A True Family Office | Huy Do, PrideCo Capital

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For this episode, Kevin sat down with Huy Do, managing partner at PrideCo Capital, during the California Mortgage Association Fall Seminar. Everybody in the industry knows Huy, but very few know the story behind PrideCo or Huy's background. They talked about PrideCo’s decision to jump into the private lending sector, Huy’s excitement about the industry, and Huy’s philosophy regarding networking, family, and business.

Huy is a Managing Partner at PrideCo and has been with the company for over 13 years. He is responsible for new investment opportunities and estate management for the founding family office. Huy has led investments in private equity/venture capital, debt and equity funds, and originated over $350mm of private loans for the family fund.

Prior to PrideCo, Huy held positions at Wells Fargo, Arthur Andersen, and Aramark. A graduate of Pepperdine University, Huy received a BS in Accounting. Additionally, he completed his MBA, with an emphasis in Entrepreneurship, at the University of Southern California. He is also a Certified Public Accountant in the state of California and Florida (inactive). Huy serves on the Board of Directors for Great Scott Tree Service, Mariners Church, and several other non-profits. He enjoys traveling and has been to 35 countries.

Episode Transcript

Thank you to our sponsor for this episode, Private Lender Link.

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Episode Transcript:

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 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, be 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:
All right, guys, I’m here live at the, I think it’s the fall seminar for CMA.

Huy Do:
It is.

Kevin Kim:
And we had a gap in the schedule so I sat down with my friend, Huy, here and wanted to interview him for the show.

Kevin Kim:
Huy, please introduce yourself.

Huy Do:
Great.

Huy Do:
Hey, it’s a pleasure. It’s an honor. This is like being on Conan O’Brien’s Needs a Friend podcast. I’ve been listening for a while and it’s good to be with you. It’s good to be with the crew here.

Huy Do:
Huy Do, PrideCo Capital, I’ve been with the firm for 14 years. I’m one of the three owners of PrideCo. We started off as a family office, family that sold couplers and disconnects and sold off a large business back in 2006, which was the greatest time to sell a business because the valuations were ultra high, tough time to become an investor. So when I started, we had a lot of workouts and over the course of the years, we worked out a lot of the investments.

Huy Do:
We got into private lending really early on. And one of my partner who’s the son of the family really enjoyed the middle market. And so he, out of Princeton, went straight to Michael Milken shop and so Drexel was his middle market lender way back in the day, ’89, ’90. And so he really enjoyed that space.

Huy Do:
And so we like this space, really lending right above credit quality of what a bank can’t do because of speed or what have you. And so we got into asset-based lending and really ended up with a mixed basket of assets ranging from anything-

Kevin Kim:
[crosstalk 00:03:03].

Huy Do:
… factoring to generic asset-based lending. So jewelry-

Kevin Kim:
Wow.

Huy Do:
… airplanes.

Kevin Kim:
All of it, huh?

Huy Do:
… everything. So basically what a bank wouldn’t do, we would-

Kevin Kim:
Hold on. What year was this again?

Huy Do:
2006 to 2009.

Kevin Kim:
Interesting.

Huy Do:
So we’ve done high-end life insurance policies. We’ve looked at every single type of asset. And so being true family office, you can imagine a staff that’s dedicated to manage the affairs of the family which is the tax work, the legal work, making all the investments from the core side, the non-core side. And then of course, non-core is defined for us as everything from private equity, venture equity into real estate equity into the private equity piece that I mentioned. And then of course, lending.

Kevin Kim:
Right.

Huy Do:
We really liked lending. We got into lending and ABL, like I said, and during the workout, ’09, ’10, the thing that didn’t move and was easy to understand for us that were non-real estate guys was really single family real estate and with all the tools like Zillows and Redfins and some of these prop tech that popped up, it was easier for us to evaluate those, make loans.

Kevin Kim:
I think it’s similar type of philosophy from asset base.

Huy Do:
Yeah.

Kevin Kim:
Easy to value.

Huy Do:
Yeah. Right.

Kevin Kim:
Right, right.

Huy Do:
So that was more asset base, less credit based, and we had this box that we carved out as far as coastal properties, L.A., San Diego, Orange County, and we really enjoyed it.

Huy Do:
And it was really… The family, we run their capital and then over time, we added friends of ours, would say, “Hey, what do you do for fixed income?” We say, “What we do this thing called private lending.” And there was this book called Trust Deed Investing by this guy named Casimir Domaszewicz. I don’t know if you remember that book.

Kevin Kim:
It’s one of the-

Huy Do:
Old school, right?

Kevin Kim:
It’s one of the… What you call it? The fundamental books that you read when you [inaudible 00:04:55] this space, right?

Huy Do:
1980s. Horrible graphics. And so if you go to Amazon, I think you can find it.

Huy Do:
And my partner, Brandon, actually found the book and so he’s more of a traditional core allocator, CFA CPA. This book got us into really hard money lending. And then so we started using brokers. And so we used a few brokers, and they brought us the deals and we funded it and we funded larger ones, racetracks, campgrounds-

Kevin Kim:
All kinds.

Huy Do:
… all kinds, all over the state. And really, we ended up with if we can drive to it, if we had to take it over, can we rent it? Can we sell it quickly? And so that was really the single family lending start for us.

Kevin Kim:
Right. And it’s interesting because there’s not a lot of family offices that we’ve interviewed on the show. There are a handful of family offices that are in this space, some are larger than others, some are more quieter than others. You guys have taken a middle approach, that you’ve been actively involved in this way. We see you in a lot of shows, your team member Gary and your team member Michelle.

