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Kevin Kim:
You’re listening to Lender Lounge with Kevin Kim, a podcast dedicated to the private lending industry. I’m Kevin Kim and my goal is to sit down with key figures in the private lending industry to talk about their business and their personal lives. We’ll get their takes on market conditions, the industry at large and their personal stories. Overall, I really want to learn more about how they started and grew their businesses. So, whether you’re a lender, a borrower, a vendor, an investor, or anyone just interested in learning more about private lending, this podcast is definitely for you. Thanks for tuning in and enjoy this week’s episode of Lender Lounge with Kevin Kim.
Kevin Kim:
Hey guys, Kevin Kim here for another episode of Lender Lounge with yours truly, Kevin Kim. This time we are on Zoom, because we have our friends from Western Alliance bank. I’ll let them introduce themselves, but you all know them, we hang out with them all the time at industry events. If you don’t know them, get to know them, but let’s start with Lisa. Please introduce yourself for the audience and we’ll go to Mark next.
Lisa Alberti:
Hi, Kevin. Thanks for having us, it’s a pleasure to be here. My name is Lisa Alberti. I’m senior vice president with the note finance team at Western Alliance Bank. I’ve been with the bank about seven years, three years with the note finance team. And before that, I was part of the commercial real estate lending division in downtown LA. So yeah, thank you for having us.
Kevin Kim:
Absolutely. Mark?
Mark Roberts:
Great. Yes, thank you for having us today. A big pleasure. Name’s Mark Roberts, senior vice president as well at Western Alliance Bank in the note financing department, in this senior relationship manager for most of the East Coast and Texas and Lisa covers most of the West Coast. So, I go back, what 12 years with Western Alliance Bank, joined the note financing team in 2017. Lisa and I go back, we were just talking about … some 15 years. So, she actually called on my boss, Steve Curley in our bank when we were at another bank, and that’s how we got to know her. And then that relationship just flowed along to right to where we are now.
Kevin Kim:
Fantastic. I mean, so for the audience who are not familiar with Western Alliance Bank and Lisa and Mark, Western Alliance and you guys have, we work together, we share a ton of clients and I consider you guys friends, but what’s more important than all of that fun stuff is that the role you guys have played in the marketplace in the past, I would say five ish years now, has been amazing. You guys came to the market and built out, but offered a very well respected and well received warehouse line product for the private lending industry. As a foreign banker myself, I know that is not the easiest product to not only navigate and underwrite and structure, but also it’s the industry itself is not easy to translate, it’s not easy to translate as a banker.
Kevin Kim:
Let’s talk about a little bit about your guys’ history when it comes to this stuff. Were you guys both doing this … I mean, what are your backgrounds when it comes to banking and finance and lending in general? Like you, Lisa, when I first started at a bank, I was basically a commercial real estate loan officer. I just did, strip mall and gas station loans basically. When I heard about this industry, it was like, what? It didn’t make any sense to me. So, we’ll talk with Lisa, tell me a little bit more about your background, where you come from on the banking side and maybe if you did anything before that.
Lisa Alberti:
Yeah, great. Yeah, so I actually started my career in SBA lending, so I did owner-occupied commercial real estate loans.
Kevin Kim:
Oh man.
Lisa Alberti:
Yeah, I enjoyed it. It was fun working with entrepreneurs and it’s basically how I got to learn commercial real estate. I would say it was about seven or eight years ago, I decided I felt like a one trick pony. All I knew was SBA and I wanted to learn other types of commercial real estate lending. And that’s when I joined Torrey Pines Bank and was really focused more on investor commercial real estate and did some owner-occupied as well, and also learned a little bit about CNI lending. And then it was about three years ago that Mark Roberts called me onto the blue and said, “Hey, we’re looking for somebody in California on the note finance team.” I jumped at the opportunity, the bank … and we can maybe in a minute talk a little bit about Western Alliance bank and who we are, but we’ve had tremendous growth with our national business lines and note finance team is one of those specialty divisions. So when this opportunity presented itself, I jumped at it and it’s been great in the past three years.
Kevin Kim:
That’s pretty big transition, right? Because you’re doing commercial real estate, you’re doing your average commercial … like bread and butter for the bank, right?
Lisa Alberti:
[inaudible 00:06:10]?
Kevin Kim:
I’m guessing [inaudible 00:06:12], right?
Lisa Alberti:
Yep, exactly.
Kevin Kim:
I know it, yeah. I mean I used to do the same thing. So you’re used to getting every single piece of collateral. You’re used to getting really tight packaged transactions. Then, I mean the bank, it probably has very tight packaging on the warehouse lines themselves, but your counterparties … I mean, first of all, I can’t even believe it’s been three years, only three years. That’s crazy. But it’s a big change, different type of borrower, if you will, right?
Lisa Alberti:
It is but at the end of the day, it’s still real estate and that’s, I think, what Mark and I enjoy about this division, is we get to look at all kinds of real estate, all over the country. So we’re looking at-
Kevin Kim:
You guys do commercial and residential, right?
Lisa Alberti:
Exactly. Fix and flip, to commercials, to ground up construction, office, multi-family, every product type and every market in the country and so, we still get to use our commercial real estate lending fundamentals, but in this very, very unique lending scenario. It’s a good mix of both worlds.
Kevin Kim:
Right. Well, Mark, how about you? Give me a little bit of background on Mark. Were you always doing this? Because you’ve been with the team for a little while now?
Mark Roberts:
Yeah, the team and the bank, but if you go far enough back, construction and this type of business isn’t new to me, I was actually a licensed mechanical contractor and boiler installer growing up in a family business. So, I have a contractor background and then ultimately that led into banking, or I found my way into banking, and did a little bit of a stint in the CMBS world. And when 2007, ‘8, ‘9 hit, that industry went sideways. That’s where I ended up with a different bank where I met Lisa at. And then we from there, transitioned over to Western Alliance Bank.
