Kevin Kim: You are listening to Lender Lounge with Kevin Kim, a podcast dedicated to helping those in the private lending industry grow, improve and streamline their business. I’m Kevin Kim, partner at Geraci LLP, the nation’s largest private lending law firm. Join me as we chat with the best and brightest in private lending who are eager to share their years of wisdom and best practices with lenders, borrowers, brokers, investors, and more. Subscribe to Lender Lounge on your favorite podcast platform and learn more about Geraci and how we can work with you at geracilawfirm.com. Check out the episode summary for other valuable resources.
Kevin Kim: Hey guys, we are back for another episode of Lender Lounge with yours truly, Kevin Kim. As you can tell, we are not on the computers; we are not on the zooms. We are here live in person, and we have a return guest. Very, very few return guests on the show, and we have a return guest this year, but now flying a new flag. Welcome back, Bill Tesser.
Bill Tessar: Thank you.
Kevin Kim: Founder and CEO of CV3.
Bill Tessar: Yes, sir.
Kevin Kim: First of all, congratulations.
Bill Tessar: Thank you.
Kevin Kim: Well, before we get started, please introduce yourself to our audience, introduce the company, and we’ll go from there.
Bill Tessar: Yeah. Bill Tesser, president and CEO of CV3. CV3 just started, as you know, on August 31, 2023. My background is 35 years in lending, a whole bunch of those on the conventional side, since 2017 on the BPL side. My most recent stint was ‘17 to January of ‘23 with Civic. I’m sure we’ll talk a little bit about that.
Kevin Kim: Sure we will.
Bill Tessar: And yeah, I’m excited to be here with you today. And yeah, I wasn’t aware that you don’t have return guests, probably because of me. I like you, so this is easy for me.
Kevin Kim: And thank you for doing it. And we love coming to clients’ offices and doing the interviews because it’s more fun to be out here, and also, you’re in your comfort zone. So we’re going to have a good time today before we kind of get into the CV3 stuff. Last time we had you on the show, Wit was here on the show with you, and we were really talking so fast. We were also excited about – we had to talk about the merger, but we also had this kind of just really positive energy about Civic, and we didn’t really get to know more about you. And I want to know more about you, Bill. Because first of all – 30 plus years in mortgage, I mean, I’m now ten years in mortgage, and my brain feels like it’s going to fall out of my ear sometimes. It’s like dog years.
Bill Tessar: It is.
Kevin Kim: So you’ve been in the mortgage space for 30 plus years, 35 years to be exact. So before Civic, was it all conventional consumer side only or when was the transition to commercial? Give me more color about your background.
Bill Tessar: Yeah, so if I go all the way back, I was hit by a drunk driver when I was 16 years old. It was a really bad accident. And I got a few bucks from that. I came from a lower-middle-class family, but a stay-at-home mom and an appliance repair man dad, so we didn’t really have a lot of money, but I got some. I bought my first home when I was 18. And I sat across the table, just like you and I are doing. And I went through this thing called a good faith estimate. Had no idea what it was. Line by line. Ask a lot of questions. What’s this credit report? What’s a credit report? Where do you get it? How much does it cost? Who does it? Do I need it? Processing fee underwriting all the way down. And the loan officer did a pretty good job of explaining it all. And at the bottom, not the top, where we know it to be now, was this thing called loan origination. And I think the price I paid for the house was, like, 105 grand. That just sticks with me. And it was, like, 1050. So whatever one point was, and I go like, what’s that? What’s that fee? And I remember it as if it happened yesterday. He was stammering, but he’s like, oh, because we get the credit report and the processing and the underwriting, I say, no, no, no, there’s credit, there’s processing, there’s underwriting. What’s that? And realized real quick, he basically said, well, that’s what I make. And I said, well, and I’m 18. And I said, well, hold on a second. So, a credit report does their thing. The title does their thing. Processors do their things, underwriters, Escrow. It’s my documentation. I’m giving it to you. I qualify; you collect it, you give it to everyone else, and you get paid that. And he said, yeah. And I said at that moment, how do I do what you do?
Kevin Kim: Oh, nice.
Bill Tessar: And I was a freshman in college, right? 18 years old.
Kevin Kim: Right.
Bill Tessar: And so I got my license, and I started in it young, through college. In my second year, I was the top originator at the firm.
Kevin Kim: It was you’ve been in origination, okay.
Bill Tessar: My whole life, yeah. And from there, I never looked back. I spent 28 years, just under 30 on the conventional side. Our company, I ran a company called Skyline, which was later bought by Finance of America. I ran that company from 2007 to 2017. But my company before that bought Skyline. So it was really I was there for 20 years. And so I ran that. And then Skyline bought a conventional company inside of a firm called Wedgwood. Wedgwood claims to be the largest independent fix and flip company. That was the connection. And I became an advisor on the advisory board of that transaction. And I didn’t buy the mortgage company because I thought it was a great mortgage company. I bought it because I wanted to be at the center of all their transactions. Thinking we’d be the takeout, right? When we did that, and that was in 2015, Wedgwood pivoted out of conventional and started a thing called Civic. And that was with Witt and Jack and a few of the folks that you know. And they started in a room, small little room, and I got to watch them from another company, but kind of as an advisor of Wedgwood in lending. And so they built that thing up over the next year and a half to like $20 million a month. And it seemed like it was a little train that could, and so they approached me to leave my post and come over and take over this. And to be frank with you, we had 650 employees. We’re doing north of 4 billion. I was responsible for probably 500 of those hires. So I was very close to these folks, been there, as I explained, almost 20 years with the two companies. And they had 40 people doing 20 million that wasn’t even the size of one of our branches. And so, from a career perspective, it didn’t really seem like a good move for me. But the way I would describe the conventional business then, even more so now, is like flying a 747 about 30ft above sea level, and there is no margin for error in anything. And so you have to be an expert at cost management. You have to be an expert at margin protection and all the other aspects of running a business. And so we got pretty good at it. Like, we made money, and we paid attention to details. And I remember going through back and forth about six months of no, no, no, no, no. Finally, I did a doc request, and I dove into their model, and I realized over a three-day period that this company was doing like 1/15th or 1/17th our volume and making, like, 15 times our PPI. And I’m going. I thought they provided me false documentation because I didn’t believe it that there was that much margin in that business. And I sat back, and I said, if I could bring the 30 years of discipline of running a conventional shop to this space in all the different aspects of scaling a business, we might be onto something. And so we proceeded to have conversations, and I made the decision to transition out of conventional. When I did, I took my head of operations, who had been with me for over ten years. That was Merced Cohen. And we joined Civic in February of 2017. We spent the first 90 days doing nothing. We took notes, we watched people, we watched processes and everything about the business. And then, on day 91, we went to work, and we started. I think, in 2017, we did north of 600 million. ‘18 900 million. We crossed a billion mark in ‘20 and then often running with all the other.
