer, the

rate increases are expected

announced earlier this summer

and signaled that two more

later this year. These rate hikes continue to flatten the “yield curve,” the spread between

the yield on the 10-year and 2-year U.S. Treasury notes, and this is a concern.

In normal times, 10-year

T-notes should have a much higher yield than 2-year

T-notes to reward investors

for tying up their money for

a longer period. A flattening

curve can happen for several reasons, but it’s always a red

Here are five indicators that suggest we are nearing an inflection point. For private lenders and leaders in the construction and real estate industry, the key is to keep close tabs on these indicators. If a correction should come, it’s important to be able to identify the signs before the talking heads on your favorite business network are telling you it’s too late.

flag for investors. If short-

term yields go higher than the long-term yields—a condition called inversion—a recession almost always follows.

While we’ve been occupied with end-of-summer

vacation, the 2-year yield

nosed up to 2.63 percent,

European Central Bank (ECB) a plan to taper its massive

asset purchases at the start

of this month—and end them

completely by December. Like the Fed, the ECB is worried about the risk of inflation,

which it wants to see below

2 percent for the medium term. As all this liquidity exits the

markets, it’s difficult to pre-

dict the exact impact on the stock market. The continent had a notable slowdown in

growth beginning at the start

of the year, mostly blamed on the uncertainty around the

U.S. economic sanctions and trade war. But with interest

rates climbing and the end of quantitative easing, it is very

likely that aftershocks will be felt in all the major markets.

while the 10-year yield

remained flat at 2.82 percent. This squeezed the spread

between them to just 19 basis points, the lowest in 12 years.

THE ADMINISTRATION’S TRADE WAR WITH CHINA MAY GET OUT OF HAND. Speaking of trade wars,

here’s a quick reminder of

THE YIELD CURVE FOR TREASURY NOTES IS FLATTENING.

THE EUROPEAN CENTRAL BANK IS ALSO ENDING QUANTITATIVE EASING.

There’s no sign of any

The Fed isn’t the only central

imports from China, fulfilling

Reserve’s policy to steadily

making huge liquidity

campaign promises. Then on

changes in the Federal

tighten monetary policy.

how this began: In April of this year, the U.S. imposed

tariffs on steel and aluminum

bank reversing its policy of

one of the president’s earliest

injections into the economy.

July 6, the U.S. imposed a

SEPTEMBER/OCTOBER 2018

BUSINESS STR ATEGY

25 percent tariff on $34 billion worth of Chinese goods,

which then led China to retaliate with its own new tariffs on imports from the U.S.

Just four days later the

stakes were raised again.

The administration directed

the U.S. trade representative

to publish a list of $200 billion in additional Chinese goods that are subject to a newly

proposed 10 percent tariff, which could slow Chinese economic growth by as much as 0.5 percent.

The $200 billion is not an insignificant amount. In the first half of 2018, the U.S. imported $250 billion in goods from China in total while exporting $64 billion to them, a $186 billion trade deficit. That makes it tempting to kid ourselves that the Chinese will be forced to concede. The danger is that such tariffs, if implemented, risk pushing Beijing to take its so-called “nuclear route” by using two nuclear buttons— devaluing their currency and dumping U.S. Treasurys.

Put our Lender Services team to work for your business

A devalued yuan would make

an $82 billion (0.6%) increase

attractive to the global

Overall household debt is

Chinese exports even more

market. American businesses that already struggle to com-

pete due to today’s artificially low yuan would be deeply

undercut on price. That would also be detrimental to the equities markets.

from the first quarter of 2018. now 19.2 percent higher than its low point of 2013.

Interest rates are rising in

the parts of the economy that hit consumers in the wallet.

This includes adjustable rate mortgages, car and student

A Chinese dumping of U.S.

loans, and variable-rate debt

havoc. Certainly the Fed

have been lulled into a false

U.S. government is the largest

mortgage defaults. And

to the Social Security trust—but

per borrower for the average

$1.2 trillion in U.S. federal debt,

up steadily, increasing from

$13 trillion total public debt.

of 2017 to $202,470 in the

to rise even further than the

Consumers are heavily relying

Treasuries would also wreak

like credit cards. Lenders may

can snap up Treasuries—the

sense of security by low

buyer of its own debt, thanks

while that is true, the debt

the Chinese government holds

mortgage has been ticking

about 9 percent of America’s

$196,772 in the first quarter

That means interest rates need

first quarter of 2018.

Fed currently plans to allow it to absorb the slack.

on credit cards. Revolving

and non-revolving debt is cur-

rently at $3.86 trillion, according to LendingTree. In the

month of May alone it jumped

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CONSUMERS ARE DEEPER IN DEBT JUST AS RATES ARE RISING.

by over $16 billion, the largest

According to the New York

$4 trillion by the end of the year.

Federal Reserve, as of June

30, 2018, consumers owed a total $13.29 trillion in debt,

single monthly increase in

22 years. At this rate, Lending Tree predicts it will pass

The average credit card APR is currently 15.54 percent, a full

percentage point higher than a year ago. As the federal funds

rates move up, rates on all this

consumer debt will naturally go up too, and defaults will follow.

PRIVATE LENDER

no surprise if the markets

“Bull markets often end in fits and starts, and any given week’s reassuring rally can quickly devolve into a rapid plunge.” They’re capitalized more on hope than profits.

TECH UNICORNS THAT DON’T MAKE MONEY SMELL A BIT LIKE DOTCOM 1.0. Losses among newly public

companies are concerning in

a rising interest rate environment. Fintech darling Square

has been having a rally lately, with its stock soaring above $85 after being at $25.90 at

It may be unfair to compare

these companies to Pets.com or Webvan. Today’s unprofitable tech darlings have

significantly more traction in terms of users and revenue

growth than the dotcom 1.0

cohort. But it bears watching how these golden stocks fare in the rising interest rate environment.

the end of August 2017. While Square boasts great revenue growth, it basically does not

make money. The same is true for Snapchat’s parent Snap

Inc., which went public a year ago, and reported losses in fourth quarter 2017 that

doubled from a year earlier. It’s not just the consumer-

facing tech companies that

lose money. Nearly 30 percent

YOUR EXTRA INDICATOR — THERE’S THAT CERTAIN ELECTION COMING IN NOVEMBER.

turn out to have priced in a

Democratic House takeover.

ABOUT THE AUTHOR

But subsequent events like

impeachment and the fruition of the Mueller investigation have the potential to cause

cascading waves of instability.

Lenders and participants in the construction and real estate industries need to filter the noise from the signals when it comes to the markets. Bull markets often end in fits and starts, and any given week’s reassuring rally can quickly devolve into a rapid plunge. Keep a close eye on the five indicators above. (You cannot avoid the sixth indicator even if you wanted to.) The Chinese have an old curse, “May you live in interesting times.” For this bull market, it’s quite fair to say we are heading into interesting times. ∞

JEFF LEVIN Jeffrey N. Levin is the founder and president of Specialty Lending Group (SLG) and

Pinewood Financial, which

together provide a full suite of boutique private real

estate lending services in the Greater Washington,

D.C., area. Before launching

SLG, between 1993 and 2007, Levin was a co-founder and

CEO of iWantaLowRate.com and a co-founder and

president of Monument Mortgage. Levin is a

recognized authority, lecturer and panelist. He is also a

member of the American Association of Private

Lender’s Education Advisory Committee. He earned a bachelor’s degree from

The American University in Washington, D.C.

Yes, we cannot talk about the markets without mentioning the elephant and donkey in the room. It would come as

of new NASDAQ companies

are biotechnology firms that come to market well before

they have an approved drug.

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PRIVATE LENDER

ESSEX COUNT Y, NJ: CAN EAST ORANGE MIRROR THE DEVELOPMENT SUCCESS OF NEWARK? The potential for transformation in East Orange is palpable. by Jason Lewis

In 2010 the East Orange population consisted of 64,270 people, according to the U.S. Census Bureau. In 2016, Data USA recorded the East Orange median household income at $38,403, less than the U.S. 2016 median annual income of $55,322. While many remain skeptical about East Orange's economic progress, there are a number of advocates, including companies like Aryming Asset Funding, who recognize the opportunities for revitalization.