Mark Roberts:
So, I’ve been in banking for a while. I think the key with what Lisa and I do and is unique, is it is very much real estate focus, but there’s also, when she mentioned CNI lending, that’s consumer and industrial, which is really business banking. And there’s an asset-based lending component to that, which really means you’re just … it’s like you’re monitoring short-term terms of collateral. And so there’s the skillset that comes in handy is that background, that Lisa had, and I had in traditional business banking and in real estate banking that ties those two together and makes it a lot easier to understand what we do.
Kevin Kim:
Well, I want to ask you about this. So how did you transition from that to banking though? That’s a big difference. A big difference.
Mark Roberts:
Yeah. So, it’s a good question. I actually got into the HVAC business. It was a family business. My dad had a stroke, so I dropped out of college and kept that family business going for a while, till he recovered and ultimately passed away. And then I had had a degree in banking, finance economics, and wasn’t a business I wanted to stay with and found my way into banking. A guy took a risk on me and hired me and the rest is history.
Kevin Kim:
Oh, there you go, yeah. And one of the things that I love about how people end up in banking, it’s never, “I planned to work at a bank.” No one ever plans to work at a bank. I had a legal studies degree from college and I had no idea what I wanted to do in my life. I didn’t know what I wanted to do. I didn’t think about law school and my father was a banker, who I thought was going to try to talk me out of it was like, “Kevin, if you want to learn how the world works, you got to learn how money works. Go work for a bank.” And it was one of the best experiences I’ve had. I used everything I’ve learned. I used so much what I’ve learned there today. And I mean, it makes sense, I’m working for a bunch of lenders anyway.
Kevin Kim:
So, let’s talk about the bank. Let’s talk about Western Alliance Bank because Western Alliance has grown immensely over the past few years. When I started working with you guys, I had already known about Torrey for many, many years, and I would not know that Torrey was owned by Western Alliance Bank, one of the subsidiary banks and Western Alliance is the holding company over it. And so, talk about the bank, it’s now … Is this still considered a regional bank? I mean, you guys are pretty much national now and talk about what it’s all about and what it’s focusing on and what its strong points are.
Lisa Alberti:
So Western Alliance is a about a $65 billion bank. We’re publicly traded, headquartered out of Phoenix, Arizona. And as you mentioned, Kevin, we have some subsidiary banks or sister banks located throughout California, Arizona and Nevada. So, it’s Torrey Pines Bank in Southern California, Alliance Bank of Arizona in Arizona, Bank of Nevada in Las Vegas, Bridge Bank in Northern California, and First Independent bank out of Reno. As you mentioned, we’ve grown tremendously. And a lot of that growth, as I mentioned, has been through the national business lines, which we have, I believe it’s up to 17 now, 17 very specialized business lines, that are industry specific. So, it includes note finance. It includes, gosh, Mark, what? Resort finance, HOA equipment, leasing, gaming.
Mark Roberts:
Media and entertainment, international trade, private equity in BC.
Kevin Kim:
Wow.
Mark Roberts:
Yeah. What we do the mortgage warehouse line and note finance, we actually acquired GE Capital’s, hotel franchise finance division, and brought over their team. So, we were one of the bigger hotel lenders in the country and we have a gaming division too, out of Nevada.
Kevin Kim:
Very cool.
Mark Roberts:
So, we’re pretty, pretty entrepreneurial.
Kevin Kim:
I guess I’ve interacted with bankers my entire life mean, I’m the son of the banker. My grandfather was, I’m a third generation banker, so I know bankers and I have a lot of friends who are still bankers. One of the things that I’ve noticed with Western Alliance is, at least my interaction with you guys and your team members, has been you guys strike a nice balance between entrepreneurial, but also there’s certain things you … and discipline. There’s a level of institutional feel to you guys. And there’s a level of what I would consider discipline in operations, balanced with a lot of entrepreneurial spirit because I mean, for example, for our audience, like Lisa and I, we plan industry dinners and client relations dinners and stuff like that all the time.
Kevin Kim:
But at the same time, when we talk shop, you guys have oftentimes say, “No, that’s a bridge too far. Here are the reasons why.” And contrasting to that, I mean, for a long time in our industry, especially in our industry and private lending, we had a lot of banks who were a little bit more … too entrepreneurial, and a lot of problems that came from that.
Kevin Kim:
And we had a lot of … well, I would consider a re-trading or bait and switch issues. That changed, from my perspective at least, when you guys came to town almost immediately. I remember very early on when it was Mark and then our friend Seth. I would be very surprised, I would see term sheets that were not just printed out after a phone call. And they were very, very well thought out. And the client’s response was always, “They’re not tough, but they’re going to make you work for it because it’s an important project.” And after they’re finished, they’re very happy about it. Like, “This is a great thing to work with.” We share a bunch of clients who have now have several hundred million with you guys and they consider you guys partners.
Kevin Kim:
So, talk about that balancing app because when you’re a banker, you have to operate within a certain mandate, typically. And most banks that I worked at, it’s a very set box that you have to operate in. How does Western Alliance and you guys craft that balancing act of entrepreneurialism with discipline and being more institutional in your approach?
Lisa Alberti:
Sure. And maybe let’s take a step back and we can talk about how this group came to fruition and how-
Kevin Kim:
[inaudible 00:15:05].
Lisa Alberti:
Yeah, how management at the bank decided to create this division. And so basically, we’re a bank within a bank, is what we like to tell our customers. So our team, what are we Mark, about 35, 40 people-
Kevin Kim:
Right, yeah.
Lisa Alberti:
… in total? The majority of our staff sits in Phoenix. And so what management did was they took a look at the industry and they determined, there was banks, this was seven, eight years ago, probably. There was community banks and regional banks that played in this space for credit facilities up to say, 15 or 20 million and then you’ve got the big money center banks, the Wall Street banks that as we like to say, don’t get out of bed for anything under a hundred million. So there was this underserved market between 20 to 100 million, that I think the group really focused on when it was started about seven or eight years ago. And what management did was they created, like I said, a bank within a bank where we have our own credit team, we have our own collateral team. We have our own operations team. We have our own treasury management team.