Kevin Kim: When you were looking back as a conventional mortgage person, your first foray into this as an advisor, and you’re watching Wedgewood do this. Was there a perception in your brain like this is loan sharking, this is sketchy stuff? That’s what I used to hear when I first joined the industry. I joined the industry in ‘14, and all my former banking friends and mortgage friends were all saying, that’s loan sharking stuff, that’s some sketchy business, that’s not a real business. And that seemed to be the conventional kind of perception at the time amongst real mortgage shops. Right?
Bill Tessar: Yeah.
Kevin Kim: Was there any of that going through your head, like how could this be real? This is not a real thing.
Bill Tessar: So maybe even before you were born, the big hard money lender that I remember was Ames Home Loan, and they used to have the commercials with the guy in the boat and the sharks when they were around them. So when you think about hard money, I recall those commercials, and there might have been a little bit of that. I never really thought about it as being sharky. I did think about it as obviously the coupons were significantly higher, and you’re dealing with a different type of borrower. I’ll tell you the biggest surprise for me. When I was looking at the weighted average coupon that they were earning in BPL, and I knew what we were competing with on the conventional side, I really figured that we were going to see a bunch of 500+ FICO borrowers that didn’t have any documentation of anything but a big story about why they couldn’t provide the documentation.
Kevin Kim: And a piece of property.
Bill Tessar: And a piece of property with some equity. That’s actually what I thought I was walking into. And as it turns out, it’s totally the opposite. You got very sophisticated borrowers with great credit and business acumen to make it in this space. And listen, there was a little bit of a learning curve for me on that. In the same way, there was that people were paying origination points. Like in the conventional space, people would argue over $20 on a no-point, no-fee loan. And so the whole perspective of an investor that obtains financing for their flip is a lot different than the couple that is trying to get an FHA loan to get into their first property. It’s just it’s an entirely different dynamic. And I think that paradigm shift had to happen very quick for Merced and I as we transitioned out of conventional into the BPL.
Kevin Kim: You’re one of a few stories of quick entry from conventional, quick adjustment, and scale. Civic is a legendary story in the space, and we’ll get deeper into that later. But as a person coming from conventional, and the reason why I’m asking this is today, we are seeing a ton of conventional shops making the transition into our sector into BPL, and some have made it, some haven’t. Right? And it’s been shocking because, I mean, Amer first jumped in. They tried to do it. Baby homes tried. A lot of conventional shops are making their way into BPL. Is it really doable for most of these guys?
Bill Tessar: Look, there’s different rules and regulations for both convention owner rock and non-owner. You know, that when you live in Dodd-Frank and Trit and all that other stuff, it’s entirely different here. And you can’t straddle both of those worlds. It’s one or the other. The one question I’ve probably been asked more than any other question since 2017 is, are you going to bring on owner-occupied stuff? Like, you’ve done it for 30 years. You have the people, you know the originators, you have the channels, you have lots of real estate offices. You’re going to bring it, you’re going to roll it out slowly, add a little product? And I said, absolutely not. We’re going to be laser-focused on this part of the business. And I think what you might see is you might see some of these people partnering up with the bigger folks in our space. I think you might see a little bit of that.
Kevin Kim: They need conventional shops partnering with the bigger aggregators or national shops.
Bill Tessar: We’ve been approached. I mean, CV3 has been approached by two of the largest in the nation to do just that. And so I do think that having a product line now over any time before is probably more real. And the biggest reason for that is, as you know, rates were so low for so long that we couldn’t get any of our account executives into any of these shops. And these are shops that I have deep-seated relationships with, like the CEOs of 15 of the 20 largest shops. I’ve been to their weddings, I’ve been to funerals, I’ve watched their kids graduate. Like, I’m super close with these guys and gals. I’ve got great relationships with them. And I couldn’t get our account executives to make a connection with their account executives. And why would they? They were doing Kevin Kim’s loan over and over and over every time rates dropped. So they weren’t interested in learning something new or hearing about a new product type. And right now, with rates at what, today it was eight and a quarter on a 30-year fix, they’re listening.
Kevin Kim: Right.
Bill Tessar: And so I think there is a huge opportunity in the BPL space if you do it right.
Kevin Kim: But do they have the discipline to do it right?
Bill Tessar: Who’s they?
Kevin Kim: Conventional shops, right? The non-QM shops, these consumer shops that see it as an opportunity, but almost like it’s like, oh, we’ll do this for as long as it’ll make money for us, but this is what we’re really going to do. And like the straddling, right? I don’t ever see any of these guys double down. Right?
Bill Tessar: Yeah. I think that the opportunity that I was referencing is for the BPL shop.
Kevin Kim: Which is smart. I’ve had the same conversation. We should probably add a paper shop, or we should probably adding consumer non-QM stuff to our book or add that to our practice in the future. So we’ll make some more money that way.
Bill Tessar: Yeah. And specifically, what I’m saying is take a BPL shop, any BPL shop, and allow part of their wholesale focus to go after a conventional lender and offer their products through some JV or MSA or something.
Kevin Kim: Because they have a flow of borrowers on tap. Yeah. All right, so let’s shift gears a little bit. Everyone wants to hear this. Civic.
Bill Tessar: Yeah.
Kevin Kim: All right, so, Civic, last time you were on the show, we were talking about the acquisition from the bank.
Bill Tessar: Was it the last time?