NEWARKâ&#x20AC;&#x2122;S RISE TO ECONOMIC PROMINENCE To understand the potential of East Orange, we need to look at Newark, its Essex County neighbor, and the largest city in New Jersey. After the end of World War II, low-interest mortgage rates, educational assistance and the G.I.Bill incentivized an increasing number of Newark residents to move to the suburbs. During this transitional phase, blacks were moving into the Newark area; they often faced job, housing and education discrimination.

After years of frustration over discrimination and economic inequality, an event on July 12, 1967, finally triggered action from the black community. John Smith, a black cab driver, was pulled over at night. He was beaten and detained by two white police officers for a minor traffic infraction. When word of the incident spread, a crowd gathered outside the 4th Precinct, with no intention of backing down. Violence escalated into five days of rioting, even with the governorâ&#x20AC;&#x2122;s decision to bring in the National Guard. Twenty-six people died. The incident resulted in negative national headlines that Newark has struggled to overcome. SEPTEMBER/OCTOBER 2018

BUSINESS STR ATEGY

In recent years, however, Newark has been in the spotlight for progress and development. Even Vogue has suggested Newark as a destination to visit. Newark has dropped in crime within the last 50 years, and according to Newark’s Department of Economic and Housing Development, investors have poured an estimated $1.7 billion into residential, commercial and industrial projects. Businesses such as Whole Foods have opened their doors there, and the New Jersey Institute of Technology, Rutgers University campuses and Newark Liberty International Airport are solid fixtures in the city. Newark is slowly transforming into a tech-driven hub. The city is

PRIVATE LENDER

home to Audible and city-based venture capital fund Newark Venture Partners. Newark was recognized as one of the top 20 finalists to be Amazon’s “HQ2” project location. In 2017, NJ.com published an article that honored Newark as No. 13 on the list of top 50 U.S. markets for attracting and growing tech talent. The report qualified honored cities based on growth in offices, apartment rentals and tech jobs. Within the last couple of years, Newark has been focused on real estate development projects. The most prominent Newark development at the moment is the One Theater Square project, expected to open this year. The transformation of the NJPAC parking lot into One

Theater Square was inspired by the Brooklyn Arts District, specifically the Brooklyn Academy of Music in Fort Greene. Another distinguishable project is the redevelopment of Bears & Eagles Riverfront Stadium. As a result of all this development, Moody’s Investors Service revised the outlook of Newark from negative to positive. What does this mean for Newark? Their low investment grade rating may receive an upgrade.

CAN THE SAME BE EXPECTED FOR EAST ORANGE? We can expect to see similar developmental changes occur

in East Orange. East Orange Mayor Lester Taylor, III, was quoted in a March 24, 2014, Ebony magazine article as saying: “East Orange is a diamond in the rough. We are situated by major highways and we enjoy the luxury of an easy commute to and from New York Penn Station in 26 minutes. Some of the suburban cities and towns on the east coast have water, but East Orange has transportation. He goes on to say: “There is no reason why East Orange can't do [what Jersey City and Hoboken] have done. The New Jersey Transit’s East Orange and Brick Church stations are exemplary projects, both built as a result of growing population. Both the stations

connect to Morristown Line and the Gladstone Branch, which connect to Hoboken and Manhattan. Nearly 60,000 a week use the Hoboken terminal. In early 2018, a new high-rise development plan for South Harrison Street was proposed.

RECOGNIZING OPPORTUNITIES Some companies are recognizing the opportunities in East Orange and are pioneering the revitalization of the area. Some, like Armying Asset Funding, realize financing is necessary for the transformation to occur. They want to make a difference and encourage others to invest as well. Growth and expansion are the inevitable effects of a booming economy. The transition for younger generations to discover and live in new places is also a condition of economic changes. Cities with lots of urban amenities grow faster. Transportation is a strong factor in creating real estate hot spots. New York City is a prime example. Its transportation is hailed as the biggest in the world. This was one of the many reasons the

city has flourished. It was even a factor for the United Nations to base their headquarters in the city. Proximity to transit hubs is a factor for real estate hot spots. Examples of such effects are exemplified with properties near NYC’s newly minted Second Avenue subway, where properties around the area have become high-stake commodities. San Francisco, Washington, D.C., Jersey City Journal Square and Newark also bear strong similarities to Second Avenue’s real estate boom. A Dec. 18, 2015, Washington Post article noted that people who live near metro stops have higher income in common. According to the report, the percentage of Washington, D.C., workers with six-figure incomes who live near transit has risen from about 18 to 23 percent. Another common attribute was a higher educated set of workers. According to the same WaPo article, “The share of highly educated workers near transit is similarly soaring. In the latest data, three-quarters of all workers within half a mile of a metro stop in the city had at least a bachelor's degree, a stunningly high number.”

opment along transit corridors is widely popular now not just among millennial workers, but also among the urban planners who want to make it possible for more of us to live without a car and within easy access to jobs.”

ABOUT THE AUTHOR

With all these indicators in place, the propensity for growth in East Orange now seems inevitable.

of industry experience that

The city continues to show gradual growth, with unemployment rates decreasing and job growth increasing according to 2018 Local Area Unemployment Statistics. The Essex County unemployment rate in April 2018 was 5.1 percent, while the national rate was 3.9 percent.

packaging real estate devel-

Business and residential growth depends on the potential that investors see in East Orange’s elements and parameters. As the region presents slow but steady economic growth, increased property market value becomes more apparent. This opens the doors for future investors to participate in the growth of Essex County. ∞

JASON LEWIS Jason Lewis is a real estate professional with 20 years

includes facilitating transactions that benefit investors

and communities as well as identifying, targeting and

opment projects with a spe-

cific emphasis on distressed portfolios and REOs.

Lewis is the founder and CEO

of Aryming Asset Funding LLC, a boutique private real estate lending sponsorship firm

based in Newark, New Jersey, that works to help small- to

medium-sized clients and high net worth individuals.

The report concluded by acknowledging the role of mixed-use development that combines high-rise apartments with retail and bars below: “That kind of mixed-use develSEPTEMBER/OCTOBER 2018

BUSINESS STR ATEGYÂ

Raising the Stakes on Real Estate in Las Vegas by James Hart

After the city lost big during the economic downturn, experts are now betting on sustainable growth.

PRIVATE LENDER

recent market high of $315,000 that was set in June 2006, but well above the low point of $118,000 in January 2012. Condos and townhomes, meanwhile, commanded a median price of $166,000 in July, about 20 percent higher than a year prior. Rents were up, too, showing an increase of 3.2 percent in July over a year earlier, Zillow reported. Everywhere you turn in the Vegas metro, you can spot signs of progress in just about every type of real estate niche, from fix and flips to large-scale commercial developments.

as Vegas and southern Nevada, after suffering some of the worst of the Great Recession, are experiencing undeniable economic growth.

It’s a welcome change from a few years ago, when the city’s unemployment hit 15 percent, home values plummeted, and the foreclosure rate was six times higher than the national average. By 2012, more than 70 percent of Vegas-area homeowners with a mortgage were underwater.

And now? In June, Las Vegas led the nation for the fastest gains in home prices, according to the S&P CoreLogic CaseShiller U.S. National Home Price NSA Index. On average, prices were 13 percent higher than they were a year earlier. The national average for the same period was 6.2 percent. In July, single-family homes sold for a median price of $290,000, up 11.5 percent compared to 12 months prior, the Greater Las Vegas Association of REALTORS (GLVAR) reported. That’s below the

“We feel it’s pretty strong,” said Bret Berglund, managing director at Mojave Capital, a Las Vegas-based private lender. “The home inventory’s tight, and the homebuilders are trying to keep pace.”

STRONG DEMAND FOR NEW HOMES, MULTIFAMILY Some have argued that Las Vegas might be too hot. Earlier in 2018, Fitch Ratings labeled Vegas the most overvalued housing market in the country. But the rate of growth, while strong, is not as heated as what the region saw before the last recession—for example, between 2000 and 2006, Vegas

home prices increased more than 125 percent, Zillow found. The GLVAR also notes that home prices started to level off this summer. Ultimately, Berglund said, current conditions are going to be more sustainable. Mojave Capital, founded in 2007 by managing partner Vance Petersen, offers commercial financing to real estate investors, developers and builders, especially on deals involving distressed and transitional properties where time is a factor. The firm can handle a range of projects, though, including retail, office, development and multifamily. Recently, it provided $3.5 million for a three-story office and retail development in the Las Vegas Arts District, as well as $1.9 million for a 27-unit multifamily project in downtown. “People are realizing Las Vegas is a real place,” Petersen said. “It’s not just a tourist destination.” Interest in multifamily is particularly strong right now, with bidding wars on some units, so the Mojave Capital team has seen more investors seeking to buy and modernize distressed multifamily properties. Demand for new homes is also high. According to Home Builders Research, closings of new homes increased by

SEPTEMBER/OCTOBER 2018

BUSINESS STR ATEGY

19 percent in the first half of 2018 compared to a year earlier. Construction permits were also 30 percent higher during the first half of 2018, and purchases of land were up, too. “We’re glad to see the housing supply increasing slightly in recent months, but our inventory is still very tight,” GLVAR President Chris Bishop said in a news release. “That tight supply has been dragging down home sales. At this rate, we’re on pace to sell fewer existing homes this year than we did last year. And it may be some

PRIVATE LENDER

time before local home prices get back to their all-time peak from 2006.”

are purchasing a vacation home, Mojave Capital said.)