Lisa Alberti:
And it’s critical because every member of our team understands our private lenders and their day-to-day business. So, our credit facilities are not one size fits all, they’re very customized. And so that’s why those term sheets are very focused and it does take Mark and I some time to put together a term sheet because we need to get to understand the private lender that we’re talking to and what their niche is. And then we craft our terms to fit their needs. So, that’s what we really like about what we do, is it’s not a check the box kind of a risk profile. It’s very, very nuanced.
Kevin Kim:
So, this bank within a bank is serving all the different kind of sub industries within what I call the umbrella private learning industry. So, and all the business and residential sector. But also we have a lot of clients in the commercial bridge sector, construction, that kind of stuff as well. So, those are also clients and those all fall under this bank within a bank.
Lisa Alberti:
That’s correct. So we’ve got, I think it’s 60 credit facilities total in our portfolio nationwide. It’s probably split about 50/50 wouldn’t you say Mark, between CRE bridge lenders and the SFR fix and flip?
Mark Roberts:
Yeah. And there’s a small percentage of non-performing note buyers.
Kevin Kim:
Oh, that’s also part of you guys’ [inaudible 00:17:34]?
Mark Roberts:
Yeah.
Kevin Kim:
Okay, that’s cool.
Mark Roberts:
Yeah. Lisa hit on a key aspect though, that really is unique about what we do and that is we get up every morning and only … as well as that whole team that she just mentioned. And all we do is focus on providing value to the private lender industry. So, it’s not like, hey, we have this plus another portfolio. It’s total attention focused on those business lines that we just mentioned.
Kevin Kim:
Okay. And what’s fascinating to me is the level of flexibility granted because I work … I mean much smaller bank, but the philosophy internally was very command and control, very strict. The level of leeway you’ve been given to have effectively your own credit committee with your own guidelines. Now, I’m guessing there’s a little bit of authority when it comes to every year, here are the guidelines we want you to follow, but it sounds like you have a lot of, I guess, operational control as to which way you’re going with these people, with these bonds.
Mark Roberts:
Yeah. I mean, we do, we have policies. We do have a credit committee that’s bank-wide that we do, and it’s tiered on what we take in there as far as loan sizes go, but the inner workings of the bank do give us, our division … there is strong oversight, but we do have a lot of flexibility within those guardrails of the policies, to accommodate our customers.
Kevin Kim:
Well, let’s talk about the product specifically because in today’s marketplace, there have now become a variety of different types of what I call credit facilities, revolving facilities available to lenders, both small and large. Can you guys describe the primary product that you’re offering, lender financed product that you’re offering to the industry? Because I think there’s been a lot of, I guess, misunderstandings, and they get a lot of requests that are being made to you guys and they say, “Oh, that’s not what we do.” I think a good opportunity for us clarify, give clear explanations, as to what Western Alliance’s lender financed product is for the private lending industry.
Mark Roberts:
I can jump in on the initial on this one. We really looked at what our clients valued and what they valued is cash management because as they’re growing a fund, what’s happening is they want to make loans, they’ve got loans paying off. And it’s that asset management that creates a cashflow problem for them sometimes, or liquidity problem. Or they have to sit on too much cash and they have cash drag, which negatively affects their investor returns. So, our product is primarily designed to mitigate those issues for cash drag and liquidity for them. And then there’s a secondary benefit that they all like and that’s leverage. And so, we give a reasonable amount of leverage to the clients that also helps with their returns to their investors on that. So, primary cash management, secondary leverage and then it’s really where we [inaudible 00:21:06].
Kevin Kim:
There’s so many different types of products, so to be clear to the audience. This is meant to be a long-term warehouse line product, right? We’re not talking about these short term [inaudible 00:21:17]-
Mark Roberts:
Yeah and ours is a line of credit. It’s not an individual note on note for each individual property or each individual loan. We really benefit to lending to primarily funds and sometimes family offices and private equity might have their own closely held entities and Lisa, tell me if I’m wrong. But most of ours are generally fund structures that aggregate their loans under one entity. And they look for a line of credit, which is what we provide over a two year term.
Kevin Kim:
A balance sheet fund formation strategy is the primary account, which is why we share so many clients, because for our audience who don’t know, I’m not a professional podcaster, I’m actually an attorney who writes funds for a living. But at the same time, one of the things that I want to stress on this product. And I tell this to my clients who are inquiring about this is how does this differentiate from a lot of the products that we saw, I guess, especially during COVID that had a lot of volatility, because you guys remained true with your clients. Actually you guys grew during COVID and so it’s a non-market to market facility, correct?
Lisa Alberti:
That’s correct. Our credit facilities are committed lines.
Kevin Kim:
Committed lines. They’re long term, there’s no penalties for dwell time.
Mark Roberts:
Yeah, they’re not a repo line. So, that’s the big difference, is it’s not a repurchase agreement with the ability to … that’s how we grew a lot during the pandemic, was there a number of now clients whose repo lines got frozen and they couldn’t draw and we offer that two year committed line that Lisa just mentioned. And we do have limitations on our dwell time, but we’re talking two to three years.
Kevin Kim:
So from our perspective, lending two years is an eternity, right?
Mark Roberts:
Yeah.
Kevin Kim:
It’s way longer, I mean, compare … what I meant by that. Yeah, so for a lot of the listeners out there, they try to differentiate which kind of line should I be pursuing? So, you mentioned it a little bit, Mark, let’s talk about ideal candidate. So, it sounds like a balance sheet lender, whether they sell loans to Wall Street or not, not a major concern, but it sounds like they’ve got their own capital, they’ve got their own balance sheet. Ideally have a fund of some sort is the ideal candidate where you got your guys’ product, but I’m sure as the private lending industries evolve, people have a variety of structures, they have a variety of … and so [inaudible 00:23:50] let’s talk about when they come to you with a nonconforming structure, how do you guys manage that and how you guys talk them through that?