Kevin Kim: That was the last time you were on the show. We’re talking about what you guys had gone through and why the acquisition had happened.
Bill Tessar: Okay.
Kevin Kim: And so I don’t necessarily want to get into the dirty details, but just kind of give us the high level what happened. I’ve been following it and mostly on social media and press releases, and thankfully, our role in the market allows us a little bit more inside information. But still, I would like to hear from the man on the ground, a man who knows, fighting the good fight on this one.
Bill Tessar: Oh, yeah.
Kevin Kim: What happened?
Bill Tessar: Yeah, so, you know, surprising. I think I’m one of six people left on MySpace. I told the whole story on MySpace right after it happened. No one responded, didn’t go anywhere. Are you not on it anymore?
Kevin Kim: Tom heard it.
Bill Tessar: Yeah. So, look, being sensitive to all of the intricacies of what transpired, here’s what I will share with you. Pac West reached out to me in ‘22 to spin Civic out. We raised capital and entered into an LOI with the board of directors, which we signed, and that was in late 2022. We had a definitive that was to be signed in late January of ‘23, with a closing in March, five days before the definitive. The bank had a different position on a number of key elements in our contract, key elements that were super problematic for us, being the purchasers of the company coming out, so much so that we were unwilling to bend in those areas. We gave them some other options. Those weren’t accepted. And two days later, myself and the general counsel were termed under what they called a restructure. And so that was January 18, 2023. It was the first time I’ve ever been fired at anything. So I had a tattooed on my back, real big and a checklist of Akin 01/18/23 all across my back. I didn’t, but it sounds really cool. I told my wife at the time, I’m getting it done. She’s like, let’s everyone just sit back and calm down. So that happened. And listen, it wasn’t a restructure. The very next Monday. It was what we now know as a wind-down. We had over 500 employees. They immediately announced a riff for 250 folks. We had 1700 loans in the pipeline. They put a pause on all new originations. They brought in outside firms to see what of the 1700 maybe they wouldn’t have to fund and then funded the rest. Over time, they got out of contracts. They tried to get out of leases. And that went on for a couple of months. And that takes you to, I think, late April, May, they made one last ditch effort, I think, to wind this thing down eloquently. That didn’t work. And I believe it was maybe the second or third week of May they ended up selling the name and some items. And so, look, I think this is super important, to be crystal clear. The company that bought the Civic name bought the Civic name. They bought the website; they bought the URLs that direct traffic there. They bought marketing materials. They bought the account executive list of their name, number and personal emails.
Kevin Kim: Goodwill.
Bill Tessar: Yeah, and they bought previous clients’ contact lists. They did not assume any liabilities. They did not take over leases. They did not buy loans. They did not take over asset management or any servicing strips. And effectively, 2 out of the 500 employees ended up with that company. So, look, I saw the release. It said something about origination, assets and workforce. It wasn’t. Look, here’s another question everyone asked. Was it the right move for them to do it? Because you read out and saw everything that happened on social media. A lot of stuff, crazy stuff. And here’s what I would say. I think that if the goal of the company that bought the civic name was to get loans through website traffic and the money they made on those loans was enough to justify whatever that dollar amount was that they paid for the business, then maybe the owners of that company could sit around a table and say it wasn’t a bad move. If the goal was to get 40, 50, or 60 originators to stand up, march across the street, put on a New Jersey and originate 3 billion, then it failed miserably. And so it’s always funny how things play out in the news and in social media. And as you probably know, I said nothing during the entire time.
Kevin Kim: Which was like the funny part because Dima and I were both watching it all; just get the popcorn out. But it was really funny because, yeah, you didn’t say a peep, but it was almost as if people were speaking to you through LinkedIn. It was very fascinating.
Bill Tessar: It was amazing. And it’s like you think about that. It’s such a sad event what happened to Civic because it didn’t need to. We were unbelievably profitable. Our loans performed unbelievably well. And if it wasn’t for some balance sheet challenges and all the regional stuff that you already know about, which has.
Kevin Kim: Led to let’s cover that because a lot of our audience don’t have a full understanding as to what this banking crisis really meant. They only know about SVB, right? And First Republic. They only really watch the headlines. The ones that are really deep in the banking world and have that experience can understand what that means for them. And this is what I told a lot of people, like, guys, the bank owns Civic. If the bank has balance sheet problems, if their assets are being devalued, basically, is what was happening. Their treasuries and RMBS and all these things that they’re holding are being devalued because of interest rate hikes and current market volatility. Obviously, it’s going to make Civic suffer that they can’t perform the way they want to because the bank is now being regulated by whoever has been regulating them and telling them what to do and what they can’t do and fear being shut down. And we saw that. We saw as the crisis went on and on PWB was on the cusp of being shut down. And the reality of it is, Civic was what percent of like a tiny piece of the entire organization?
Bill Tessar: Oh, yeah. I think we had 3 billion on the balance sheet of a $43 billion balance sheet. That wasn’t the challenge.
Kevin Kim: It was not a meaningful amount.
Bill Tessar: I know there was a little scutter bug about that, but that wasn’t the challenge. The challenge really was they were heavy in treasuries. They had a run on the bank and deposits. And when you have that and, that cash is trapped with a coupon that is far outsized to where we are today in the marketplace, and deposits were moving from regionals. It wasn’t PWB-focused. It was throughout those size banks the balance sheet turned upside down. So it wasn’t just Civic, like multifamily. That business was under PWB for 30 years. You got multifamily and lender financing and premium financing, and all those ancillary businesses went away, which is what a lot.
Kevin Kim: People didn’t realize. I didn’t know that until you told me earlier today that they had basically a venture arm to their business. And that’s unheard of to me. Why are you doing this? And it explains even further. Volatility right?
Bill Tessar: Yeah. I mean, listen, when we started together, the cost of capital was ridiculously low. I think the first year and a half it was like 25 basis points. And we never ever won on price, ever. We were always in the upper 20% in the hunt, but we never won on price.
Kevin Kim: Yeah, you guys weren’t the low-cost. No, there were other low-cost, for sure.