Kevin Kim:
But the interesting part is you guys have been a very active participant in the industry. When easily, you guys have taken a back seat and just been a capital provider to back whoever. What was the motivation to get out there and take a retail approach, working directly with brokers and getting out there and doing it?

Huy Do:
A couple of reasons for the conference circuit is we like the industry. So we’ve always been supportive of industries, like you guys, and people that elevate the industry to make it more clear, transparent, the people that are on the regulatory side, arguing for some of the laws and the bills that really are detrimental to the business. And so we like that side of things.

Huy Do:
The more public side is this product, is this what we do becomes more generally known, then you get larger diversity on deals, you get secondary markets that you’ve been and the secondaries have secondaries.

Kevin Kim:
And you made a lot of comments [inaudible 00:06:57]. You are an investor in multiple fronts.

Huy Do:
Yes.

Kevin Kim:
And you’re taking your experience over there into what we’re seeing over here and you’ve given me some interesting insights. But since you’ve been in this space for so long, where do you… The secondary is so robust right now, right? And you guys also sell through secondary-

Huy Do:
We do.

Kevin Kim:
… and I’ve only spoken about this front with people who take a lender’s perspective on it. Not necessarily an investor’s perspective. What are your views on that? The perspective of the currency of the market as an investor.

Huy Do:
Yeah.

Kevin Kim:
Right? Because you are a lender, you fund loans, but you’re also an investor-

Huy Do:
We are.

Kevin Kim:
… right? So talk about that real quick because it’s a very different perspective. We don’t get that on the show as much.

Huy Do:
Yeah, the secondary legitimizes the market, right?

Kevin Kim:
Okay.

Huy Do:
It legitimizes the product so you go, “Well, it’s industrial grade or institutional grade,” let’s say. So there’s like secondaries of secondaries now and so you’ve got these large mega funds, sovereign wealth funds which lower the cost of capital which you’re not getting 14, 16% anymore but you’re getting these lower cost of capital and it pushes the whole market down which people that got used to that kind of margin, unfortunately, that’s just not the environment going for. So people understand this product more, this asset backed security.

Kevin Kim:
I like that. A legitimacy to the industry.

Huy Do:
It does.

Kevin Kim:
Right.

Huy Do:
Over time, as you see the moms and pops grow up and certainly, you see more SaaS and technology being put in.

Huy Do:
We actually recently invested into a prop tech fund. So prop tech is anything that’s whether it’d be Redfin, Zillow, Point, Revive, some of these things that are properly technology companies. So you see more of that.

Huy Do:
And as people start investing more, there’s a lot of automation that comes in this industry, which is actually a good thing for us.

Kevin Kim:
And does it improve the enterprise value of these lenders? Do you think? It’s always been a question of enterprise value for me. M&A is now becoming a conversation and it’s no longer like, “Oh, you do this with origination?” It is a value to operating a company. It never used to be a thing until I would say, what? Three years ago? Four years ago maybe? When you look at operating company and you’re looking at evaluating that, is that software component a big driver for you? Is that level of legitimacy, if you will, [crosstalk 00:09:17]?

Huy Do:
The use of software really for me converts into scale. How scalable it is? How replaceable can I move and replace some of the people and run my own tech or run their tech?

Huy Do:
So I think all that ecosystem drives a lot of legitimacy to the business itself. And then now you get a bunch of little things that augment. Basically, you’re augmenting the business itself. You’ve got different products that come out, you get different spins in what we do.

Huy Do:
And so even at this conference and at the Captivate conference, you’ve heard a bunch of different lenders that create different products. I like that because it’s becoming just a lot more efficient and there are a lot more tools and people are investing on some of these backend things, like appraisals, loan servicing, all the API calls in to help with figuring out values, portfolio management-

Kevin Kim:
That’s because the amount of vendor support in this space becomes so robust. There’s so many software companies now. There’s so many different kinds of… It was usually just title appraisal servicing. Now, it’s [inaudible 00:10:29] and it’s being driven into software too. We’re starting to see funds control being commoditized in software.

Huy Do:
You got Lightning Docs, you get all the docs. When you look at Crunchbase and you look at all the companies that are in our space now that are venture backed, that are truly raising A/B rounds. You get guys out there raising some prop tech funds like the Saluda guys, the [crosstalk 00:10:52] guys and it creates a lot of legitimacy into it, which I like, which I think there’s-

Kevin Kim:
From an investor’s perspective, then you’re saying that it not only creates more legitimacy, but it also creates it from verticals to allocate into, right?

Huy Do:
Yeah.

Kevin Kim:
Not just into loan, not just into funds but-

Huy Do:
It becomes a little bit more trustworthy because traditionally, let’s say, 10 years ago, we were part of this, it would be an investor trying to buy a loan, they want their name on the deed. And then now you’ve got funds out there and they’re okay with funds. A lot more people are okay with funds.

Kevin Kim:
It’s become much more [crosstalk 00:11:24].

Huy Do:
And you’re a part of the ecosystem.

Huy Do:
Some of the legitimacy in all of this is really every single line within the ecosystem really builds this legitimacy piece.

Kevin Kim:
I like that perspective. It’s a fresh one. Because we’ve always had discussions about growth in the space and risk and we haven’t taken it from that perspective. I like that.