According to the GLVAR, cash purchases represented about 22.6 percent of real estate deals in July, compared to 24.6 percent one year earlier. Investors are still an active part of the market, though not to the extent they were in, say, February 2013, when cash-only deals were 59.6 percent of purchases.

GROWTH IN POPULATION, EMPLOYMENT

(One thing to note: Cash deals are usually a good proxy for measuring investor activity, but in Las Vegas, many cash buyers

Another reason for optimism about Las Vegas’ prospects? The population is increasing faster than just about any other city in the country. Earlier this year, the Las Vegas Global Economic Alliance (LVGEA) reported that 4.9 people on average relocated to the city every hour.

Migration is a big factor. More Californians, frustrated by the high cost of living in their home state, are moving next door to Nevada. About 34 percent of the region’s new residents are people who used to live in the Golden State. The region is adding new jobs at a faster clip than the rest of the country, the LVGEA reported. For the 12 months ending in June, southern Nevada added about 28,800 jobs, representing 3 percent growth. Government and construction employers led

the way, adding 5,900 and 5,400 jobs respectively. Leisure and hospitality, of course, accounted for a solid part of the growth, too—3,200 jobs. Tourism directly supports about 25 percent of the region’s jobs, according to the Las Vegas Convention and Visitors Authority (LVCVA). Add in indirect spending, and about 40 percent of southern Nevada’s jobs are tourism-supported. A U.S. economy that is healthy overall can mean good things for Las Vegas: Last year, more than 42.2 million visitors traveled to Las Vegas, the third-highest total on record, the LVCVA said. In rough times, though, the tourism industry is particularly vulnerable to slowdowns. That’s why the region’s business and civic leaders are taking steps to diversify the economy, which already boasts technology companies like Zappos.com and Switch. Manufacturing, aerospace and logistics are all opportunities for further growth. Last year, the new University of Nevada, Las Vegas Medical School welcomed its first class of students, and officials are raising money for a $250 million building. The

“In rough times, though, the tourism industry is particularly vulnerable to slowdowns. That’s why the region’s business and civic leaders are taking steps to diversify the economy...”

state has one of the nation's lowest rates of doctors to population, and leaders believe the new program will attract more medical talent to the area. While there’s more to be done, experts say, diversification efforts are starting to deliver results. “Even if there is a slowdown,” Petersen said, “we won’t see anything like the last one.”

KEEP DIVERSIFYING, KEEP MOVING FORWARD Both Petersen and Berglund are optimistic about the region’s prospects over the next 24 to 36 months, in part because of several large projects in the construction pipeline. Those include some of the largest resorts to open since before the Great Recession.

For example, developers plan to spend about $3 billion building out The Drew, a 4,000-room hotel and resort on the Strip. The property began life as the Fontainebleau, but construction was left unfinished for years because of the recession. Once it’s operational in 2020, The Drew will add about 7,000 permanent jobs to the Las Vegas workforce. And that’s not counting the more than 3,500 people who will work on the construction. Another hotel project, Resorts World, is under construction on the Strip and should open in 2020 or 2021. The project is expected to cost north of $7 billion. The Strip is an amazing amenity for locals—there’s always world-class entertainment available—but there’s so much to do in Las Vegas that isn’t centered on the hotel and casino district.

The Raiders are building a $1.8 billion stadium complex in time for the NFL franchise’s 2020 season. The facility could also help Las Vegas attract large concert tours and special events like the Super Bowl, and help the city continue building a reputation as a major sports town. The area is already enjoying a burst of energy from its new NHL team, the Vegas Golden Knights. This spring, the Knights ended their inaugural season with a playoff run that went all the way to the Stanley Cup Finals before the team lost to the Washington Capitals. The Knights’ presence has added a $100 million payroll to the local economy and has boosted Vegas’ profile as a sports city. And the Las Vegas 51s, the city’s minor league baseball team, is getting a new $150 million stadium, which should be open for business in 2019. The Las Vegas Ballpark will be in Summerlin, one of the region’s most indemand communities and home to a popular shopping district. “Those are the kind of indicators, moving forward, that will keep diversifying and moving Vegas forward,” Berglund said. ∞

SEPTEMBER/OCTOBER 2018

LEGALÂ

PRIVATE LENDER

MORTGAGE BANKERS TURNING PROFIT AGAIN But, applications remain flat as interest rates rise. by Melissa Martorella, Esq.

he first quarter

of the year was not great for

mortgage bank-

ers. Originators struggled

to gain traction, and rising rates contributed to the

worst quarter, profit wise, since 2014.

It was only the second period in 10 years in which independent

mortgage banks and mortgage subsidiaries of chartered banks reported losses on the Mortgage Bankers Association’s Quarterly Mortgage Bankers Performance Report. After a rocky start, however, the Mortgage Bankers Association (MBA) reports that lenders are once again seeing significant profits. Their data indi-

cates that mortgage bankers are showing a net gain of $580 on each origination in the second quarter, versus a $118 per loan loss in the first quarter. The only other loss was reported in 2014, when the average loss was $194 per loan origination. “After a feeble start to the year, production profitability improved in the second quarter as volume picked up from the spring home buying season,” said Marina Walsh, MBA vice president of industry analysis. “But profits were down on a year-over-year basis and fell below typical second quarter results.” According to Walsh, measured in basis points, the pre-tax net product income hit the lowest level for any second quarter since record-keeping began in 2008. The first quarter of 2018 saw a net production loss of eight basis points on each loan, with the second quarter rebounding and showing 21 basis points per deal, a 29-point swing. However, that production is still down from the 24 basis points profit realized in the second quarter of 2017. Origination volume increased to $531 million per company, thanks in part to a hot spring buying season. That was up from $450 million in the first quarter of the year. That

amount equaled 2,180 loans per company, up from 1,866 loans in the first quarter. One aspect of the increased profitability is lowered expenses. After a dismal first quarter, many mortgage lenders worked to reduce costs, successfully bringing them down by more than $1,000 per loan. MBA estimates for production volume in the second quarter were higher compared to the first quarter in 2018. Walsh said it is apparent that mortgage lenders responded to first quarter losses by lowering their expenses. “However, production revenues declined as competition for loans stiffened, negating a portion of these cost-cutting efforts,” she added. Personnel expenses averaged $5,195 per loan, compared to $5,899 the previous quarter. Productivity increased to 2.1 originations per production employee per month. This is up from the 1.9 originations seen in the first quarter of the year. A production employee is defined as sales, fulfillment and production support personnel. The study shows that total loan product expenses, including commissions, compensation, occupancy, equipment, and other costs and corporate allocation decreased to $7,877 per loan in the second quarter. This cost is down from a high of $8,957 per

SEPTEMBER/OCTOBER 2018

LEGAL

loan in the first quarter of the year. The high was extreme, compared to the historical average of $6,266 per loan. Another interesting statistic is how the purchase share of total loan originations increased. The MBA’s Quarterly Mortgage Bankers Performance Report indicated that the purchase share, in dollar volume, rose to 81 percent in the first quarter of the year. This is the highest level since the study began in the third quarter of 2008.

Rising home prices continue to push up dollar volume totals. The report shows that for the second quarter, the average loan balance for a first mortgage reached a study high of $255,136, up from the $249,041 seen during the first quarter of the year. A total of 77 percent of the mortgage bankers polled for the study posted pre-tax net financial profits during the second quarter, up 17 percent over the previous quarter.