Bill Tessar: And I’d hear it from our army of agents, right, all the time. But when that changed, and their balance sheet started moving, the dependency of the capital markets was probably more important at that time. And we really were disconnected with the whole gain-on-sale model because the bank refused to sell a loan. Like, not one loan.
Kevin Kim: Why do you think that was?
Bill Tessar: Because of the cost of capital. Then, when they wanted to sell it, when the world knew that the bank was in trouble, they wanted to sell old paper, like old 5% rental paper. Those bids are not going to be very good, and you know what happens then. And so they ended up not selling.
Kevin Kim: And they had a perception problem, too, because they’re in the news every day. Everyone’s like, oh, they’re going to go under. Why would I buy paper at par from a bank that’s going to go under? I’m going to try to get a deal. Makes sense.
Bill Tessar: It was unnecessary, and it was very disappointing. But I think for me, look, I’m a big boy. If it didn’t work out for me under PWB, I could deal with that. What happened with our employees for me was unforgivable. Like for them to have to go through, they did nothing but perform. They showed up every single day and kicked ass way more than we ever expected in every way that you could imagine. They got caught up in the crossfire, and it was a horrible thing to watch from my vantage point. Probably the toughest thing I’d ever gone through was just how that transition took place for them.
Kevin Kim: Yeah, it was rough.
Bill Tessar: Very rough.
Kevin Kim: Yeah. And this goes to my question about banks being involved in our sector. Right. So when I joined Geraci, my conclusion of the hard money industry at the time was that it was a reaction to the over-regulation and over, let’s just call it, kick-you-in-the-nuts underwriting of the banks. And it was an industry- like the foundational thesis of private lending was created on that idea. We’re not banks; we’re underwriters, we’re lenders, but we’re not going to be like banks. The question to you is going to be, does a bank of any business involved in private lending a real bank, not like these investment banks? That’s fine; it’s a different strategy. But if you are an actual bank, a depository institution, you have any business working in the field of private lending at all, let alone owning a private lender.
Bill Tessar: Yeah. So thank you for clarifying that last part because I think it’s important. So here’s my feeling on that. We created a lot of really, really strong regional relationships with banks that I have today. I think the product fits very well inside a bank. On the balance sheet, I think the company does not. I think the regulatory scrutiny that is involved with being underneath the umbrella of a bank is so significant that in your wildest dreams, and this is from a guy that’s been in the business a long time, and I went through all of DoD Frank and Trit and all that stuff. We went from a three-week turn time to six weeks. And the only reason people continued to come back to us was because we were 100% relational, and we showed up and closed deals as we said we would. But it was painfully long, from the loan setup to the funding. And that was mostly connected to the starts and stops and all the added regulation that doesn’t exist in the space today. I actually think it was a competitive disadvantage for us, and we managed around that because of the relational approach to the business.
Kevin Kim: And that boils down to the balance sheet depository, balance sheet requirements and all those strictures that these banks have. And then they have to look back in time. We’re going to look at all the loans on your books and ask you questions on concentration, and then they freak out about that. And that raises the interesting question, though. You’re saying that it’s okay for banks to be either buying paper in our sectors; it’s a good investment on the blown side, for sure. The lender finance programs that exist are a good program; you’re agreeing with that but not necessarily owning it as an operating company purely because they’re so hyperregulated. And that begs an interesting question, is like: will there ever be an instance? Because I see these smaller national banks that play in the space almost like private lenders that make construction loans, and it makes me wonder, how are they operating successfully? Because there have been some banks that compete with our clients, and it makes me wonder, how is that even possible with today’s regulatory environment? And what does that mean for those banks, really? Because they’re not small banks, three, four or $5 billion banks, but they’re making what looked like hard money loans to me, right?
Bill Tessar: Yeah. So listen, part of my strategy is to continue the relationships I’ve had with some of these regionals. Now, no matter what you say, their cost of capital is no longer 25 basis points; it’s 525 or 550, but it’s a shitload less than the cost of capital anywhere else. That’s right. And so I think you should have those relationships and sprinkled in. And listen, in fairness, the time I spent underneath Pac West, we learned a lot. And I think the most important thing we learned was what is important to other regional banks. And so when we show up, we show up the right way, and we cover the things that are important. Having gone through FDIC audits and all of those things, could you imagine if I introduced an FDIC audit to any of the competitors out there? They’d quit. We had a we had a whole group of people whose sole responsibility was auditing.
Kevin Kim: That’s a pee-your-pants moment. Holy crap.
Bill Tessar: It’s like, oh, my God. Listen, the FDIC, there’s an education process there. There’s so much they don’t know about our space, and so they probably lose their minds.
Kevin Kim: They see a twelve-month loan. They’re like, what the heck?
Bill Tessar: What happens after that?
Kevin Kim: Let’s switch gears to the, I guess you call it, the phenomena that happened on LinkedIn after the, let’s call it “The Term” and the wind-down of Civic and this launching of CB3 because that was a three-month gap. And when your employees, many of whom I’m friends with, I see them on LinkedIn almost as if they’re speaking to you through LinkedIn. “Hey, Bill, I’m going to go work for you. I want to go work for you. I’m not going to go work for anyone else. I’m sticking with Bill, and I’m sticking with this thing that we built together”. And it’s fascinating to me because three months is a very long time, especially for loan officers. And it was a time in the market where they could have easily found another job. There were probably offers being thrown at them left and right, yet they stuck by you. They waited three months, and three months was a long time, and they joined up with CV3.
Bill Tessar: Yeah.
Kevin Kim: That kind of employee loyalty, I guess you can call it, is, to me, unfathomable. I just don’t understand. I was like a glass shattering my brain. As a CEO, as a principal who’s been doing this for a long time and scaled the company, this is not something that is easily seen out there. And so, give us some more insight as to what you think you did right. And any points of, I guess, feedback or advice you can give our audience because a lot of them are striving CEOs and would love to have that kind of brand loyalty from their employees.