Huy Do:
So from an institutional view, when you look at this asset class, traditionally, you look at pure return. I get a loan on a note or property and it’s at this amount, it’s hard because you can’t benchmark anywhere. Every other investment grade quality investment has some sort of benchmark, has some public benchmark that you can go to and so when you look at a fund, you could match up with other funds because there’s a bunch of research companies [crosstalk 00:12:14]. We’re approaching that world.

Kevin Kim:
I hope so.

Huy Do:
And so when you go to Captivate, we invite a bunch of family offices and although we have our own fund, it’s really a small set of five families that I know. And so what we do is we recommend other funds that attend to conference.

Kevin Kim:
And you’ve been so helpful with a lot of our clients.

Huy Do:
And I’ll say, “Look at this,” and all of them are running through filters and bets to understand and compare. And so some of these benchmarks, some of these places like hedge fund research, other places, have actually benchmarks for these now.

Kevin Kim:
Great.

Huy Do:
So it’s starting to get a little bit bigger like prequins, something that-

Kevin Kim:
More and more people are signing up for prequin these days.

Huy Do:
Yeah.

Kevin Kim:
I’ve worked with [crosstalk 00:12:55] one client has… Now, it’s a few of them now.

Huy Do:
We just invested in two REITs, privately traded REITs, that are the top performers on prequin.

Kevin Kim:
On prequin? There you go.

Huy Do:
… that are friends of mine.

Kevin Kim:
So if you’re listening, get on prequin, guys.

Huy Do:
Well, you’re always trying to have a barometer of-

Kevin Kim:
Yeah, it’s a benchmark.

Huy Do:
… what should I expect? It is. Exactly.

Kevin Kim:
How can I compare myself and my performance to my colleagues, competitors, and upstream of me and show why I have value as a sponsor. And that’s starting to get done and I think it’s definitely a smart movement. And anything along the lines of getting yourself in front of family offices, registered investment advisors, broker dealers, they all going to want to see that type of benchmarking.

Huy Do:
I think there’s a lot more indices that will get created. Indices.

Kevin Kim:
[crosstalk 00:13:40].

Huy Do:
Yeah, there’s an index for everything.

Kevin Kim:
Right.

Huy Do:
And it was interesting way back, gosh, 2008 and ’09, when we did the life insurance premium policy financing, there was no index for it.

Kevin Kim:
Really?

Huy Do:
There was no index. And so you had a bunch of companies that we’re buying… You’re basically funding premiums in the first couple of years-

Kevin Kim:
It’s premium finance.

Huy Do:
It’s premium finance.

Kevin Kim:
Yeah, yeah.

Huy Do:
And so now there’s a bunch of premium finance and there’s actually an index out there where you can benchmark off of but back in the day, it was-

Kevin Kim:
And this is also interesting. A lot of folks on the show we’ve had primarily been in the mortgage space only. They did loans, real estate, maybe a little bit of MPL. But your background, when we talk casually, we’re talking about VC investments you guys have made, PE investments you guys have made, family office allocations to startups and up and coming companies. It begs the question what percent of your allocation goes into the space? Is a large… Because you’re active. We know you’re active, right?

Huy Do:
Yeah.

Kevin Kim:
But in the aggregate, and PrideCo, the family office, how much are you guys putting into this space yourself?

Huy Do:
I would say a third.

Kevin Kim:
That’s a good chunk.

Huy Do:
Usually, if you look at modern portfolio theory, you have this allocation spectrum and you’ve got core assets which means I can sell and I can buy overnight. I can create cash tomorrow, I can margin. These are the things they get custody. We use fidelity family office but they get custody at a really large shop. And we’re traditionally been more index funds, ETFs, so we’re big DFA guys, dimensional fund advisors. Parametric, they have a spin on tax.

Huy Do:
We have a new guy on our staff that has bought Dupont Trading so he’s creating bond [crosstalk 00:15:22]. He’s found dislocation on the bond market and so he’ll do that with a machine learning piece attached to it.

Huy Do:
And then you got hard assets, generates no money, it’s the family’s houses, it’s their stuff. So that doesn’t create any return that requires cash.

Huy Do:
And then you got alt side, and the alt side depending on what I find is that if they’re younger, then they have more on the alt side because it’s illiquid, you can’t turn it into cash right away. If they’re older, they generally have a little bit more than liquid securities, let’s say, Orange County is a little bit of anomaly because everybody’s on real estate, LAs and Orange County and San Diego.

Kevin Kim:
Right. It’s a hub of real estate, yeah.

Huy Do:
… so it’s more heavy. I find that families tend to be more heavy there. But typically, people will have some sort of split on their full portfolio and allocation. I always recommend to families to rebalance and reallocate every year.

Huy Do:
So for us, we close out the year so we’ve got a team with accounting, investments and all that, and then we compile all the reports. Around the second week of February, we meet and then we decide which buckets to allocate it to. And so for us, really private equity, the subset is venture. Venture is really just a part of private equity and that’s traditionally operating companies.

Huy Do:
And then you’ve got direct equities. So we do that too. And so we’re into industrial buildings, self-storage, hotels, golf courses, multifamily office. And so we’ve got those deals where we’re LP investors. So we’re not sponsors, we write a check. So we’ve got many of those.

Huy Do:
And then on the lending side, we like to be hands on there. And so we do like to visit properties and things like that.

Kevin Kim:
Are you still doing any of the ABL lending anymore?

Huy Do:
Not much. We’ve done here and there-

Kevin Kim:
Mostly concentrated on this stuff.