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ORIGINATIONS STILL SLUMPING While the Federal Reserve has raised short-term lending rates, mortgage rates have remained amazingly resilient. However, the recent indication from the Fed that they will continue incremental rate increases is starting to take its toll. Mortgage interest rates are climbing to recent highs, and the effect on home affordability and origination volume is apparent. Although the demand for housing is high, this pursuit of homeownership does not seem to be translating into more applications.

AFFORDABILITY A FACTOR The combination of high home prices and rising rates are putting new and first-time homebuyers in a sour mood. Sales of new U.S. homes fell 5.3 percent in June, and the median sales price also dropped—an indication that housing prices may be flattening out. The median sales price is down 4.2 percent from a year ago,

dropping to $302,100, while the proportion of homes selling in the $200,000 to $299,000 range has increased. The Commerce Department reported last week that total new homes sold at a seasonally adjusted annual rate of 631,000 in July, down from 666,000 seen in May. Although the total volume of newly-built homes is down, new home sales have risen 6.9 percent in 2018. Even as home prices are decelerating slightly,

ABOUT THE AUTHOR

MELISSA MARTORELLA, ESQ. Melissa Martorella joined

Geraci Law Firm as an asso-

ciate attorney in the banking

and finance section in August

2015. Her experience includes representing lenders and brokers, preparing commercial,

residential, and construction loan documents, as well

as drafting assignments,

extensions, modifications and subordination agreements. She also has experience

they continue to grow faster than household incomes in most markets.

RISING RATES AFFECT REFINANCE APPLICATIONS According to the MBAâ&#x20AC;&#x2122;s seasonally adjusted index, mortgage volume for the week ending Sept. 2, was little changed, only dropping 0.1 percent over the previous week. However, total loan volume is down 18 percent from last year.

As interest rates climb, refinancing is becoming less affordable for homeowners who took advantage of the low rates last year. Refinance applications fell 1 percent for the week and are off 37 percent from last year. The average loan rate for a 30-year fixed-rate conventional mortgage increased to 4.80 percent from 4.78 percent the previous week. For conventional loans with 20 percent down payments, origination points decreased from 0.46 to 0.42 percent. Last year, the rates on similar loans stood at a little over 4 percent.

Strong economic data continues to fuel higher Treasury yields, which will drive mortgage rates upward in the near term. More economic data are expected to be released in the coming weeks that could further affect the mortgage and housing markets.

assisting with negotiating the

terms of transactions, drafting custom language and closing

loans. Martorella has prepared loan documents for transac-

tions all over the country and adheres to the compliance of state-specific laws.

Stay tuned. â&#x2C6;&#x17E;

SEPTEMBER/OCTOBER 2018

BUSINESS STR ATEGYÂ

PRIVATE LENDER

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LENDER LIMELIGHTÂ WITH TABITHA FITZGER ALD

Always Up for a Challenge b y Laura Chalk

I N V I G O R AT E D BY H E R WO R K , TA B I T H A F I T Z G E R A L D H A S B E CO M E A PA S S I O N AT E F O R C E I N T H E P R I VAT E L E N D I N G I N D U S T RY.

SEPTEMBER/OCTOBER 2018

LENDER LIMELIGHTÂ WITH TABITHA FITZGER ALD

PRIVATE LENDER

Tabitha Fitzgerald, COO of Specialty Lending Group, is a force in the private lending industry. Her natural drive, competitive spirit, creativity and compassion are on display not only during her interactions with her peers, her team and her clients but also as she throws herself into her favorite pastimes and philanthropic endeavors. Fitzgerald landed in the mortgage and real estate finance sector after spending eight years in the printing industry, where she held accounting and management positions. Looking for a new arena where she could put her skills to work, she answered an employment ad for a local mortgage lender who was seeking a financial assistant. She applied, got the job and didnâ&#x20AC;&#x2122;t look back. She eventually worked her way to vice president overseeing loan production and compliance at iWantaLowRate.com and then joined Specialty Lending Group when Jeffrey Levin formed it in 2007. She agreed with Levin that there was a huge opportunity in the private lending space, was excited about building a company from the ground up and being part of a new way of thinking about lending and real estate. Private Lender by AAPL caught up with Fitzgerald to find out more about what drives her success.

SEPTEMBER/OCTOBER 2018

LENDER LIMELIGHT WITH TABITHA FITZGER ALD

What keeps you excited about the real estate and lending industries?

I stay so passionate and engaged because the real estate and lending industries have so many facets. No matter how much you think you know about either, a new loan or property will come along and pose a new issue or challenge. There is always something new to learn. With each new borrower, property and project comes an opportunity to structure lending that makes sense and, ultimately, makes money for borrowers and investors, as well as for the company. What do you love about your current team? In our fast-moving lending environment, I love that my team is agile and always ready to respond to customer and investor

PRIVATE LENDER

needs. In our space, responsiveness and accuracy can mean the difference between success and failure. Our team is incredibly focused on making sure we deliver results at the speed required, whether we’re working on new loans, servicing loans or on loan pool sales. The team is focused on getting results for our borrowers and those who place their capital in our hands. The team members are genuinely supportive of each other and willing to pitch in to get the job done. I feel lucky to work with them each day. What do you find most rewarding about being COO of SLG? It’s exciting to have a hand in day-to-day operations while also being able to step back as a strategist and help envision and build the future of the company. As the COO, I’m able to collaborate with Jeff on the larger vision for the company, and then create and implement tactical and management strategies for achieving success. I also really enjoy mentoring SLG’s staff and building up a high-functioning team that can grow and scale our operations.

"I STILL LIKE TO THINK OF MYSELF AS A WO R K- I N P R O G R E S S ."

Tell us about a challenge you experienced in your career and how you overcame it. Becoming COO presented a challenge, albeit a rewarding one. I still like to think of myself as a work-in-progress. I began in a much more hands-on capacity with the company, executing almost every aspect of the work myself. It’s been a learning process for me to delegate, trust in the team and allow the work to grow beyond the point where I could touch all of it myself. I’ve been incredibly fortunate to have had a lot of support and resources: a CEO who trusts and has confidence in me, two mentors in the lending business who have helped me grow as a leader and a coach who provides insight, perspective and sound advice. I’ve also connected with other leaders who provide inspiration. All provide confidence and wisdom, and all have helped me see that you

cannot move forward if you are still holding on to everything. So now, I embrace the philosophy of trusting in the team and “Let go and grow.” How do you keep up to date with news that affects the industry? I’m always reading and talking with people in the industry locally. The Washington Business Journal, national lending publications, and Private Lender are some of the resources I turn to, in addition to webinars, real estate and lending conferences and networking. I also find links to valuable news on lending websites. What’s your advice for someone starting out in the industry? Take the time to learn as many aspects of the industry as possible, even if you’re only interested in one facet. The knowledge you gain can only benefit your career. Network. Attend as many industry conferences as you can and become a member of industry organizations. Lastly, trust but verify everything, always.

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LENDER LIMELIGHT WITH TABITHA FITZGER ALD

Do you have a favorite book or movie? “Shawshank Redemption” is my favorite movie. It reminds me that life doesn’t always turn out the way you think it will, or the way it should. You can dig yourself out of, and through, anything you believe you can, but you have to “Get busy living or get busy dying.” “Where the Sidewalk Ends” by Shel Silverstein is my favorite book. It sparked my interest in poetry, which grew somehow into a love for the theater. We did a little Facebook stalking and saw your jaw-dropping, betterthan-bakery cakes that you provide for weddings, baby showers and other events. How long have you been making cakes, and do you have any other creative outlets? Baking and cooking have always been a passion for me. As long as I can remember, I

was underfoot in the kitchen, curious and wanting to help. Mama never could have known where letting me bake my first cake at 8 years old would lead! Ten years later, my cousin knew I loved to bake and asked me to make a Power Rangers cake for her son’s birthday. I had never made a cake look like anything before and had no idea how to do it, but was excited by the challenge, so I decided to try. From then on, I was the “cake lady” for my family. As time went on, my friends started asking me to make cakes for their celebrations. And from those events, people would ask for cakes, and so it began. I love the creative outlet that making cakes brings to my life, and I also love the challenge that every cake brings. I’m not formally trained. Cooking and creating new recipes or putting a spin on old favorites is another creative outlet. Making people happy with food I make makes me happy. I also enjoy crafts and DIY projects. It’s nice to look around my home and see things that are unique and either made or improved by my hands.