Bill Tessar: Yeah. So, first of all, I watched from the same front row that you did. I wasn’t part of any of that. I wasn’t sending private messages; “Hey, please support this chain of comments.”. There was none of it. There were people that weren’t in our industry that were jumping in, which it made me feel good. Well, you spend a lifetime really investing in people, and I would say that I always felt like there was a mutual loyalty back and forth with the people that I work with, but you don’t really, really know until something like that happens. And so, yeah, you’re right. The last riff at Pac West was at the end of May, and we stood up CV3 on August 31st and so June, July, and August. And truth be told, there were lots of reputable companies out there that presented incredible transition and signing bonus packages to almost all of the folks that are here. Not one of them came to me and said, what do you think about this? Or, hey, do you have an opinion about what I should do? It was all on their own. Does that make me feel good, Kevin? You’re goddamn right it does. It makes me feel really good because I would have never really expected that. Listen, it wasn’t easy for those folks that sat on the sideline. And there’s never a guarantee that you’re going to stand something up in a period of time that you say you’re going to stand it up. And there was a lot of work that goes into starting a company. Like, we didn’t have anything. All that stuff was at PWB. So when you think about all the items from LOS and licensing and infrastructure and the lease that you’re talking about, and having proper payrolls and insurance and all the things that just get.
Kevin Kim: It’s a restart. You’re starting an existing going concern that had a certain amount of volume and scale and trying to turn that back on; that was also really cool.
Bill Tessar: Well, and I’ll tell you, so you said, how do I feel? I felt super motivated to make sure that I delivered my end of the bargain and stood this up in a way that people can be proud of. And listen, I’ve spent a lifetime investing in people every day, in every way. And it’s not just about having a nice place to work. It could be making sure that somebody doesn’t miss a child’s soccer game, gets to go to a recital, needs some personal time, all of those. Listen, I’ve been a big people person my whole life. COVID was like, you talk about paradigm shifts. That was probably the biggest paradigm shift in my career in that I always felt everyone should be in the office, shoulder to shoulder, jerseys on, marching to the same drum, right? And then COVID hits, and you go like, wow, people can govern themselves. They’re so grateful to be with their children, their older parents, and the lack of commute. All of a sudden, this new way of investing in people came through me. And we started our company anywhere. Now it’s CV3 anywhere. So you could work from home, you could be hybrid, you could be here. I don’t care. I want our people to be happy. And I think in all of those things, it showed up, Kevin, and it showed up in a way that if I was a betting man, and I am regularly, I would tell you that I would never have bet that those folks would have waited for this to occur. I just never thought that was going to happen. And when you think about those folks, you got 35 originators. That represented 92% of the 3 billion we did the year prior. 35 of those. You got all of the other hunter/killer best-in-class operations and shared services people, which represent another 120, some OD folks. And so we come out the gate with what I believe to be our brightest and best. We recognize we have some family members that were part of our other company when it was at its peak, that we hope we can get big enough to bring some of those folks back. But right now, pretty proud of what we’ve been able to stand up in a relatively short period of time.
Kevin Kim: Give me a little more granularity when it comes to being a people person; being a people CEO, you invest in people. You gave me those examples. But is your entire kind of day focusing on how can we make this place a great place to work? And is that what you spend most of your time on as a CEO? Or how does your day get broken up?
Bill Tessar: Yeah, I think my pie is- it’s got three parts to it. One is strategic. So, provide a strategic vision for the entire organization to rally around. Part is tactical. How do I help our executive team? I think 12 of the 13 executives are with us today, and many of those followed me through conventional. So, like, I’ve been with this group a long time, and then the last is the health and well-being of our people. And so when you think about that, it’s having a nice workplace. It’s being able to work from home. It’s having a voice here. We do keep-stop-starts every quarter. It’s recognizing excellence through our grand ideas and other recognition programs that we have for our people, and it’s celebrating them every day in every way. And listen, the soccer example I gave you sounds like, oh, everyone does that, but actually, everyone doesn’t do that. We have folks that have joined us in the past that had to show up at a certain time, had to leave at a certain time, had X amount of PTO, and if any of those were compromised, that’s problematic. Like, the way I think about this is this is a long game. And if I can’t let Kevin go enjoy your daughter’s back-to-school night because I need you to finish a project. What kind of partnership is that? And you said something earlier. You said these people came to work for you. Like, nobody works for me, quite frankly. I think about it just the opposite. So you got a triangle, right? Like the old wooden triangle, the hierarchy of needs, and you have the captain at the top, right? And then everyone serves up to the captain. I kind of think about it, like, turn it upside down and sit my fat butt on the bottom, and then serve all, and then so my executive team serves up, and then their direct reports serve up. Really, maybe the further away from my office, you have the most amount of people making sure that you’re okay. I have a responsibility to make sure that I’m okay as well, and those around me do that. But to me, it’s like the most simple rule of running an organization is to put people first. Like our power, for sure. It’s not the loans. It’s not the price, it’s not the states, it’s not the channels. It’s the people. The power of our company is the people. And I would have said that before, and you would have said to me, oh, yeah, hey, that sounds really good, really catchy, Bill. You should put that on a marketing piece, but you got to watch it before it happened.
Kevin Kim: Exactly.
Bill Tessar: So now it’s no longer a marketing piece.
Kevin Kim: And that’s when this all happened. We had this internal discussion, like, man, we really should spend more time talking about culture building and corporate culture and also people building. And I’m glad we were able to talk today because it’s been kind of a theme on the show this year, but this phenomenon. I mean, it just shows that it works. Not only does it work, but it pays dividends because you didn’t set up CB Three and all of a sudden go on this crazy recruiting spree, which is not only expensive but will waste resources. Really? When? You’re able to bring the entire workforce. Almost the entire workforce is over because of that level of culture, which is fantastic.
Bill Tessar: You know, if you apply the same thing to your customers and here’s a free tidbit, and some will hear this interview with you and I, and they’ll go, yeah, we know that. We do that. But what we do with our customers, what we do is we invest in their business. So it’s not like, hey, Johnny, come to us when you need a loan, and we’ll do a loan for you. And boy, are we fast. And we’re going to give you a fair price at a fair rate. We find out what their whole marketing, digital branding, social media, SEO, SEM, website, and all that stuff, and see if we could add value. We have a full marketing department. So, Tech, how could we help you with tech? And how could we help you with lead aggregation? How could we introduce you to other potential buyers or acquirers of property? We’re chips all into the relationship. Oh, and by the way, Kevin, we do loans. And so I think we saw that show up in a very big way, the same way you referenced our employees. I checked today before our meeting. I had 757 direct messages since August 31 connected to old customers who have done business with us, who wanted to be reconnected, people who have worked with us, real estate companies, investment companies, and the like. And I do think that that also shows up. Like, they know that we invested from ‘17 on into them, and so now, all of a sudden, they’re ready to reciprocate and invest in us.