Huy Do:
Yeah, we’ve gotten a lot… The requests there, it’s a different circuit. That’s what used to be called the CFA, the commercial finance association, and so you bump into Wells Fargo, Foothills, that old group, the IFA, the International Factoring Association, so we used to do those.

Huy Do:
We really like the private lending world and single family real estate. So we’ll do 25% of the loans that we see and we’re still really small and small on purpose, let’s say.

Kevin Kim:
Yeah. Surprisingly, I thought you guys were… Your staff would be a lot larger considering the reputation and family office and all that stuff and I came to visit you, it’s a very lean team. You’ve got five in the office.

Huy Do:
In our office, there’s-

Kevin Kim:
In Orange County, right?

Huy Do:
… five. Yeah. And we’ve got three in Minnesota. And then we’ve got one of my partners, the son manages a large outdoor business that has offices in Oakland and Longmont, Colorado. So he’s got staff there, a couple of people there.

Kevin Kim:
And they help you guys out, too.

Huy Do:
Yeah.

Kevin Kim:
Yeah, pretty lean.

Huy Do:
Pretty lean. But I’ll tell you that depending on where the founder is, the patriarch of the family we run is later stage in life, so turning 80 this year. And the things that you make investments in have a lot shorter duration and we tend to invest on the out of the state bucket which is for the kids basically. And so you don’t need that big of a staff.

Huy Do:
We know some guys in the billion range plus and you can run it pretty efficiently. It’s really about deal flow. It’s really about how you underwrite deals, getting into deals, getting out of deals. So there’s a bunch of tools too like portfolio management in the past, you were tied to Advent. Advent was the gold standard. And then all of a sudden, you got Rockit IT, which is the Rockefeller family has their own, basically, software that pulls in all the publicly traded data. And then sometimes they could do alts too.

Huy Do:
But Advent and then Addepar came. Addepar venture funded. You can basically pull and create all your charts for the family [inaudible 00:19:35]. You can actually really manage efficiently large amounts of dollars and there are so many deal networks out there.

Huy Do:
So in Orange County, we’ve got 40 or 50 families that we’re friends with. Well, if we see a deal, we’ll email or text each other, “Hey, have you seen this?” So we typically see a lot of deals that we cross reference.

Kevin Kim:
That’s also so interesting is that the family office world is how interconnected everyone is, even across the country. It’s not just locally. For those of you who don’t know Huy, he’s probably the best networker you’ve ever met in your life, has a steel trap up there, he remembers everything.

Kevin Kim:
But also, you know a lot of people. And I’ve always been fascinated about this, that you have a very unique skill and that you remember people very well and I got to ask, like how you do it.

Huy Do:
It’s funny-

Kevin Kim:
This man met me once and I didn’t see him two years and he remembered my name, when I went to college, and what I did for Geraci. I was like, “How do you do that?” It’s a skill, man.

Huy Do:
It is. It is a gift. And the guys at my office, Gary and others, they’re always like, “You remember everything about every deal and every person.”

Kevin Kim:
Yeah.

Huy Do:
It’s interesting. So backstory was I was born in Vietnam-

Kevin Kim:
Yeah. Well, I was going to get into this, but wonderful.

Huy Do:
So I was the classic boat kid. And so 1978, we were on a boat from Vietnam. My dad led the charge. We ended up on a random island in Malaysia and I asked my dad where he wanted to go. And so options were Canada, Paris because France was a Vietnamese… Vietnam was a French territory, or America. And my dad’s like, “Well, are there any communists in America?” And they’re like, “No.” He’s like, “We’ll go to America.”

Huy Do:
And so I ended up in Iowa as a one-year-old in the middle of winter and growing up being the only Asian person in this predominantly Caucasian world. I had to remember a lot of things and a lot of people and be memorable myself. And so I got to be really good with names and faces.

Huy Do:
And as we moved a lot, we moved from smaller city Moville at Iowa to Sioux City which is the big city, which is 80,000 people. So we went from there to California, West Coast. So I moved a lot of schools and I had to remember people really quickly and understand that.

Huy Do:
It became a little bit of a developed skill because I think having that EQ and being face to face with people, people really like that. You get the warm and fuzzies and all that. And so it’s helpful on the deal side because I do tend to remember like terms on deals. Terms on deals, names, structures.

Kevin Kim:
Is it an association thing with a person?

Huy Do:
It is, yeah.

Kevin Kim:
Okay.

Huy Do:
It is, completely.

Kevin Kim:
I’ve always tried to figure it out for myself, too, how do I improve the skill. Do I associate names with deal points? I do that with my clients. I associate-

Huy Do:
You see a ton.

Kevin Kim:
… client name and then with their fund type and rates of return, but not the level you can because not only that but you’re juggling multiple industries and family stuff.

Huy Do:
Yeah. It’s all related, though. I think for me, everything becomes relational in my mind so it’s like names attached to a logo attached to a certain term. So I’ll know this fund has a six prop, 50/50 split, and the kind of deals they do and it just sticks. But then my wife will give me a hard time because I don’t remember birth dates so it’s one of those things. So it’s a trade.

Huy Do:
At worst, you default to emails and your storage because we’ve been in it for so long and we have a shared folder for all deals. We’ll see 80 to 100 deals a month and I usually file every single deal into a master storage. So typically, I could type in a name or something that’s related to a deal like a fund name or a person’s name and it’ll pull up all their prior deals. And so we’ll see the decks, we’ll see all these things because people really, they reinvent themselves a lot. On the hedge fund world, it’s like that, for sure.