Select one: A) I am a rabid sports fan. B) I am a somewhat-engaged sports fan who occasionally and casually watches games. C) Sports? Nah. Definitely a rabid sports fan! I am competitive and believe in teamwork, so I guess sports speak to those personality

PRIVATE LENDER

traits in me. I have always played sports, from tee ball when I was very young to softball while growing up and cheerleading in high school. These days, I’m in a kickball league in the spring and fall. On occasion, I’ve been known to throw a pretty mean cornhole game as well. I like staying active and keeping fit. Partici-

pating in sports is a great way to do that without the monotony of the gym every day. You support several philanthropic causes. Tell us why they are important to you. I love the opportunity to make an impact through

philanthropy, and most of the cakes I have made have been in exchange for a donation to charity. I’m an animal lover, and the Senior Dog Sanctuary in Severn, Maryland, is very special to me. I love what this charity provides for dogs that are no longer cared for by their

owners and for those that have been abused or neglected. Their program and services are focused on fostering and medical care for these dogs while looking to find a permanent home for them. I am also a “Partner in Hope” with St. Jude’s Children’s Research Hospital. A sick child

is stressful and heartbreaking for parents and families, not to mention worrying about the cost of care. St. Jude’s research and treatment are some of the best in the country, and their staff have been recognized as some of the best in their field. And, families do not have to worry about paying a bill.

SEPTEMBER/OCTOBER 2018

LENDER LIMELIGHT WITH TABITHA FITZGER ALD

Which women inspire you? Women with a clear point of view. Women who can engage others by painting a picture of what might be. Women who learn from their failures and get back up swinging. Women who help and encourage others professionally, especially other women, either through mentoring, teaching, simply listening or being supportive.

What advice would you give to young women entering a male-dominated profession? Be comfortable in your own skin and find your “voice.” If you are not being heard, speak louder. Sometimes, in this male-dominated profession, it’s all too easy to fade to the back of the room, or to sit quietly through a conference call or meeting. Don’t. Be present; be a part of the conversation; be heard. Know who you are.

Someone who believed in me, and still does, would give me that advice when I was struggling. I repeated those words in my head and the struggle would pass. To this day, I still repeat those words to myself when I feel eclipsed in this very male-dominated profession. ∞

ABOUT THE AUTHOR

LAURA CHALK Laura Chalk is public

relations manager for Affinity Worldwide.

She can be reached at

(816) 398-4111, ext. 86172 or

lchalk@affinityworldwide.com.

KNOW YOUR SANDBOX... THEN EXPAND IT

Continuing to add

NEW MARKETS IN 2018

PRIVATE LENDER

SEPTEMBER/OCTOBER 2018

CASE STUDYÂ MARQUEE PROJECT

MARQUEE PROJECT Investment in Las Vegas theatre development was a top performer for private lending firm.

Project // Eclipse Theatre Financer // Enact Partners Location // Downtown Las Vegas, Nevada Architecture Style // Upscale, concierge-style,

three-story modern theater

Loan Amount // $7,500,000

PRIVATE LENDER

LTV // Started at 11% and peaked at project completion at approximately 42% Credit Score Considered // Yes Borrower Experience Level // Borrower is an experienced

Las Vegas developer and sophisticated financier

Interest Rate // 12.99% Length of Loan // 30 months

f you are a private lender, you know that creativity

is the cornerstone

to getting complex construction projects done

(safely). Sometimes, even

seemingly simple projects turn out to be wildly com-

plex. Private money lending

is arguably one of the most influential contributors to completing private, ground-up construction projects. One of the most influential and recent redevelopment projects in downtown Las Vegas is Eclipse Theater, which was a new construction project. Construction of this ambitious ground-up development started in 2015. It opened in fall 2017. The developer was the theater operator. The financer was Enact Partners, a privatemoney lending firm based in Carlsbad, California. Eclipse is an upscale, conciergestyle, three-story, 72,889-squarefoot luxury theater on a .8-acre parcel located just blocks from Fremont Street. The movie theater includes a restaurant, retail space and parking garage on the first floor; eight theaters on the second floor; and offices and a VIP private screening room on the third floor. Access from the first floor to the two floors above is provided by two elevators located in the main lobby area.

SUMMARY OF OPPORTUNITY Because it is located in a redevelopment area of Las Vegas rather than in a trendy area such as New York City or San Francisco, the project took some creative financing before any movie tickets could be sold or popcorn could be popped. One of the opportunities for financing was New Market Tax Credits (NMTC), a competitive incentive program designed to provide capital to areas targeted for revitalization. The project qualified for $10.2 million in NMTC, which equaled approximately 50 percent of the total project costs. Once the borrower received the funds, they were held in a fund control account and were released as construction progressed. The final piece of financing was a private money loan, which was deployed last but was senior to the rest of the capital stack. As you can imagine, each draw was approved by all financial stakeholders. This process took tremendous coordination and cooperation from each financing agency. The lenders sold their note to a note purchaser in 2017. â&#x2C6;&#x17E;

SEPTEMBER/OCTOBER 2018

MANAGE & LEAD

USING SOCIAL MEDIA CAN CREATE COSTLY SELF-INFLICTED CRISES How to stop “un-selling” yourself and your business through your online platforms.

PRIVATE LENDER

by Chrissey Breault

Un-selling is the opposite of selling. It’s not good. Stop un-selling, people. Stop it!

It would be easy to stop right there. Instead, we are going to look at why a major television network canceled a hugely popular television series reboot that drew close to 25 million viewers each week—and discover what you can learn from it. ABC canceled the “Roseanne” show in May. Not because it wasn’t selling or because it wasn’t a moneymaker. Quite the contrary. The network was pumping money into production and marketing. The stars were earning huge salaries. Writing and production jobs were plentiful. So, what happened? Rosanne Barr, the title character, made an unwise decision to tweet something racist. In a nanosecond, everything the show had going for it disappeared via the following tweet: “muslim brotherhood & planet of the apes had a baby-vj.” ”VJ” was widely believed to be Valerie Jarret, a former senior adviser to President Barack Obama.

Before you could finish snapping your fingers, the revenue disappeared. The jobs disappeared.

earn before the crisis. Those days are gone.

Are you wondering what the heck any of this has to do with you or your business? As is true of too many companies, the crisis was self-inflicted. Self-inflicted crises are acts of “un-selling.”

Every organization is vulnerable to un-selling, whether it starts with yours or an employee’s post, or with a third party who captures a bad situation on video and shares it with the world.

Organizations can no longer defend themselves against these types of situations. Admitting defeat and closing shop often turns out to be more cost-effective than fighting a controversy and its fallout. It’s astonishing that more than a decade after Facebook and Twitter made their debut, so many people and companies still seem (and act) oblivious to the consequences. No one is safe—not even a mega celebrity whose brand is already controversial and who has said many things in her comedy routines that offend a wide variety of people. There was a time when a major network like ABC would experience a similar crisis, hunker down with lawyers and public relations professionals for a few days or weeks and then estimate how much money they would lose if they were to cancel a show. They would compare that number to the revenues they had expected to

These days, decisions are swift, brutal and costly.

Getting ahead of un-selling requires crisis planning and training.

PLAN, PRACTICE AND STOP UN-SELLING It doesn’t matter what industry you are in, or how popular you are. Sometimes, un-selling just happens. Sometimes, un-selling is more than a slip of the tongue—it might also be a faulty product, poor service or a misguided ad campaign. Whatever the case, you need to be prepared. So, here is a step-by-step guide to get ready. Make sure you’ve done everything you need before disaster strikes.

HOW TO PREPARE

each with a dedicated role. The group should be a good mix of executive personnel, management, communication professionals and creatives. A lawyer probably helps, too. Make sure each person understands their role while you have time to plan.

02 D efine “a crisis” // Decide

the kinds of events that would kick your new plan into action. Not every piece of bad news or negative heading should force you to run around in “code red” mode. According to Jay Baer, founder of Convince & Convert, a social media crisis has these characteristics: Information asymmetry //

When you don’t know any more than the public about what’s happening.

A change from the

norm // Everyday criti-

cism of your service or product is not a crisis. When furor over your service or products explode at random— that’s a crisis.

01 G et your team together // Put together a group of responsible responders,

SEPTEMBER/OCTOBER 2018

MANAGE & LEAD

S erious risk to your

organization // It seems

obvious, but the scope of the issue is important. For something to be a crisis, it needs to have a truly negative effect. With your new team, set benchmarks and find examples of what qualifies as a crisis. An added benefit is that you’ll identify potential weaknesses you may not have thought about otherwise.