Lisa Alberti:
Well, we often refer them to you, Kevin.
Kevin Kim:
That too. No, but how do you guys walk them through it? So, a lot of times you’ll get a customer calling and say, “Hey, I’m interested in the credit line, and then you guys have to go through the eligibility analysis with them, right? And so let’s talk about the eligibility and what you guys talk to them about and that kind of stuff.
Lisa Alberti:
Yeah. And you’re exactly right. I mean, we talk about preferably our counterparty is a formerly organized debt fund, organized under a PPM or publicly traded REIT, or perhaps a sizable family office. Mark and I like to talk to prospects early on. So, even if they haven’t formed a fund yet, and they’re in the early stages, we like to set the expectations early of what we require as part of our application process when they are ready for our credit facility. So, as Mark mentioned, debt funds, REITs, family offices, most of our customers are balance sheet lenders. Some of them do sell some of their paper. And then we’re also looking obviously at the balance sheet in terms of investor capital and leverage ratios. ideally, we’re looking for leverage ratios of one-to-one, but there is some flexibility based on the sophistication or institutional nature of the counterparty.
Kevin Kim:
Even three years ago when you joined the team, Lisa and Mark, when you started, this industry’s evolved massively. I mean three years ago, oh man, it feels like an eternity, but there was a big transition, we touched on COVID, let’s talk about how you guys approached it and how you guys came out ahead after that, because you and I have talked privately on this issue, but I like to talk about that because it was a very stressful time for a lot of us, 2020 was … I guess the uncertainty was the most scary part. I remember Anthony and I talking about it, its like we had to really contact our bankers to make sure we’re our clients aren’t going to be in trouble because he had been scarred by that in the last recession. So, talk about that real quick because it’s a very interesting story for you guys, how how you guys attacked that crisis and how you guys came out ahead afterwards.
Lisa Alberti:
Yeah, I mean surprisingly, to a lot of people, it was business as usual for us in our division. Obviously, Q2 of 2020, we all hit the pause button for new business, wait and see what happens. But for our existing customers, it really was business as usual and we were pleasantly surprised that CR customers, pledging new collateral, collateral loans getting released as they received payoffs. As we mentioned, we don’t have any market to market functionality. We didn’t freeze any credit facilities. I think we reduced one line, but that was at the request of the borrower and then about June or so, we opened up to start taking new business and I’ll maybe let Mark take it from here to talk about the story for the second half of the year. Because that’s when it got really exciting for us.
Mark Roberts:
Yeah, no, I mean, that’s exactly right. Lisa, we kept very close to our clients, a lot of constant communication, just seeing how things were going and listening to them as they actually, in that second half, started getting even busier and then we started fielding phone calls, word got out that we had continued to fund when sometimes others didn’t and so that led to, in some cases … Lisa mentioned earlier that, our sweet spot has historically been in that 20 million, maybe a hundred million range or so, and a lot of times those companies with the institutional money center banks didn’t … we wouldn’t have been on their radar, but then what happens is you have their investors now coming to them saying that, “We’d like you to have a committed line, at least one,” and word got out how we had performed throughout the pandemic. And so we got very, very busy with some much larger clients actually, that maybe we hadn’t done or worked with previously. And then from there, it’s just been a lot of activity to date, say the least.
Kevin Kim:
Yeah, I remember that September, we were getting phone calls from sizable institutions that started … “Hey, we started working with Western Alliance, heard about you guys.” And then also the year after that, I think I went to a commercial real estate show and there were sizable institutional groups that were working with you guys and they were saying, like you said, the biggest reason was they needed that committed line. And I think that rings true today. The reason why we’ve stayed busy on the [inaudible 00:29:06] side, even with all that glut of capital out there on the institutional side, has been the motivation to have that level of commitment and also to qualify for a committed line. I think you got to have that kind of internal structure in place and infrastructure in place.
Kevin Kim:
I think that we’ve cemented that as part of the blueprint of the industry. So you see a lot of successful groups out there that are not institutionally backed, not proxies for institutions. A lot of them are banking with you guys and have a sizable or medium sized fund or funds. And what I love about that is that the level of influence that has been made on the industry, but also the habits in the industry, like you guys have become a household name in the space. A lot of folks ask for introductions and meetings with you guys, but let’s talk about the other people who are starting to offer credit lines because you guys have influenced that, I feel like. And so let’s talk about how you guys compared that and how are you guys managing that? Because the industry didn’t have privately offered lines of credit before, now it does, right? Now it does.
Mark Roberts:
And it might help before we jump there, is just to note that having a committed line is … that’s important, but who’s that committed line from? What might be useful to know is that, the bank was founded what? 1994 ish and in that time period, we’ve grown to the 26th or so, we’re in the top 50 largest banks in the country out of 5,000 some banks. So, we’re rated investment grade by Moody’s. We’re consistently ranked the number one bank in the country, or one or two number bank in the country through S&P Global. So, we’ve really built a strong brand of quality that can step up and provide, the services that we’re talking about. But Lisa, I’ll defer you and the competitive point right now. But I think that’s part of it is just the brand.
Kevin Kim:
Well, it’s a very important point. The level of, I guess, acceptance and level of brand recognition that the bank has achieved over the past few years. I think that it’s funny how in mortgage especially, money moves very fast in the space and the disciplined folks who have decided to pursue a committed strategy, both on their equity side and on the debt side for their business, have really grown immensely over the past two years now. I mean, I can’t name names, but there are a ton of our mutually shared clients and a lot of them credit the solutions that you guys have provided, along with the attractiveness of their investment to their retail investors. Over the years it’s become what I call the blueprint and you see funds out there and public and privately held REITs managing half a billion dollars now. It’s funny because when we got into the industry, we thought a hundred million fund was a massive fund.
Mark Roberts:
So yeah, we all did, yeah. And uncertain times people want certainty and that just has been across the board.