Kevin Kim:
Yeah. You always see rebranding and [inaudible 00:23:45].

Huy Do:
Sure.

Kevin Kim:
I want to go back into your background a little bit. I always get really interested in this kind of stuff because we’re both Asian American and very, very few in the industry and we don’t really get much of an opportunity to talk about this kind of stuff. And you talk about growing up in the Midwest. [crosstalk 00:24:12]. I have a lot of Vietnamese friends who immigrated but not to the Midwest.

Huy Do:
Right. [inaudible 00:24:16].

Kevin Kim:
How did you end up in Iowa of all places?

Huy Do:
It was interesting. We ended up in a small church that sponsored my whole family.

Kevin Kim:
Oh, yeah. Okay.

Huy Do:
We lived in the basement and it was a great… Actually, I recently got to have that family who actually German immigrants bring us over.

Huy Do:
And it’s an interesting little dichotomy because I’m fully American, U.S. citizen, obviously, love this country, but I have this cultural heritage. And so in the past couple years, it’s been tenuous culturally and so you have to understand that balance of that of loving the country but also respecting culture and that it’s not necessarily two conflicting things, they actually can coexist very well.

Kevin Kim:
And that’s the ultimate challenge when it comes to… We talked about identity, Asian American identity lately a lot with these Hollywood things going on and AAPI community, all this kind of stuff.

Kevin Kim:
And for me, I’ve always had the same approach. I’ve always like, “They can be synergistic. They don’t have to be mutually exclusive. I can be an American, I can be patriotic. But I can also be very, very… I call it [fobby 00:25:26]. I’m very fobby when it comes to a lot of stuff. I speak mostly Korean at home. My children don’t speak English. I’m very into my culture. I spent a lot of time in Korea, and it’s okay and it’s part of being an American and embracing that.

Kevin Kim:
And what I find challenging in being so… I’m entrenched in the private lending industry and you’re part of it as well, but you also have a foothold in other different industries as well. I wonder how it is for you outside of private lending because in private lending, primarily Caucasian, primarily male, but very accepting, never had an incident. How is it outside of this industry for you?

Huy Do:
For me, it’s been great. Reputation, education, things like that go a long way. We are in a unique space geographically in Southern California too.

Kevin Kim:
Yeah, it’s diverse.

Huy Do:
There’s diversity, gentrification. It’d be tough in different parts.

Kevin Kim:
Yeah.

Huy Do:
I’d say you’re always trying to help people along too. You’re helping people along because recently it’s been these individual ideals versus communal ideals. And so being Asian, we’re very communal so everything’s for the community. So there are certain things that people ask us to do, we’ll do because we are culturally respecting our elders or whatever.

Kevin Kim:
Exactly.

Huy Do:
And it’s different here and so helping people understand the bridge between that. So I’ve always wanted to be a bridge builder.

Kevin Kim:
And you’ve always been a bridge builder. You’ve been a very great connector, you’ve connected me to a lot of great people and a lot of your friends who are doing some interesting things and now paying attention to our space and you’ve brought a lot of them to our Captivate show.

Kevin Kim:
And one thing that was interesting I think it was one of your colleagues is doing something for the APEC community. He’s doing a charity for…

Huy Do:
Yeah, the AAIG, the Asian-American Investors Group.

Kevin Kim:
Right.

Huy Do:
One of these classic stories, sold off the business and then, some of these people get referred to me and they sit down, I say, “Well, what should we do with our money?”

Kevin Kim:
Right. Right, right, right.

Kevin Kim:
You’ve been a big connector of those entire group. Just like what we’re doing over at Geraci and I was so excited to hear about that.

Huy Do:
So what’s interesting is that family… When I typically meet with the family that just ended up with a lot of money, I would say, “Don’t make a private investment for a year. Go to some conferences, meet some people, and you’re going to be the prom queen. People are going to love you and always want your money. So get into something safe on the core side and on the alt side, just meet a lot of people. And if you meet with the same person that can show you the same business card for a year, you’re in a pretty good spot.”

Huy Do:
And so this family, I refer them to a few estate planning attorneys, CPAs, and I said, “Go to these conferences,” and it actually wasn’t Captivate yet. I sent them to a family office conference. So go to these. And then a year later, they came back and they said, “I want to get into private lending.” I was like, “Wow, I think our industry has actually made it.” Somebody came back to me and said, “I want to get into that.” So I said, “Well, funny enough, there’s this Captivate conference coming up.”

Huy Do:
And so they came and out of that, they wanted to figure out what everybody else was investing in and so they put together an Asian-American investment group, that’s, gosh, 40, 50 people strong all across the country. And so I’d log in, and I’d see all these faces during COVID. It’s all in Zoom and I see all these faces and it’s diverse. Pre-IPO, shares, to equity, to private equity, to venture, to real estate, all sorts of just really interesting people that made their money differently and they are interested in investing a lot of different things.

Kevin Kim:
And what’s really cool about what they’re doing is they have a charitable component and they’re donating to causes that benefit the AAPI community. Right now, there has been some violence against the Asian-American community and they’re trying to help prevent that, fight against that and I think that’s something that I have never seen come to our space and outside of even the space of private lending like when I was an EB-5 or doing other real estate work. We never saw that many AAPI causes and I was really happy to see that.

Huy Do:
Yeah.