Kevin Kim: I love that. All right, so let’s switch gears to the company. Let’s talk CV3.
Bill Tessar: I like it.
Kevin Kim: I’m so excited for you. This is great. I mean, I walk in here, and you’re already going. You’ve been open for how long?
Bill Tessar: August 31. Technically, it was like September 5th because August 31 was kind of our launch party here. And then that was a three-day weekend. I think. And so the 5th people came to work on Tuesday.
Kevin Kim: So first of all, give us the kind of the elevator store pitch, I guess. What is CV3? What is your concentration? And we’ll go from there, I guess.
Bill Tessar: Yeah. So, really, it’s not very complicated at all. CV3 stands for our core group version three.
Kevin Kim: Yeah.
Bill Tessar: And so if you think about it, like, Wedgewood was the founding parent to us, right? And so you could consider that version one and version two underneath the PWB banner. And now it’s like, by the people, for the people version three. And so I like it. It’s meaningful to everyone. On our day 1, we had One hundred fifty-five people start day 1. One hundred fifty-four of us had worked together before.
Kevin Kim: Right.
Bill Tessar: Only one person, who happens to be an absolute rock star on the operation side, started with us. So, that core group version three means something to me. And look, I was saying this the other day, and hopefully, you can appreciate it. When the thing went down with PWB, the very first feeling you have is you’re mad.
Kevin Kim: Yeah.
Bill Tessar: And then you feel vengeful. We’re going to show them. And then you start getting more information, and you’re more understanding. You understand that the bank was in a situation. And the last feeling I had on 831 as I drove home was thankful. Like, I am so thankful that everything that happened happened exactly the way that it did and the trauma happened the way that it did. And we all got to experience what we did because it gave us this opportunity of coming together and do something really special. And so that really is what I would define as CV3.
Kevin Kim: It’s basically going to be the same thesis as before. BPL, DSCR. Now, a question for you on the business side: will it have a similar wholesale channel and retail channel like it did before?
Bill Tessar: Yeah. So here’s what I did out of the gate. I wanted to keep it simple. We built up to like 60, 70 plus agents. We have 35, so that’s simple. But they did most of the volume. We had three channels. We had wholesale, retail, correspondent. Wholesale retail did 90% of our volume. So we started with that. We had products we were just getting ready to roll out ground up. We had multifamily. We had the DSCR bridge and fix and flip. We stuck with rental and bridge stuff, right? And fix and flip. We had 40 states. We came out the gate with like 22 of them. But all of that stuff I’ve told you represents the vast majority of the business we did in the height of us being together. And so we’ll do that as we go into early ‘24. We’ll bring back the correspondent. We’re already adding states. I’m working on a couple of new products right now that our space has never seen. I won’t get into it right now, but one that I think is a needle mover for our space. The intention is to roll that out at the beginning of 2024, but it’s going to make a big difference to an awful lot of investors, and I think it’s been needed for some time. So, yeah, keep it simple, stupid, is the way that I thought about it.
Kevin Kim: Is it really that simple? You set up a 22-state lending outfit, a private lending outfit, with how many employees?
Bill Tessar: I think we’re at 160, is what?
Kevin Kim: 160 employees, full suite office. Give me some thoughts on or more like kind of a reaction, because that’s a lot of stress to be able to build; basically, you’re not starting up right. And so the burden on you to actually get Marshall all the resources that you need to start, like, mean, what was that journey like?
Bill Tessar: Well, in the beginning, it was just mine before I went and raised capital. And so when you’re not gainfully employed, which I wasn’t, and you’re stroking checks, it’s the first time in my life since I was 18 years old that some of my accounts were actually going down and not up. It’s an interesting perspective when you’re on that, but yeah, so in the beginning, it was all me, and then we went out and raised a bunch of capital to stand this up. And I think that the stress for me is not today. The stress for me is feeling like I had a fiduciary responsibility for the health and well-being of all these folks who were on the sidelines to stand something up in a way that they could be proud of, that they could be part of, and that they can contribute to the growth of. And so those days probably kept me up probably longer than other days, but right now, I’m in my element right now. I know it’s foggy out there, and there’s a lot of naysayers about the marketplace and interest rates and debt ceilings and all the other stuff that’s talking. I see things crystal clear right now. I’ve never been more optimistic about the future for us than at this time right now. Never.
Kevin Kim: And I have to ask, we’ve seen new businesses being stood up in the space with the vision to go national over the past three or four years, and they must all be institutionally backed, either owned by an institutional investor or primarily funded by one. Are you independent?
Bill Tessar: We’re not owned or funded by any large institution. Yeah, been there.
Kevin Kim: That’s what I’m saying. Right.
Bill Tessar: You know, it’s funny, like, if I were throwing popcorn at me, here’s what I’d say. I remember that guy being in those conferences saying he used to always say, this is Bill Tesser. He used to always say, if you’re ever in the business of lending money, don’t run out of it. We ran out of it.
Kevin Kim: Yeah.
Bill Tessar: So I said, you can’t run out of it. So much money ran out of it. I remember sitting in my living room thinking about that; I should eat a little crow for that. Because I’d get up there and I’d say it, and I meant it.
Kevin Kim: Good on you for taking having that humility. Because you know, the rumor mill and I always joke about this when the rumor mill was at its height, right? You guys had a target on your back. And I was just, like, kind of joking about with another client. I’m like, you know that they made it when you’re all talking shit, right? That was, to me, like, almost the validation. They’re doing a good job because you all clearly have it out for them. Right. But now it’s even funnier because now they’re all saying, well, what are they going to do? What’s going to happen? What is this? And so this is great. I’m glad you’re willing to kind of have that level of humility but also tell us your story and what’s going to happen next.