Kevin Kim:
And the uncertain times still continue today. And I think that pushes probably the people in your guys’ direction, because that certainty’s important, that commitment is important. Committed capital is so important.
Lisa Alberti:
Absolutely. And I think, just like our debt funds, their borrowers expect speed and certainty of execution from them, and the debt funds in turn expects speed and certainty of execution from us. And we really pride ourselves on that and that’s a big part to our competitive advantage, is that we try to be flexible and fast. I mean, because what’s most important is that our customers have their availability to their line quickly. And so that’s where that … I mean, Mark and I would be nothing without the team in Phoenix, our operations team and our credit team in Phoenix are critical to our success and it’s just amazing what they can accomplish on a day-to-day basis. I mean, we get draws out within minutes for our customers.
Kevin Kim:
I want to [inaudible 00:33:40] real quick. So, you guys are very well known for your draw process and I’ve had rating reviews from my clients we share. I feel like it sets the standard. Talk about that real quick. So, if you have a client who’s a borrower now, they’re approved, they’re funded, talk about the thought process really quick because I want to make sure we highlight that. That’s a really important feature.
Lisa Alberti:
Yeah, so when our customers pledge new collateral loans to the credit facility, we set up a share file. They upload the necessary documents and typically same day, or within 24 hours, that collateral is checked for eligibility and added to the borrowing base. So, an important distinction is we don’t re-underwrite our customer’s loans. We check them for collateral eligibility based on the loan agreement and add it to the credit facility. I think we have 18,000 pieces of collateral in our entire book. So, that’s a lot of collateral that we manage on a day-to-day basis. And then to take a draw, they simply send us an email and say, “Hey, we’d like to draw $5 million off of our line.” And typically, we always say within an hour, those funds are in their account here at Western Alliance Bank.
Kevin Kim:
That’s one hell of an operations team, I tell you. I mean, keeping up with those kind of email requests, I know how busy you guys are and that’s awesome. [inaudible 00:35:03] making sure our listeners understand if they were one of your borrowers, when they pledge a piece of collateral for a draw, is there a recording process with that or is it an unrecorded assignment?
Lisa Alberti:
We do not record our assignments. We do collect an assignment and an allonge as part of our collateral packages. And then we hold those assignments at the ready, if we ever do … we run into an issue.
Kevin Kim:
You have to, yeah.
Lisa Alberti:
We have to date, Mark correct me if I’m wrong, I don’t believe we’ve ever recorded an assignment.
Mark Roberts:
No, I don’t either. And that’s part of the value proposition of that speed that Lisa also mentioned, is I was on one meeting and they said, “We actually time you guys in the fastest, we were able to get funded was seven minutes.” Early on, when we started closing loans, I remember customers and Kevin, you brought this up when I first met you and said what a difficult time it is sometimes to get approved for a credit, or for a line in the industry. But customers have came back to me after getting approved and said, “You were right. Where have you guys been? Your funding process is so efficient. I’ve never seen anything like it.” So, that really is the key to our [inaudible 00:36:20].
Kevin Kim:
Yeah and the operational efficiency. I mean, one of the things I like to talk about is not just about like getting through the door, it’s after that, the level execution that needs to come with it is so important. And in today’s marketplace, I want to talk about the competition, but there’s a lot of lines out there and we’re starting to see a trend toward recording pledges. I’ve always found that to be questionable because legally speaking …
Mark Roberts:
Yeah, I can probably talk to that a little bit. I also do a little bit on the traditional mortgage side and those repo lines and what I found is that the repo lenders, including us on our Fannie, Freddie type business, when the bank’s buying a note under a repurchase agreement, it needs that note to be recorded, right?
Kevin Kim:
Sure.
Mark Roberts:
Because that’s the difference from it being assigned, where we take an assignment, we’re not recording it. So, by not having a repurchase agreement, but actually having a traditional asset-based line of credit, we do not need to go through that process of recording and it makes it just much easier to take collateral off the line and put collateral on. the line.
Kevin Kim:
100% because the idea here is that we’re translating a product that’s been widely used in commercial real estate finance, commercial mortgage for decades. And we’re translating that to effectively a commercial purpose, residential transaction. And it’s different. I’m guessing from the bank’s perspective, it’s a commercial transaction. It doesn’t look consumer, we’re not buying the paper. So, there’s less need for it. And that’s been the rationale from my perspective as well.
Kevin Kim:
So I mean, I want to switch gears a little bit. One of the things I like talk about is your guys’ involvement and experience in the space as a whole, in the marketplace as a whole. You guys go to events, we see guys at various industry conferences, but one of the things that’s recent developments, I guess about a year and a half now, year now, is a kind of … I don’t what to call it. I guess it’s an organization in its own right. And it’s called Women in Private Lending and we have one of the founding members here, Lisa. And I remember, was it a year or maybe two years ago, we were at a conference talking about the idea? And lo and behold today, they’re having their own networking events and they’re having a … I think you had that webinar, right?
Lisa Alberti:
Yeah, so it was actually at the Geraci Captivate conference last year, Kristina Sawyer with a Arixa and Carrie Getties with Bayport. We were all talking at dinner one night and said, “Hey, we let’s create a networking group for the women in the private lending industry, and just create a community where people can share ideas and it can be just general networking, a place for career opportunities, whatever.” Honestly, I just thought it would be casual get togethers, at a lobby bar at the hotel, the conference, but we got a group of ladies together and it’s amazing what’s happened in a short period of time. We have a website, womeninprivatelending.com. We’ve had three events to date associated with conferences. We have a webinar coming up on June 29th.
Kevin Kim:
Well, by the time this airs, it’ll have happened already.
Lisa Alberti:
That’s true, that’s true. That’s right, well there’s-
Kevin Kim:
You’ll also have had another networking event, right?
Lisa Alberti:
Yes, at the Captivate conference. Yep, we’ll have an event there. And then we’ll also be having a event at the AAPL conference later this fall.