Kevin Kim:
I was really happy to see people take our causes seriously. And we had clients pitch them and contribute and I thought that was such an honorable thing to do when it’s so easy as an investor just to focus on you.

Huy Do:
Yeah. We get a lot into the charity piece.

Kevin Kim:
Can you talk about that? You’re very involved in charities, right?

Huy Do:
I’ll play in about seven charity golf tournaments this year. But we are involved in charity. We’ve done… Personally, I’ve been to Egypt a number of times distributing wheelchairs.

Kevin Kim:
Wow.

Huy Do:
So we went with Free Wheelchair Mission. And so great story of an engineer that was retired and he designed a wheelchair made out of a plastic lawn chair with wheels and he realized a lot of people outside of this country can’t afford a wheelchair. They’re actually very big and heavy.

Kevin Kim:
And they’re expensive.

Huy Do:
They’re expensive. And so he designed this thing to be under $40 and so the first time, we took a trip to Mexico and he didn’t want to come and we distribute the first wheelchair there. And so ongoing, it’s been over a million wheelchairs now and they’ll ship containers at a time.

Huy Do:
And so when you give people dignity to allow them to be able to sit above the ground, they don’t have to crawl, they don’t have to have a family member [crosstalk 00:30:50]-

Kevin Kim:
Because that’s the thing that’s forgotten in third world countries, if you’re not able to walk, you’re crawling.

Huy Do:
Yeah, you’re crawling.

Kevin Kim:
You’re crawling. You’re not walking. You’re not in a wheelchair, you’re having to sit on the floor.

Huy Do:
freewheelchairmission.org. Great institution. They work with secular and faith-based organizations.

Huy Do:
We’ve worked with many places that… We have the benefit of having capital, for example, places like Kenya, other African countries, they don’t have access to capital. But there’s a lot of people that have great businesses so we funded one gal, actually was a Harvard grad, married a Kenyan, and she created a sanitary pad made of sugarcane waste.

Kevin Kim:
Oh, nice.

Huy Do:
And so sugarcane waste… A typical pad will cost a couple dollars, Procter & Gamble type product, and she was able to create it out of sugarcane waste. It’s interesting manufacturing process but it’s about a third of the cost. And what we figured out-

Kevin Kim:
And biodegradable?

Huy Do:
Yeah, biodegradable. And so in Kenya, one of the biggest issues is when girls get pregnant. They can’t afford a pad, they end up out of school, and sometimes, they’ll end up either being pregnant or HIV positive and so there’s a big issue there. And so there was actually a measure on GDP loss because women didn’t go to school.

Huy Do:
And so this pad was created and we funded the first $50,000 through a group in this faith-based organization and afterwards, they actually got Gates Foundation grant for three million.

Kevin Kim:
Wow.

Huy Do:
So they’re manufacturing these low cost pads.

Kevin Kim:
And it’s similar to investing but you’re taking a charitable investment and impact component at the ground floor. That’s awesome.

Huy Do:
Right. So we’ve done a lot like that table lending which is basically lending to small businesses there.

Kevin Kim:
Micro loans.

Huy Do:
Yeah, micro loans, things like that, tracking micro loans. And so there’s a big charitable component, I think, when you think about… For me, the way I evaluate how I’m doing and the balance of my life, I’m looking at my… It’s actually a grid that I do which is four pieces of the grid, my life, professionally, my family, and then where I serve and volunteer. So if I can balance out those four squares, I actually get a lot more enjoyment out of my life.

Kevin Kim:
And that’s interesting because we’ve heard of the four quadrants rule and prioritization and goal planning and these kinds of things from a business leadership standpoint but you’re using it more of a personal balance perspective. And what are the four quadrants? Professional…

Huy Do:
Personal.

Kevin Kim:
Personal.

Huy Do:
Professional.

Kevin Kim:
Professional.

Huy Do:
Family.

Kevin Kim:
Family.

Huy Do:
Volunteer.

Kevin Kim:
And you have objectives-

Huy Do:
Or service.

Kevin Kim:
… for all four?

Huy Do:
I do. So one example would be you get 100% of your time. So whatever that amount of time is per week, how do you spend your time? Most people will say work. When you’re younger and then you get married, your family because your family, you got young kids so your personal time will shift to your family. Well, a lot of times like me, you get unhealthy physically. You gain a little bit of weight. You don’t feel as good. You’re eating terribly because you’re at conferences all the time. And so you got to rebalance that out.

Huy Do:
And so I do a check to see… All right, when I do all these things, they all fit together for me because if I’m too focused on one thing, I become a little bit siloed off, myopic, however you want to say it, I become a lot more unhealthy. And so when all of those four things get-

Kevin Kim:
I’m falling within that right now. Good question to segues. So we talk a lot about family and you have three young children?

Huy Do:
Three kids.

Kevin Kim:
Three kids.

Huy Do:
10, seven, and then surprise baby is 19 months.

Kevin Kim:
19 months.

Huy Do:
Right.

Kevin Kim:
So we’re on the same young baby boat, we got an 11-month-old, but the thing that’s always fascinated me is you’re very busy, you’re active in the family office, the industry as a whole for private lending, yet you have a very balanced work schedule. You told me the other day you’re 9:00 to 4:00 guy, you play golf a couple times a week. And I know this for a fact you’re traveling with your family all the time.

Huy Do:
Yeah, [inaudible 00:34:56].