PRIVATE LENDER

Since every organization is different, create a definition that works for you.

03 Identify your key

message // You can create a

great crisis plan and a smart team, but if the message is wrong, you have no chance.

United Airline’s CEO Oscar Munoz offered the worst possible response to the airline’s public relations disaster: He blamed the victim who was dragged off one of their

overbooked flights from Chicago’s O’Hare International Airport. This should go without saying: Victim blaming is the wrong message! Could Munoz have been prepared to respond without knowing a 69-year old man would be dragged off a flight? The answer is very simple: Yes. All Munoz and his team needed to do was establish a company core value state-

ment and a customer value proposition. That statement should be central to any actions taken during a tough situation. When you are in crisis communication mode, things will be moving a mile a minute. You won’t be able to monitor everything every company representative or social media manager says and posts. What you can ensure is that they convey the most

important information. If you remind your customers why they came to you in the first place, you have a far better chance of keeping them around. You can stop the un-selling.

02 Publicly acknowledge

what’s happening // You

won’t be able to hide for long, especially on social media. Make clear that you know there’s a problem and you’re working to fix it. An honest acknowledgement may still get some angry responses, but it should buy some time.

04 C reate communication

guidelines // Once you’re

clear on the basic messaging, decide how to deliver it. Create guidelines so anyone writing social media posts knows what’s expected of them.

Here are some guidelines: D etermine rules for

communicating with key stakeholders and executives.

S et network-specific guidelines for com-

municating on social

media (since you’ll have different content and

format considerations for each platform).

Decide on a process for

communicating updates through websites and other organization

channels not covered by social media.

For employees not

on the crisis commu-

nications team, create guidelines advising

them how to respond to inquiries. Don’t forget the training!

To ensure you’re even more prepared, create some basic templates. By preparing those now, you’re more likely to be effective when a crisis does break.

05 M onitor updates // In Jay

Baer’s words, “buy some binoculars.” Get a monitoring tool that will help you figure out what’s being said about you or your company, and where it’s coming from. If you have a social media manager, that person should be skilled and reporting to you regularly already.

If you’re trying to track everything happening on social media without using a listening tool, good luck.

DURING A CRISIS Get it under control. Determine how you’re to use your plan when the going gets tough.

01 Pause your scheduled posts // With a panic

breaking out around you, it’s easy to forget that you have a full social queue. You can’t afford to accidentally post “Happy National Freedom Day” when your CEO was just arrested for fraud, for example.

The middle of a looming crisis is not the time to say, “No comment.” The phrase suggests a lack of candor, conveys a sense of secrecy and suggests you know something you’re either not willing or not allowed to share.

03 I nform your team // You

didn’t put your crack squad together for nothing! Contact your team quickly so they can get to work. If you respond quickly, you may be able to lessen the harm overall.

04 Post a long-form response on your website // You’ll

be sending plenty of small, individual social media responses. You will also need one official place where reporters and bloggers can find your side of the story.

SEPTEMBER/OCTOBER 2018

MANAGE & LEAD

Posting this response will also buy you time. When people want answers and want them right now, you’ll have a place to send them while you work on more important matters. Once last piece of advice: Do not lose your cool—ever.

AFTER A CRISIS

Key questions to ask: W hat will your KPIs for successful crisis management be?

H ow will you measure

the negative conversation generated?

H ow will you measure impact on overall

brand sentiment? H ow will you measure

01 M easure brand impact //

Use your monitoring tools to review the data showing what a normal business week looks like compared to the crisis week. You’ll quickly see just how bad things got. From a social media perspective, focus on factors such as lost followers, specific complaints and negative sentiment. You’ll also be able to see where your response was most effective. You might find that one Facebook post reached more people and was more widely shared than several Twitter responses to specific individuals. These insights will help you plan better for the future.

overall brand impact of the crisis over time?

02 Response reflection //

Once it looks like you’re out of hot water, it’s important to review your response. Regroup after the event and discuss how it went. This is most commonly referred to as the After-Action-Report, or AAR. Key questions to work through: W hat were the strongest aspects of your crisis plan?

W here was the existing strategy unhelpful or less impactful?

S hould any processes or templates be revised?

D o you need to create any new systems or guidelines?

PRIVATE LENDER

Talk about the different experiences of management, administration and customer support staff. Did everyone feel ready to respond? What other resources would have been helpful?

ABOUT THE AUTHOR

03 Prepare for the long term //

Unfortunately, negative news and complaints linger far longer than a week or two.

CHRISSEY BREAULT

Decide what your response will look like moving forward. It isn’t a good idea to act like everything is back to being sunshine and rainbows. Instead, proactively offer updates and solutions to help those you serve get through a tough time.

Chrissey Breault is the

Two big questions to ask:

the hospitality industry

H ow will you manage (or participate in) the

long-term conversation about the crisis?

D o you need to provide continual updates

long-term to any of your audiences?

04 Update your crisis man-

agement plan // The last

step is to revisit everything above. Hopefully, you won’t get another opportunity to put the plan to work any time soon, so this is the time to make changes.

Now, you are ready for anything. ∞

director of marketing and member services for the

American Association of Private Lenders (AAPL). Before joining AAPL,

Chrissey worked in county

government as a communications expert. Her more than

15 years in communications and marketing started in with Hilton and Marriot

brands. For more than seven years, Chrissey managed

midmarket hotels along the East Coast and the Deep

South. She holds an associate degree in hospitality and

travel from Bradford School in Pittsburgh, Pennsylvania, and holds certifications in Adobe Web Design and volunteer management.

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Call Go Media today for a free consultation (470) 878-2000 or visit us online at www.TryGoMedia.com SEPTEMBER/OCTOBER 2018

IR A APPROACH

Private Lending with a SelfDirected IRA Answers to your common questions. by Clay Malcolm

Do you originate private loans but harbor other goals for your long-term financial security? Is your retirement account enduring the ebb and flow of the stock market, without a clear indication of where it’s heading next? You may be able to address both concerns by bringing your proven private lending strategy to a self-directed individual retirement account (IRA).

Maybe you have a stockbroker who doesn’t want to lose commissions when you shift your retirement accounts to alternative assets. Or, maybe you are simply unaware of your full spectrum of options. In either case, alternative investment options have been allowed in retirement plans for a long time. Some investors may be wellversed in their business but may not think it’s feasible to translate their day-to-day income strategies into a retirement plan. That’s not the case. Many of the false assumptions surrounding self-directed investing have been undone by service and education-based

IRA providers who have created a framework for success. Knowledge is power when it comes to IRA investing. Stocks, mutual funds and exchangetraded funds (ETFs) can seem relatively straightforward, but the engines that drive their price movements can be difficult to interpret. Conversely, alternative assets may seem complicated, but you get to be the driving force behind your profits. That’s where private lenders can enjoy a distinct advantage. You’ve already mastered the private lending practice; you just need to know how to put that knowledge to work for your long-term financial vision. Let’s discuss some common questions you may have about private lending with a selfdirected IRA.

PRIVATE LENDER

HOW DOES IT WORK? You can add private notes to your self-directed retirement strategy through a simple three-step process:

STEP 1

STEP 2

OPEN A SELF-DIRECTED IRA.

FUND YOUR NEW IRA.

Plenty of financial institutions

your other retirement

but few allow their clients

C ontact your new IRA

administer retirement plans, to utilize alternative assets like real estate, private

equity or private loans. As

such, youâ&#x20AC;&#x2122;ll want to research

IRA providers that specialize in these investments and

establish a new self-directed account with the one that suits your needs.

To consolidate funds from accounts, you may:

funds between dissimilar

account types with the same

tax statuses, such as a pre-tax 401(k) to a traditional IRA).

Make a contribution (deposit) of your personal funds.

provider to initiate a

STEP 3

funds between like account

ISSUE THE LOAN.

transfer (a movement of

types, such as traditional IRA to traditional IRA).

Contact your current plan administrator to initiate a rollover (a movement of

Once your account is funded,

you may coordinate with your

IRA provider and your borrowers to originate private loans with your retirement dollars.