Kevin Kim:
I love the idea because one of the things that … as I’ve been in this space now since ’13 and over the years, I mean, unfortunately mortgage and real estate is still a very male driven industry, but private lending is a very diverse space and it has become a much more diverse, or I guess, industry at large. And we see more and more women CEOs, women industry leaders. I was so happy to hear that this was created and when Ruby on our team got behind it and started helping with event direction, I was expecting it to be what you talk about. Anything, initiates like that, slow start, because at the end of the day, a lot of folks have trouble sending their people out for stuff like that. They have employees in the office, they don’t want us, but I mean, the first iteration of it was a wild success. And today, now you guys are adding different initiatives for mentorship and education amongst your working group. And there’s no membership, right? You just participate and so-
Lisa Alberti:
Absolutely, yeah.
Kevin Kim:
… talk about where you guys are headed now, what’s on the docket for the women … networking group. And what do you guys excited about for the coming year?
Lisa Alberti:
Yeah. I mean, it’s going to be a lot of networking. We’re going to try to have also regional-
Kevin Kim:
That’s smart.
Lisa Alberti:
… networking opportunities and meetups because not all women in the industry get the opportunity to go to conferences. So, it might be a casual get together in Los Angeles, or one in Orange County. We have folks on the East Coast, so we’d like to see it branch out into regional groups as well.
Kevin Kim:
[inaudible 00:43:14].
Lisa Alberti:
But you’re absolutely right, Kevin. I mean, the intent of this group is to create a community where women, young women, experienced veterans, are coming to events and they have a group of familiar faces that they can network with and make connections. I think mentorship also will be a big focus going forward. Yeah, so I’m excited to see where the group goes, this group of ladies, they’re amazing. The marketing team at Geraci has been unbelievable with helping us get the website up and going and coordinating events. And so, it’s been very fast paced and very exciting.
Kevin Kim:
That’s very cool. I love to see that kind of … one of the things that we really push when we’re doing events, or we’re doing panels, or whatever, is telling our listeners and audience, “Get involved in the space because that’s how you can grow your business too.” You don’t just grow, getting deals done if you get involved with and start building that network and that group of friends, I guess you can call it, you start growing. And let me ask you guys this, over the years, with banks, banks don’t typically go to a lot of our conferences. We don’t see a lot of banks get involved. You guys got really involved. We see you at every AAPL we see at all over our events, we see you at a lot of the local shows, talk about the motivation behind that. Because it is not, it’s not very common, we don’t see a lot of banks at these shows.
Kevin Kim:
A lot of banks come to the industry because frankly, this is the anti-bank industry, but we do need the product and it’s a very popular product, but even then, we don’t see a lot of other banks who have this product show up a lot. And so, I’d like to understand how you guys view the industry as professionals yourselves and what it is that you’re getting out of it?
Mark Roberts:
Early on, I honestly just did a web search, as a second person that joined the team or third person, I should say that joined the note financing team and came on board to grow the business and started looking at … I found AAPL online, reached out. I actually cold called you, I think and just asked if … It was your team and just started talking with you guys on different things in the industry and what to do. And that led to starting to attend … Then you guys started doing more of your own conferences and then that led up to, let’s say a couple years ago when Lisa joined and now I just do … She says, “Go to this,” and I end up going to that. But do, we’ve been very successful at attending select conferences. That just makes sense. Go ahead, Lisa, [inaudible 00:46:05].
Kevin Kim:
And participating, we’ve had you guys on panels before, it’s not very common for us to see that with banks. At least, for me, at least, my experience has been … and when I was at a bank, it was unheard for one of the bankers to get on a panel. And I guess that comes with the bank’s entrepreneurial spirit, a little bit more flexibility that way.
Lisa Alberti:
The bank’s really supportive of our marketing efforts and our participation in industry conferences. I think it’s part of the job that Mark and I enjoy the most, we get to see a bunch of our customers in one place and meet new people. So, we really enjoy attending the conferences.
Kevin Kim:
Okay. Well, I like to transition to a part of the show where we get a little bit of our crystal balls out because it’s a little bit of a weird time right now. And right now, for our audience listening, it’s going to air in August, it’s June right now, we’re in a little bit of a weird time right now. Relevant to your product that you’re offering to the industry, LIBOR is no longer adopted, LIBOR is now no longer used. Indexes have changed. I mean, I’ve seen every index known to demand except for Wall Street Prime being used in various term sheets. I’d like to ask, first of all, open this question with you guys, are you guys using any particular index now that LIBOR is dead or you, are you sticking with LIBOR, some folks have chose to do that. Are you going to Prime? What are you guys doing?
Mark Roberts:
Yeah, so we started out with switching over to AMERIBOR, BSBY, Prime, or SOFR. So we didn’t know, it’s kind of like the VHS, you had to figure out what product was going to go where, and over the last year I’ve seen more consolidation around SOFR with our commercial clients. So, those that do more commercial bridge lending, it’s more SOFR prime-based and on the residential side, SOFR and AMERIBOR, so those are … It’s pretty much today, AMERIBOR and SOFR, although I would say from what I’m seeing is more consolidation around SOFR. So, that may be where things ultimately end up, as a replacement.
Kevin Kim:
I prefer SOFR myself. I think it’s a more reliable index, but let’s talk about … That leads to the next questions. There’s a lot of volatility on rates right now. Everyone’s concerned about it. The only topic we talk about aside from all the challenges come from DSCR, how have you guys reacted the past six, seven months now, with all this volatility, with your counterparties and your borrowers? Because I’m sure they’re coming to you concerned like, “Do we have to be worried?” That kind of stuff. What are you guys doing to stem that tide? And what are you guys going to be doing going forward?
Lisa Alberti:
Western Alliance Bank, we’re pretty consistent and it translates to that certainty of execution again, we keep going back to that. But during the financial crisis back in 2008, Western Alliance Bank was one of the few banks still lending. And so, we pretty much stayed the course. Like you said, we’re very disciplined when it comes to risk and we’re kind of steady Eddie. So through good times, through tough times, it’s very consistent at the bank.