Kevin Kim:
Yeah. And it’s crazy because for me, it’s like… My wife and I have trouble balancing two children with my work schedule and she doesn’t even work and I’ve always struggled with this personally and I think part of it is I’m very myopic, I’m in work mode right now in my life and I’m in build mode and work mode and I can’t think about anything else. And it’s a question to you. When did you transition and figure this all out for yourself? Because you’re a little older than I am.

Huy Do:
Yeah, thanks for pointing that out.

Kevin Kim:
Not that much old.

Huy Do:
Early on… I worked a lot when I was younger. So I was-

Kevin Kim:
A background, put a background. You have worked for very large companies-

Huy Do:
Yes.

Kevin Kim:
… before the family office.

Huy Do:
Yeah. I was Arthur Andersen kid.

Kevin Kim:
Yeah.

Huy Do:
The clients that I was on for Southern California Edison, Mossimo that got delisted by dot com that went public. So I was on really great clients. But this is 80 to 120 hours a week because you’re low level staff at a big five accounting.

Huy Do:
And then I went to a company that helped start Bluetooth and then Aramark, publicly traded. And I had Ohio West in food service for universities. So I was the director of finance. And that’s four time zones. That’s 25,000 miles a month. Corporate headquarter is in Philly so you’re always going to Philadelphia. Everything was East Coast.

Kevin Kim:
Were you single at this time?

Huy Do:
I was single.

Kevin Kim:
Okay.

Huy Do:
Right. So that’s the only way I could have done it.

Huy Do:
And one thing I saw was, one, my dad traveled a lot. He wasn’t around that much and so when he was around, we made the best use of time. But he was working as hard as he could because he was an immigrant, trying to provide a life for me. And so I totally respect that.

Huy Do:
I needed to get to a place where I had enough margin to be able to do these things that allow me to enjoy all aspects of my life. And I did see you lose out… Time is the only thing you can never get back-

Kevin Kim:
Nope.

Huy Do:
… and people say that and it’s a known thing, but I had to purposely create margin. I’ve had a number of mentors that would always say, “You will do fine financially. Beg, borrow, and steal to get time with your kids because it goes fast.”

Huy Do:
And so every single summer, we try to take a break, and three to four weeks we’ll do these trips, travel trailer, camping, Airbnb, elsewhere, different place where for us, it’s our family, no screens, or fewer screens and lots of outdoor activity.

Kevin Kim:
I see that. You go fishing. You’re out there.

Huy Do:
We’re kayaking, we’re fishing, we’re lighting fires.

Kevin Kim:
So from a work standpoint, is it full amount [inaudible 00:37:43]?

Huy Do:
Not at all. So when you’re an owner and you’re a person that really wants to do well in all aspects, I don’t think you can ever stop.

Kevin Kim:
Exactly.

Huy Do:
So I sign in in the mornings and then I’ve got it set up to have all the people that know what they’re doing. I have great partners that when I’m out, they take the load and when they’re out, I take the load. And so I still approve wires. So I’m there approving wires.

Kevin Kim:
So you could be in the mountain somewhere and you’re [inaudible 00:38:11].

Huy Do:
Right, yeah.

Kevin Kim:
Okay. So you’re still working?

Huy Do:
Yeah.

Kevin Kim:
Trying to balance it out while you’re there.

Huy Do:
But I’m not so much working that it’s consuming… And the thing is I think you got to figure out the phase of where your business is at. Are you in growth mode? Build mode? Are you in maintain mode? And so if you’re trying to build your book or you’re trying to train an associate, you’re working pretty hard.

Huy Do:
For me, I’ve been 14 years here. We’ve got systems in place, we’ve got structure, process in place, and we’ve hired great people. So these people can… All of the employees can basically take on their vertical or their function and we don’t need to worry as much about it. But it takes effort and thoughtfulness to be able to do that.

Kevin Kim:
And that’s the hardest part is the thoughtfulness for me because my brain almost always goes to work and we’re on growth mode so we’re trying to grow more and my brain automatically goes to it. I always get yelled at for being… I’m looking away, I’m looking at the cloud, I’m at home, I should be focused on my kids and it’s because I had a random thought. I’m trying to process and plan it out in my brain. And then you have screens and [inaudible 00:39:23] getting in the way and I’ve had such a hard time becoming thoughtful and intentional about…

Huy Do:
Creating margin in the office is the hardest thing to do.

Kevin Kim:
Exactly, yeah.

Huy Do:
Because when you have people in the office, you get the knock on the door or it’s lunchtime, I’ve had to create… That’s why I golf a lot. I create space within the office to think because being the partner, you’re always three to four steps ahead. You’re thinking about new product and I think what’s interesting about this timing is that you’re in an interesting space in the market. Timing the market because of the secondary changing because of some-

Kevin Kim:
[crosstalk 00:40:00]

Huy Do:
It’s changing pretty rapidly.

Kevin Kim:
… dramatically for you.

Huy Do:
So for me, it’s not changing that much. I can take a little bit of a step back as an allocator and go, “All right. Let’s let things shift out and then we can decide. We could always just sit on cash,” for example. But I do get that things are changing and you’re constantly evaluating, think about what’s next.

Huy Do:
But what’s the greatest thing is when you go home, your kids have no clue and they don’t care.

Kevin Kim:
They don’t care. Yeah, yeah. They have no idea. No idea.

Huy Do:
Your wife probably doesn’t either.