SEPTEMBER/OCTOBER 2018

IR A APPROACH

HOW INVOLVED WILL I BE IN THE LENDING PROCESS? The beauty of self-directed investing lies in your ability to stay involved in whatever capacity you deem necessary. You’re under no obligation to hire third-party servicers for your IRA-owned note. You may still qualify your potential borrowers, agree on all applicable terms (durations, interest rates, etc.) and prepare the loan documentation as if you were lending your non-IRA money. Once your IRA money has been issued to fulfill the loan, all subsequent payments received from the borrower must be forwarded to your IRA provider for proper deposit into your account. It will be important to maintain separation between your retirement money and your nonretirement money.

CAN I ISSUE SECURED LOANS WITH MY IRA? Yes, an IRA-owned note can be secured with collateral, just like any other. If your borrower

PRIVATE LENDER

defaults on the loan, whatever he or she offered as security will become the tangible property of your account. In these instances, it may be helpful to know that collectibles are on the short list of assets that you may not hold in a self-directed retirement plan. You may accept a collectible as collateral for a loan that your IRA owns, but the asset would have to be liquidated so that your IRA could receive cash. Other allowable property like real estate could be held in kind, if you so choose. Precious metals somewhat walk the line between IRA-eligible and collectible, but physical coins and bullion are allowed, in most cases. If the items in question meet purity requirements set forth by the IRS (Gold = 99.5%, Silver = 99.9%, Platinum and Palladium = 99.95%), your IRA may accept them as collateral and receive them without liquidation. Gold American Eagle coins do not meet the 99.5 percent requirement, but they’re allowed in retirement plans through a special IRS exception. Older coins with high collectible value or other items that fail to meet their respective purity minimums would have to be sold before deposit into your IRA.

“The beauty of self-directed investing lies in your ability to stay involved in whatever capacity you deem necessary. ”

WILL THE DOCUMENTATION BE THE SAME? Loan documentation—as well as any supplemental security documentation—for an IRAowned note will largely resemble that of a non-IRA transaction, except that the titling and signatures must reflect ownership by your account and not by you personally. Wherever you would provide your name, you would instead provide the “name” of your IRA. For example, if your name is Jane Doe and your Roth IRA is originating the loan, you would print the following name in any requested locations: “Example IRA Provider, Inc. FBO [for benefit of ] Jane Doe Roth IRA #1xxxx.” You will not provide your personal signature in locations you otherwise would. An autho-

rized representative from your IRA provider, as the entity that maintains custody over your IRA, will sign in your place. To communicate your approval of the investment, you will write “Read and Approved” in the margins of every page and provide your signatures next to each inscription. Apart from these titling considerations, any documents inherent to the IRA loan origination process should remain consistent with any others you may encounter in the private lending industry.

CAN I LEND TO ANYONE I WANT? For the most part, your selfdirected IRA may issue loans to anyone of your choosing;

however, the IRS has made several key exceptions: You, as the account holder,

may not derive direct financial benefit from or provide

aunts or uncles, as well as non-disqualified friends

and business partners, are

all able to conduct business with your IRA.

direct financial benefit

F iduciaries to your account

self-directed account.

may not interact with your

to the assets held in your E qually disqualified persons

(such as your IRA provider)

account apart from carrying

include your spouse, lineal

out their designated roles

(parents, children, grand-

Issuing a loan of your IRA funds to any disqualified person is regarded as a prohibited transaction by the IRS and may result in the forcible distribu-

members of your family tree parents, grandchildren, etc.) and their spouses.

Non-lineal family mem-

bers like cousins, siblings,

and duties.

tion of the asset or your entire account, either of which may result in taxes or penalties. Keep in mind that your IRA can do business with other IRAs and that one’s qualified status will reflect on his or her account. In other words, your IRA could not engage in a lending or credit relationship with your spouse’s IRA, as your spouse is a disqualified person. Everything else is fair game. For instance, if your friend needs money to finance a real estate investment with his or her self-directed retire-

ment plan, your IRA can loan money to its tax-advantaged counterpart on a non-recourse basis (meaning the IRA-owned property—and not the personal cash or assets of your friend— would be available as collateral on the note).

HOW DO DISTRIBUTIONS/ WITHDRAWALS WORK? Although retirement plans are designed to remain intact for the long haul, you’re certainly able to withdraw emergency

8% - 10% interest rate

2325 East 14th Suite 202 Brooklyn NY 11235

SEPTEMBER/OCTOBER 2018

IR A APPROACH

ABOUT THE AUTHOR

CLAY MALCOLM Clay Malcolm is the chief

development officer at New Direction IRA Inc., a self-

directed IRA provider that

assists nearly 17,000 clients across the U.S. He oversees

most avenues of marketing,

funds in a pinch. You’ll need to contact your IRA provider to request a distribution and await receipt of the funds. Depending on the provider, that shouldn’t take longer than a day or two if you request a wire or ACH. You could even request an in-kind distribution of an IRA-owned note, in which case the current fair market value of the asset (which would be the remaining due balance on the loan) would be reported as income. You could then begin collecting payments on the remaining balance as if you originated the transaction with non-IRA funds. Distributions may carry tax or penalty consequences, depending on your age and your account

PRIVATE LENDER

type. For example, if you’re age 59 ½ or older, your Roth IRA has been open for at least five years (the clock starts on the date of your first contribution) and your IRA-owned notes have produced positive cash returns, you may withdraw those earnings taxand penalty-free at any time and for any reason. On the other hand, distributions from a traditional IRA will be taxed as income. If you’re under age 59 ½, an additional 10 percent penalty on the distribution value will apply as well. Consult with your IRA provider for a complete understanding of your account and the possible ramifications of premature distributions. You may also want to speak with an accountant or tax attorney, as the IRS may waive early distribution penalties

under special circumstances (like making a down payment on your first home).

teaches continuing profes-

A contingent of account holders will have to begin taking withdrawals once they reach a certain age. Regular income from loan payments can bring relative ease to this process. Pretax account holders (traditional IRA, SEP IRA, SIMPLE IRA, etc.) who reach age 70 ½ must initiate annual required minimum distributions in accordance with their prior year’s account values and their ages. Steady cash flow can help maintain a pool of money from which such account holders can easily draw when the time comes. ∞

business development and

sional education and informal classes and webinars, and facilitates the training of

client relations teams. Malcolm has more than 20 years’

management experience in

various roles and draws upon his teaching background to impart knowledge about

self-directed IRAs to current and prospective clients.

Malcolm received his bachelor of science degree in

communications from

Northwestern University.

newdirectionira.com/education.

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SEPTEMBER/OCTOBER 2018

ALTERNATIVE ANGLE

What the Future Holds for Private Lenders How will competition affect the sector? by Robert Greenberg

rivate lending is more competitive than ever,

and that’s good

news for real estate investors. Why? There are far

more choices where one can obtain financing today compared to five years ago.

Lenders operating in this hypercompetitive marketplace must be on their toes and offer fast and innovative products— or risk losing market share to a nimbler competitor.

PRIVATE LENDER

Private lenders are no longer only geographically-based hard money lenders, although that certainly remains a significant part of the private lending marketplace. Over the past five to six years, the private lending sector has expanded, adding a variety of national online peerto-peer lending platforms, many with institutional backing.

tremendous growth in fix-andflip and buy-and-hold residential real estate investing. These resources have also increased interest from full-time investors as well as non-real-estate professionals looking to diversify their portfolios. So, what’s in store for private lenders through the remainder of the year and into 2019?

MODERATING HOUSING MARKET

New capital in the alternative private lending space has served to raise private lending’s profile over a period that has seen

Insight into the future of private lending can be drawn by looking at the state of the current housing market and where

Since the housing market bottomed out in 2012, home prices have risen sharply over a six-year period amid tight

it is headed, along with a long view of the economy. Finally, it’s always important to gauge the health and the competitiveness of the private lending sector and the mortgage market as a whole.

inventories. Now, some housing and mortgage experts believe the market may be in store for a cool down, or possibly a sharp price correction. “The housing market today has too much highly leveraged demand from investors and buyers chasing available supply,” according to Lynn Fisher, Edward Pinto and Paul Kupiec, in an opinion piece in The Hill. “As a result, real home prices have increased 25 percent since the early 2012 low, a pattern

mirroring the early years of the last price boom. So long as this price boom continues, the risk of a serious correction increases.” Fisher and Pinto are the directors of the Center on Housing Markets and Finance at the American Enterprise Institute. Paul Kupiec is a resident scholar there.

begin sometime in 2020, with monetary or trade policy as the tipping point. The expectations for the timing of the next recession are in line with a prior survey of the same panel, published in August 2017, when experts said there was a 73 percent probability of a recession by the end of 2020.