Kevin Kim:
Well, has there been a lot of calls that you guys about concerns? I mean, I don’t even know. I’m actually guessing. Have you guys gotten a lot of questions? Because some of my clients that we share have said, “Yeah, we’re going to be fine,” but other clients, they haven’t really indicated. And I just know that in general, the industry is murmuring about volatility in the industry.
Mark Roberts:
There was rate shock-
Lisa Alberti:
You know, it’s interesting.
Mark Roberts:
Oh, go ahead.
Kevin Kim:
It was?
Mark Roberts:
Not on us, customers. Yeah. Sorry, Lisa.
Lisa Alberti:
I find the conversation is different depending upon where the customer’s located. So California, there’s a ton of competition. So, it’s a little bit of a different conversation than perhaps groups in the Mountain West area. So, that’s what’s been most interesting to me, is where we’re seeing the yield compression, I find is very geographically specific. Mark, I’m not sure what he’s seeing on the East Coast, but that’s what I’ve seen here on the West Coast.
Mark Roberts:
Yeah and I think that’s probably … Well, that is true, but it’s probably changing on a go forward. So, a couple things, not just geographic, but also what type of lending the client does. So, some that originate and sell, that rate shock occurred when they were able to originate residential DSCR loans at 3.75, and now they’re originating them at six and a half. So, one of the things that we looked at in that market is, and I’m not sure you’re aware of this, but we also buy DSCR paper selectively. I used to go out and talk to clients about it. And they really didn’t have interest because our product wasn’t as aggressive as some of the other aggregators out there.
Mark Roberts:
But with the change in the environment, a number of those conversations were restarted and we have flow agreements with our clients, specific to our clients, that fit the box that we look for. And so, that’s helped alleviate some of their concerns in the secondary, or the securitization markets, that can be fickle. And from a pricing … what’s going on from the crystal ball side, I think you are going to see banking, just go back to what it was three, four, five years ago, where banks have been flush with deposits, they’ve had to get money out the door. There was quantitative easing, there was a lot more money circulating. Our monetary policy is changing. There’s going to be more quantitative tightening, there’s rising interest rates. So, they’ll probably be a little bit of a slower push to get money out the door from banks in general. And, but what, from our perspective, that wouldn’t be any concern from our clients because we really like the space and we have strong relationships and maybe things, slow down in the new originations a little bit, but our existing clients, we really-
Kevin Kim:
Yeah and I’ve never seen you guys rush to get money out the door when it comes to origination.
Mark Roberts:
Not us. No, we haven’t.
Kevin Kim:
I mean, if anything right now, it’s still a challenge to keep up with all the requests, right? All right, so I mean, one of the things we want to do when we’re talking about crystal ball is the industry … and Lisa you touched on it a little bit, is what you guys are seeing with your counterparties. And so you touched on it as well. Mark, the DSCR had a lot of volatility. Let’s look at the second half of the year and going into ’23 is how do you guys feel about the space and what kind of changes do you guys foresee coming? Because I have my own philosophy on this, but I could be mistaken. So, I’d like to hear you guys’ thoughts,
Lisa Alberti:
We’re seeing consistently, and I expect this to probably continue for the remainder of the years, our existing customers looking for increases to their lines of credit.
Kevin Kim:
Needing more.
Lisa Alberti:
Yeah. Because most of our customers are balance sheet lenders, so they have the balance sheet to be able to hold all of their loans. I think with some of the competition in the market diminishing, they’re able to increase their originations. We’re also seeing, or at least I’m seeing, more ground up construction. So, there’s more discussions around being able to put ground up construction on our credit facilities and sub limits for those types of loans. So, I’m expecting that to probably continue.
Kevin Kim:
Which makes sense. We talk about inventory all the time, got to do something about it, which means construction, right?
Lisa Alberti:
Yeah.
Kevin Kim:
So Mark, how about you?
Mark Roberts:
I mean, everything I read still shows that even with rising interest rates, there’s still a housing shortage, or there’s still strong demand. Days on market is still … it’s increasing, but it’s still pretty low relative to history. So, I would agree with Lisa. I’m getting the same thing. I’m getting a lot of requests for increases right now. I’m getting still a good pipeline of new business. Will that ultimately slow? Probably, it always does, but for the next six months, I think we’re in pretty good shape, strong demand.
Kevin Kim:
I think it’s kind of funny, it’s an inverse product of industry at large due to the institutionalization, in the sense that Wall Street has to tighten. They’re going to have to, because they have less money, if that happens … and the costs are going up. If Wall Street has to tighten the, I guess you call it institutional proxies, institutionally backed companies out there that are aggregating and the pricing model changes, and it incentivizes a balance sheet strategy, it gives a lot of more opportunity to folks who are just originating to broker now, to balance sheet lenders, but also creates opportunity for borrowers to go in that direction as well because they’re not getting the prices that they’re used to from these high volume, originate to sell model lenders. I mean, that’s my … So, it’s a weird balancing act because industry at large, it may cause some tightening, but for the sub part of the industry that is a debt fund, that is a balance sheet lender strategy, they’ll benefit from it, I think.
Mark Roberts:
So, will they benefit from banks? Keep in mind what I mentioned earlier about deposits. If those become harder for banks to maintain, they’re not going to lend as much. So, you may very well see more demand for private lending.
Kevin Kim:
That is true. Yeah and as we started seeing banks jump into … I mean, everyone talks about, PacWest’s acquisition of Civic, but they’re not the only one that were involved in the industry. I met a lot of builders who were saying they’re borrowing directly from banks now.
Mark Roberts:
Yeah, smaller banks. Yeah.
Kevin Kim:
Professional flippers who are borrowing from banks now. I’m like, “Okay, that’s probably going to change in the next six to eight months as the banks have to reconsider their risk.” And most likely when you have that kind of philosophy change, you also start seeing a little bit of increase in OCC audit. So, those questions start coming and they start getting a little more tight on the inspections on the file. So, I think you’ll probably start seeing some change in policy when it comes to some of the banks that have been effectively, my clients’ competitors and that’s been fascinating in a lot of ways.