Bill Tessar: Yeah, I mean, really, if you think about it, our day one was in a living room, and we did the exercise I referenced earlier. We did a keep-stop-start, and we did it with our executive team. And what a keep-stop start is you list on the board all the things you’re going to keep doing, people first. That was super simple. Like, our superpowers are people. People first, and then the things you’re going to stop doing and the things you’re going to start doing. And it’s a reflection, at least for me, of six years looking back. So let’s talk for just a second on the stop because you said, hey, that was awfully a lot of humility on your part, Bill, for saying that. You used to say that at the conferences. And look, you ran out of money. You ran out of money. Well, that’s just the truth. I’m a big boy. What I said was right.
Kevin Kim: What happened?
Bill Tessar: They ran out of money. It just happened to happen to know, like, one big stop is when I started at Civic, I literally went on a full-size office whiteboard, and I wrote out what I thought the perfect LOS system should look like. I just started writing it. And Matt Flores, who I think, you know, he’s been with me years, he’s kind of a savant in taking my crayon thoughts and making it structured. And he’s very special that way. And so I always thought we should write and own all of our tech from beginning to end. I think that might have been one of the worst mistakes I’ve ever done as a CEO. I fell in love with the idea, and the group grew bigger and bigger and bigger, and the expenses grew bigger and bigger and bigger. And once you’re in it, it’s almost like, you know, I said I want to create an Amazon-like experience. Like, for me personally, no one’s done it better than Amazon. I didn’t mean the Amazon experience of going down the Amazon. And so that’s kind of like so we knew for a fact we were going to align with best-of-class tech, and then the customization between the interconnectivity of your CRM and your Los and stuff, we could do that. We have a whole team of people that can do that, but we’re not going to build it from the ground up. That was a glaring stop moment.
Kevin Kim: Which makes sense. What’s your business, right? Yeah. And I’ve seen on this show, we’ve mean, I remember when we interviewed Steve Pollock, and he said we had to build our entire suite. But at the time when he did it, it didn’t exist. There was nothing for him to use. So I understand that, but there are other companies that are built that are still so obsessed with technology. But wait a minute, you’re a lender. So I guess the question is like, oh, yeah, it doesn’t solve my problems. I need to go do it myself. But back to the idea of discipline. That’s incredibly important. I think that’s going to help you significantly because all the guys right now that we see Just kill it. Are incredibly disciplined. And they have to be because it’s foggy out there. Yeah, but you made a comment earlier that you’re, like, super crystal clear on what’s coming for the future. I gotta say, everyone is in this doom and gloom mentality.
Bill Tessar: That’s amazing, isn’t it? There lies the opportunity.
Kevin Kim: And the market also is very strange because you also have all these new market entries. You have a bunch of shops jumping into the space, new shops being formed every day. And because rates are up, local guys are starting to jump in, and the transition from real estate into this is happening all over again. How is it that you’re so, like, isn’t it kind of scary?
Bill Tessar: Yeah, not at all. Look, I told you early on that I spent a lifetime on the conventional side. If I was running a conventional shop, I’d be scared shitless. All your refi’s are done.
Kevin Kim: Yeah. Mortgages are 8%.
Bill Tessar: Well, listen, two of the houses out here I have are two and a half percent. I don’t even think I could sell those homes because the rental income opportunities, even on the one I live in, would be astronomical to just go somewhere else. And so I think there’s a lot of people that are landlocked into these low rates. No one’s going to refi. Everyone’s looking at seconds, and the ones that are considering it don’t qualify because rates are too high. So I think that’s a problem. For us, if you think about it, I read the Adam report a short while ago, and I think that this last quarter was up. And don’t quote me the exact number, but I think the average amount of money a flipper is making is like 63,000 a deal, something like 56 to 63. Let’s use 63. If they were making 63 at a nine or nine and a half, and now it’s eleven and a half on a $500,000 loan, holding that money for a year, that’s ten grand, right? 500,000, 2%, ten grand. So they make instead of 63, they make 53. Those guys and gals are still out there pounding the pavement. There’s enough meat on the bone that they’re doing those deals. So my opinion is that the databases of the conventional shops, which are rich in many, many years, those folks, some of those folks need this type of financing for their next venture, their next accumulation of real estate. And I think that there’s just been a massive disconnect between BPL and conventional, and that’s going to open up a huge opportunity. And there’s still a boatload of dinged-up real estate throughout the United States. A boatload of dinged-up real estate. And so I think that look, in our space, some people are going to come in, some are going to go out. I think you’re going to see some consolidation of shops.
Kevin Kim: We’re already starting to see, yeah.
Bill Tessar: You’re going to see that. I like the fact that we’re coming in fresh. We have no legacy, anything. Right. This is day one. Funded our first few loans seven or eight days ago. That was kind of cool. I think the first loan we did was, like, 126,000. People were making such a big deal about it. I’m thinking like, oh, my God, we have so many more to go, right? But, yeah, Kevin, I’m more enthusiastic about this market right now, today, than I was when I joined Civic in ‘17.
Kevin Kim: Fascinating to me because all I hear is pain. Right. I got back from a multi-show, and it’s just I get it. Multi is a little more problematic than resi is, but the consensus was just pain. And then I made the comment earlier last year: doom is coming. And a lot of these shops are struggling because they’ve been, I guess you can call it, reliant on this very low cost of capital in the secondary and their lines of credit and all that other stuff.
Bill Tessar: It’s fickle.
Kevin Kim: It’s tricky. Yeah. So, I mean, going with the headwinds that we have going into ‘24, you’re a new business, you’re excited, and you think there’s a lot of opportunity. What are some things that you’re super excited about going into Q4 and into ‘24? Because I’m guessing APL is going to be one of your big kind of coming-out parties. Everyone’s going to come out to the APL and going into ‘24. It’s going to be a big charge. What are you guys excited for?