Zillow made headlines in mid2018 when it released a report saying that almost half the economic experts it surveyed expect the next recession to

Since then, a variety of subtle statistics indicate the housing market may be cooling. First is home price data. While still rising, prices are beginning to

moderate. Certainly, some price moderation could be viewed as a positive for a healthy housing market where affordability issues have priced some would-be homebuyers and would-be investors out of the market. Home prices in June were up 0.2 percent over May, according to the Federal Housing Finance Agency’s most recent House Price Index. For the second quarter, prices were up 1.1 percent over the previous quarter—the slowest pace in four years. They

SEPTEMBER/OCTOBER 2018

ALTERNATIVE ANGLE

were up 6.5 percent from the year-ago period. Next, let’s look at inventory and sales. Existing home sales subsided for the fourth straight month in July to their slowest pace in more than two years, according to the National Association of Realtors. At the same time, the supply of homes in the second quarter rose at three times the rate of last year, according to Trulia. Large institutional real estate investors were credited with lifting housing off the floor in 2012 when they swooped in to buy up foreclosed homes at rock bottom prices and turn them into single-family rentals. Their actions reduced huge backlogs of inventory that were suppressing prices. We’ve seen these buy-tohold institutional investors pull back from the market over the past three to four years as the availability of distressed housing at discounted prices declined. Although institutional interest has leveled off, interest in singlefamily housing acquisitions among small, midsized and regional real estate investors remains high. ATTOM Data Solution’s most recent statistics bear this out: Home-flipping hit a six-year high during 2018’s first quarter. Concerns about a cooling housing market may also weed out

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real estate hobbyists and thus lessen the competition for housing stock for experienced investors who are well-equipped to handle the correction. In the latest data available at press time, the 48,457 homes flipped in the first quarter represented 6.9 percent of all home sales during the quarter, up from 5.9 percent in the previous quarter and unchanged from a year ago—matching the highest home flipping rate since the first quarter of 2012.

“IBUYERS” ADD ELEMENT OF COMPETITION Several new venture-backed “iBuyers” have entered the fix-and-flip market and have grown rapidly. Companies such as Opendoor, Offerpad and, more recently, Bungalo, allow consumers to buy or sell homes in a digital transaction without a traditional realtor. These firms provide a new and different type of competition for private lenders and real estate investors. In May, Phoenix-based Offerpad secured $150 million in funding, and it has raised more than $410 million in equity and debt in less than two years. Based on current monthly volume, OfferPad is projected to purchase and sell more than $1.5 billion of single-family homes over the next year, according to Forbes.

“Concerns about a cooling housing market may also weed out real estate hobbyists and thus lessen the competition for housing stock for experienced investors who are well-equipped to handle the correction.”

Opendoor, the first iBuyer to launch a platform in 2014, nabbed a $325 million “megaround” round of funding in June, according to Pymts.com. Opendoor is looking to spend $2.5 billion to purchase homes over the next year or so. Bungalo, a newer entrant, is financed by Amherst Residential, one of the nation’s first large investors of single-family rentals back in 2009. Even Zillow, which built an online platform that caters to realtors and consumers, is testing a direct-buy digital program in a couple of markets.

WHAT PRIVATE LENDERS CAN EXPECT The good news for private lenders is that more real estate

investors than ever are financing their flips. In addition, institutional investors are interested in placing capital into alternative origination platforms. Homes flipped in Q1 2018 that were originally purchased with financing by the home flipper represented 35.7 percent of all homes flipped during the quarter, up from 35.3 percent in the previous quarter and up from 33.5 percent a year ago to the highest level since Q3 2008— a nine-and-a-half-year high. The nation’s economy, however, could face some headwinds that could affect private lenders. Although the economy was firing on all cylinders in the second quarter, it is expected to slow due to the trade war, according to a Reuters poll of economists.

Construction Risk Management is not puzzling… In addition, the short-term boost from tax cuts is expected to wane by the fourth quarter. Today’s regulatory environment is also changing. The growth in alternative lending came to the fore in part due to tight credit that resulted from a host of new regulations on traditional banks in the wake of the financial crisis. Now Congress has loosened some of those regulations. Does that mean that private lenders will soon face more competition from traditional banks that were hampered from offering the innovative lending products that private lenders have provided? Not necessarily, and actually not likely in the real estate investor-financed space, but it’s a developing storyline that will need to be watched. No one has a crystal ball that will tell the private lending industry exactly what’s in store for the coming year, but housing, economic, mortgage and regulatory indicators will provide guidance on whether the path ahead will be rocky or smooth. At the same time, as competition increases within the private lending sector itself, each lender must constantly be vigilant that they are up-to-date on technology and offering the best service, products and prices. ∞

ABOUT THE AUTHOR

ROBERT GREENBERG Robert Greenberg is chief

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Land. His professional experi-

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www.construc�oninspec�onspecialists.com SEPTEMBER/OCTOBER 2018 65

L AST CALL WITH R ANDY NEWMAN

I Chose a New Life—and Here's What Happened drive down to the beach to watch people surf. She takes me to La Jolla Cove. People live here, I wonder? I can live here?

t’s August 1999. I’m practicing law and living in Manhattan with my wife Karen and our two kids, ages 7 and 3. Karen has taken the kids to visit her sister and family in San Diego for three weeks, a ritual she’s followed for the last few years.

She had wanted me to come with them. I had refused again. I’m too busy working and I’ve been to Los Angeles on business several times and hated it. Why would I go vacation some place I don’t like? And, honestly, I found some solitude in having a few weeks without any family responsibility. It’s not that I was going out partying. It was just that no one was calling to find out when I’d be home from work. No one telling me to turn the television down when it’s midnight and I’m trying to unwind after just getting home from the office. No guilt. My wife and I talk every day while she’s gone. She finally convinces me to come out for a visit over Labor Day weekend. I get off the plane and can’t believe I’m just 90 minutes from Los Angeles, a place I dread visiting. San Diego is a different world: 80 degrees without humidity. Karen and I get coffee in the morning and

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I’m burned out from practicing law. I’ve been working in law firms since my sophomore year of college, and I need a break. I’m overworked, stressed beyond belief and wondering what I’m doing with my life. The work is controlling me. I missed a significant portion of the first two years of my daughter’s life until I changed law firms and reclaimed some of my time. But I’m still not happy. And everyone around me can tell. What will I do in California? It’s a world away from New York . . . from everything I know. My brother-in-law’s company manufactures loud speakers. He talks to me about the burgeoning new world of home theatres and distributed audio systems. My curiosity is piqued. Two weeks later, I meet him in Indianapolis at the custom electronics trade show. I have a “nerdgasm.” After all, I was captain of the AV squad in junior high school (I peaked early). I decide this is the next chapter for me. I get back to New York and join a new law firm. I tell them I’m going to stop practicing law and will be leaving the following August. They laugh. They appreciate my forthrightness. They still want me to join. So, I do. And I start enjoying the practice of law again. Yes, I’m still working crazy hours, but it becomes fun. My personal business development grows exponentially.

I make more in the first five months of that year than I had ever made before in a year. I start doubting the move to California. After all, New York is home. Fast forward to May 19, 2000. I come home late from work. Karen and the kids are asleep. I have a little ice cream. Around 11, I start feeling sick to my stomach. Following a trip to the drugstore (eating Lactaid by the handful in the aisle), I get back home and pass out on the couch around 4 a.m. I take my son to the bus stop at 7 and barely make it back. I’m on my knees doubled over with the worst pain I’ve ever experienced. It’s coming from everywhere and nowhere. Karen calls 911. I have my first ambulance ride followed by a week in ICU and five more weeks in the hospital. Acute pancreatitis. Once I was out of ICU and off the pain meds, I had lots of time to think and evaluate my life. What did "I want for me? For my wife? For my kids? We decide to continue with the decision we had made a year earlier. We would move to California. It was, arguably, the best decision I ever made. Yes, it’s had its ups and downs, but I got my life back. I got to see my kids grow up. I got to coach soccer, and basketball and Little League. I got to watch their concerts and plays and attend their recitals. I got to be part of their childhood. The work will always be there. I’ve proved it time and again. But this time, I controlled it. ∞

SEPTEMBER/OCTOBER 2018

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