Lisa Alberti:
I think, some of the conversations I’m having with some of my CRE bridge lenders, is they’re already starting to see the benefits of, I think some banks are starting to tighten up a little bit on the CRE side. And so they’re starting to see very bank like loan packages come in. Lower loan to value, higher credit profile. So, they’re already starting to see the benefit of tightening.
Kevin Kim:
I’ve already been hearing a lot of complaints about, “Oh well, they approved this exact same loan six months ago.” Yeah, not six months ago. So, I can understand, I do the same thing. All right. Well, one of the things we want to do as a last part of the show and we’re running out of time, but we have what we call the rapid fire around and now we have two guests, so I want to make sure we cover. So, this is more about the industry get to know you guys a little better and find out a little bit about you guys beyond just the profession. So, the first question I want to ask you guys is what is the business tool that you cannot live without? What is the one business tool that you cannot live without? For me, it’s the yellow notepad. But how about you guys?
Lisa Alberti:
I’m a notepad girl too, Kevin. I’m a list maker, so I’m old school. I write my list out every day on a notepad.
Kevin Kim:
Use a notepad?
Lisa Alberti:
Mm-hmm.
Kevin Kim:
All right, yep. Mark, how about you?
Mark Roberts:
I’m definitely the same exact thing, including regular books. But I won’t answer the same as you guys. Mine would be my cell phone and the only reason that is because I work remote and I need … that phone is always between texting and calling. I’m an old school guy there where it’s mostly phone calls, so that comes in pretty handy.
Kevin Kim:
It’s a lifeline, you need that, yeah. All right, so a different type of question. What was your very first job? Very, very first job? My first job was being a loan officer at a bank. My first real job. My first job was doing … I was a cashier at my mom’s Hallmark store. So, that was my first job.
Mark Roberts:
Outside of working for the family business, it was a newspaper route.
Kevin Kim:
Newspaper route, old school. I like that. You don’t hear about those anymore.
Lisa Alberti:
Yeah. So my first job, in high school, I was a nanny, but my first real job was, I was a credit analyst at a bank.
Kevin Kim:
So, you’ve been in banking, you haven’t left.
Lisa Alberti:
I was a finance major and went straight into banking, yeah.
Kevin Kim:
Nice. Nice. All right, so if you weren’t where you currently are career wise in banking, being cool in the lender finance side, what would you be doing instead? And we’ve had a lot of interesting answers here, so what would you guys be doing instead for a career?
Mark Roberts:
I’d be fishing. Fishing.
Kevin Kim:
Fishing? You’d be fisherman?
Mark Roberts:
I’d be outdoors, doing something outside. I don’t know.
Kevin Kim:
Nice. I didn’t know that about you, that’s cool. You prefer freshwater or salt?
Mark Roberts:
Freshwater, yeah.
Kevin Kim:
Freshwater fishing?
Mark Roberts:
Yeah.
Kevin Kim:
Very cool, very cool. Lisa?
Lisa Alberti:
I think I would probably be a travel journalist, like work for Conde Nast and travel the world and review luxury hotels.
Kevin Kim:
Aw, man, that sounds awesome. All right. One of the questions we want to ask is when you’re not out there doing banking things and dominating the lender finance world and all those cool things, what do you guys do for fun? I’m guessing it’s fishing, Mark. Is there something else?
Mark Roberts:
Well, you know it’s funny, one of our analysts actually said, “Isn’t it neat that the difference between Mark and Lisa is her clients are taking her out to these nice, nice restaurants and Mark’s clients are sending him crabs and stuff from going fishing.” So, we do have a little bit maybe of a different client base, but overall, I’m an outdoors guy. I’d like to be outside, whether that’s exercise, whatever it is, just being-
Kevin Kim:
Hiking, fishing, camping.
Mark Roberts:
Hiking, fishing, yeah.
Kevin Kim:
Very cool, very cool. Lisa, I’m guessing hiking, fishing, camping is not it?
Lisa Alberti:
I don’t mind hiking. In Los Angeles there’s some great hiking.
Kevin Kim:
You live in LA, you got to do some hiking.
Lisa Alberti:
But yeah, I love to travel and I love live music. I’m a huge Dave Matthews Band fan.
Kevin Kim:
All right.
Lisa Alberti:
So, I travel around and go to see his shows.
Kevin Kim:
Fantastic. And that’s why I love the show, we get to learn these things about you. All right, guys. Well, I think that’s all the time we have for the show. I really want to thank you guys for joining us. We’ve been talking about doing this for a long time, and I’m really glad you guys found the time to join us. For our listeners, this will be airing in about August for season three. And once again, if the listeners, if you guys are in the industry and you’re thinking about expanding your business, Western Alliance is a really good place to talk about in general, growing that business. I couldn’t stress highly enough, getting started with these guys early is going to benefit you regardless. Even if you do end up working with them or not, and look for them at the next conference. We’ll see you guys there.
Lisa Alberti:
Absolutely. Thank you so much, Kevin. We really appreciate the partnership. Thank you for having us.
Kevin Kim:
Oh of course, of course.
Mark Roberts:
Thanks, Kevin.
Kevin Kim:
Love working with you guys. And it’s been a great year so far and we’re looking forward to many more years to come and for our listeners out there, this is Kevin Kim for Lender Lounge, with Kevin Kim signing off.
Kevin Kim:
Thanks for listening to Lender Lounge with Kevin Kim. I hope you’ve enjoyed this episode as much as I did. If you did enjoy, please leave us a five star view on your podcast platform and be sure to follow our show to be notified of new episodes. If you’re on YouTube, don’t forget to smash that like button and hit subscribe for more content from all of us here at Geraci. Lender Lounge with Kevin Kim is available on all podcast platforms. Referrals really help us spread the word, so please send this over to someone you think might enjoy. See you next time. This is Kevin Kim signing off.