Bill Tessar: Look, I think when you come out the gate, there’s an awful lot of wood to chop, and so we’re chopping that wood right now. So, as I think about ‘24, the things that excite me are our Geo expansion, our channel expansion, actually opening things up for recruiting. Like, again, I told you about 750 some odd people. I don’t want to bring people over right now as we’re getting out the gate and getting a little wind behind our sail. So I think that’s important. I want to roll out some new products. I think a couple of these products are going to be game-changers. So I’m really excited about that. And then just really, Kevin, reestablishing ourselves as a top player in the space because right now we’re just a past story and a little bit of marketing, and I think we have a lot to prove, and I can’t wait to do that.
Kevin Kim: I appreciate that humility, though. You want to get back to where you were, and you’re saying you have a lot of wood to chop. That’s not what a lot of folks in your position in the space would say. They would come in with that kind of, I guess you can call it arrogance, say, oh, we are the shit, and you should respect us, right?
Bill Tessar: Yeah. No, we got to earn it. I have no problem doing that. I think we’ll get a lot of at-bats, and we’ll get our balls off the wall and some out of the park and some slap singles, and we’ll regain the trust of all the folks that we’ve provided financing for in the past. And listen, just out the gate, we were chitchatting a little bit, but I think in 30 days’ time, we have an active pipeline, almost 100 million, and we have another 150,000,000 in applications and prequels, so we’re not limping into this. Remember what I said? The 35 hunter/killer originators all have standards of living that they need.
Kevin Kim: And they got a book of business.
Bill Tessar: And listen, the funny thing is I always get a kick out of that, like, oh, these are my clients, or they’re your clients. Clients choose who they do business with. I don’t get to choose that every day in every way. You have to show up at the closing table and deliver what you’re promising. And if you do that, and you do it well enough, and you have some other value-added benefits to that relationship, then guess what? You’re going to have some loyalty, and they’re going to show up for you. And now you have a book of business that you can count on. If you’re a transactional or you have a transactional approach, and everything’s about the fees or the points or the coupon, it’s a fool’s man game. And I just think that it’s a fast path to wind down.
Kevin Kim: And I want to kind of ask you a personal question about this. Thirty-five years in the mortgage business, you did an excellent job with Civic, and you became a victim of the banking crisis, but you didn’t have to come back. You could have ridden off in the sunset. Right. I’m sure you made enough money. Children are grown, right? You didn’t have to come back and build CV3. Why, bill for bill, why did you come back and do it?
Bill Tessar: It’s an interesting question because when it first went down, I kind of think about it as a fight or flight moment for me. And the flight would have been the early retirement. I’m 56 years old, so I’m still, like, in some people’s view, that might be old. In my view, I still have some gas in the tank. And so my why and my purpose changed overnight.
Kevin Kim: Really?
Bill Tessar: Oh, it did. And for me, it was all about serving those around me, and it changed to saving those around me. And so the idea of me retiring, and it’s true, I’ve done well. I’m so blessed. I love this space. I love the conventional space. I love this space. I’ve been blessed and am really grateful for having the opportunity to serve so many people and do well for myself. But the idea of calling it a day with what took place and all of those folks kind of being left on the sidelines was never an option for me. I mean, literally, that conversation with my wife lasted moments. Moments. And then it was really, what can I do to help? And then, what can I do to present an opportunity that is similar to the one we built together? And make no bones about it. This isn’t me. This CV3 is not BT. CV3 is a collection of the brightest and best in this business, and it’s a collection of lessons learned and some accomplishments that we’re proud of and some failures that we make sure we won’t do again. But I’m in the right seat at the right time, doing the right thing, and I don’t have any second thoughts about that.
Kevin Kim: I love that and that level of certainty. And you only get that level of certainty if this is in your gut, you know, this is the right move, which is great.
Bill Tessar: There’s a tremendous amount of enthusiasm coming from me on a daily basis, and that’ll show up.
Kevin Kim: All right, we’re in the middle of summer right now. In the summer right now, we’re getting ready for Q4. CV3 is going to be out there trying to chop that wood and win that business back and do all that great stuff. Where will we see you next? Will we see it at the Apple Conference? Will we see you at the IMN Scottsdale conference? Where are we going to see you next?
Bill Tessar: So give me dates, and I’ll tell you.
Kevin Kim: I think it’s going to be in November.
Bill Tessar: I think our capital markets are going to Miami. Okay. They have some meetings now for us. We are big in the conference circuit. You know that we’re big sponsors. Big sponsors.
Kevin Kim: Absolutely. And we love it.
Bill Tessar: Well, you guys do an incredible job. Giving you a plug, which you didn’t ask for. I want to tell you we didn’t use your Lightning Docs in the past, and we went through a deep vetting process of who we were going to align with. And I thought NEMA did a fantastic job representing that part of your firm. And so we’re proud users of Lightning Docs and happy to be along those lines, but I think the conference, our conference circuit, will begin at the beginning of the year.
Kevin Kim: Okay.
Bill Tessar: Yeah.
Kevin Kim: All right.
Bill Tessar: Yes.
Kevin Kim: Well, I want to make sure that our audience looks for Bill out there because I’m sure we’re going to see you on the stage somewhere talking, and hopefully, we can get you back on the show.
Bill Tessar: Yes.
Kevin Kim: And we’re looking forward to ‘24. I’m so excited.
Bill Tessar: Any three-peats? Have we had a three-peat on the show?
Kevin Kim: You’ll get the first three-peat.
Bill Tessar: All right. I like it.
Kevin Kim: All right, that’s all we have for today. Thank you, Bill, for joining us. This is Kevin Kim signing off.
Kevin Kim: You’ve been listening to Lender Lounge with Kevin Kim, brought to you by Geraci LLP, the nation’s largest private lending law firm. Geraci is the leading legal resource for specialty lenders, asset-based lenders, private lenders, and non-bank institutions. Learn more about the firm at geracilawfirm.com that’s geracilawfirm.com. Check out our episode summary to subscribe to our Lender Lounge newsletter and our law firm newsletter, where you can get notified about new episodes and recent content directly from our expert attorneys. In addition, we’d love it if you follow Lender Lounge with Kevin Kim on YouTube, your favorite podcast platform, and LinkedIn, where you can also check out updates from Geraci LLP. Thanks for listening, and we’ll see you next time on Lender Lounge with Kevin Kim. This is Kevin Kim signing off.