Kevin Kim:
Not really. She’s like-

Huy Do:
My wife really cares and ask questions, but I don’t want to…

Kevin Kim:
I’m very big of I don’t want to burden you with my problems posture. So I’ll tell her positive things. But if we’re in a crisis or we’re trying to work out a new product, I’m not going to brainstorm with her just because she’s got her own problems and play the deal with her and she’s got two young girls that constantly need attention.

Kevin Kim:
And a lot of us in the industry have young children and are building our careers, and I always joke about this, you and then a person, you introduced me to, Paul, another family office manager-

Huy Do:
Yeah, Paul is great.

Kevin Kim:
… like my heroes because you’re Asian American, you run a family office, you have young kids, and you also have a very balanced life and it’s always been something like, “Man…” It’s what I can aspire to but can I ever actually achieve it because of the question of margin. It’s that margin. Creating that margin, I guess you put it. It’s a good way to put it because we’re all financial overthinking about margins. It’s a really good way to put it.

Kevin Kim:
And I think a lot of our listeners struggle with it constantly because they’re always so focused and a lot of them are small business owners so there’s double down, always growth mode, grow, grow, grow or die.

Huy Do:
And really, you get these business groups that are really helpful, like-minded peers. And then it is really helpful to have other people that you can process these things with. And so that’s why I always recommend the YPOs, Gen Next is a good one, The Business Builder, the masterminds, people do a lot of stuff like that and it’s helpful to have that time to devote because you’ll have a couple people that you really enjoy out of that, too. And so they do quarterly meetings, you’re paying your fee, but they’re highly worth it.

Kevin Kim:
And there’re folks that have been through it already and people are going through it at the same time and you get a lot of… I’m in a YO, it’s the lower version of YPO-

Huy Do:
There you go.

Kevin Kim:
… and it’s been valuable.

Huy Do:
It’s not lower. It’s good.

Kevin Kim:
In my group, we have people who’ve done it already and now they’re on autopilot and all their kids are grown and it’s so interesting to learn about what they went through. But at the same time, yeah, that’s fine and dandy, but when I’m in it, I’m in it.

Huy Do:
I think you need to find… I have multiple sets of groups that fulfill different needs or questions that I have and one of them is you need to find somebody else that’s within your stage now, growing a different company, and that you can collaborate with you.

Kevin Kim:
Who can commiserate with you.

Huy Do:
Yeah,

Kevin Kim:
Right, right.

Huy Do:
But I think commiserating with an agenda is important.

Kevin Kim:
Of course.

Huy Do:
Because a lot of times, you get into the sessions where you’re just complaining and it’s not the most healthy thing to do. And so structurally finding something to go through how you solving for this and moving the things. And that’s one thing that I tend to do is-

Kevin Kim:
Let’s not waste our time just bitching and moaning.

Huy Do:
It’s not worthwhile. Sometimes, you do need to vent because-

Kevin Kim:
Of course.

Huy Do:
… you just had a horrible day. But frankly, getting it out, helping to either verbally process it, or having somebody else that you can speak in short sentences with, be able to get to that, I always recommend that.

Huy Do:
And you learn so much because that’s why you go to these conferences. We’ll go and have a drink or cigars and like that and we’ll talk about growth and you get a little bit and I get a little bit.

Kevin Kim:
Yeah. And that’s one of the great added benefits that you go to these things. You hear about what guys are doing to grow their company and I asked them… It’s staffing and HR and other things that we’re talking about in the industry and unrelated issues but are so important to growth.

Huy Do:
And I think as a business owner, you’re always thinking about that. You’re thinking about like, “What are my next few hires? What do I want my culture to be? How am I going to bring them on? What’s remote work look like? If I grow too big and you’ve got layers of staff, how are they going to buy into culture?” Because you’re not [crosstalk 00:44:29]-

Kevin Kim:
Not just buy in but retention.

Huy Do:
Totally.

Kevin Kim:
With COVID, that’s been our biggest challenge is retention has been… A lot of people complain about that. It’s hard to hire and it’s hard to retain.

Huy Do:
Yeah.

Kevin Kim:
Well, I want to switch gears just a little bit because before we’re out of time I want to get your thoughts, perspectives on where we’re at in the market right now because secondaries is massively booming but what’s also interesting is there’s new market entries abound, the industry is very, very hot at the retail level, the broker level. There’s never been more deals done before.

Kevin Kim:
Since you’ve got so much experience in the sector, you’ve been as long as some of our oldest clients, talk about what your views on this. A lot of people have had very cautious perspective on it and here at CMA we talk about a lot of folks have been doing that 30 years and they’re very doom and gloom about where we’re headed to. What do you think?

Huy Do:
It’s always troubling with some of the regulation, the bills that come out that are repackaged and maybe short sighted. That’s always tough. We’re in a much different space than we were 10 years ago. There’s a lot more efficiency like we talked about earlier as far as access to capital, technology. The deal side is always so regionalized and so specific. You get blurred lines between who’s a broker, who’s a lender, who’s a secondary-

Kevin Kim:
Talk about that because you’re a lender yourself, you’re [inaudible 00:46:02] yourself. I know what you’re talking about, for our audience, the blurred line of the originator versus the broker versus the lender?

Huy Do:
Sure.

Kevin Kim:
So much perspective.

Huy Do:
Many lenders now are brokers because they can bring on a deal and either table fund or warehouse it, sell it off and so there’s so many different things. And then, of course, the secondaries came in and then there were secondaries of the secondaries and they started lending directly to the broker. So really, who’s an originator? Who’s a lender? Who’s the secondary? There’s so many… That’s a market becoming just a lot more capital efficient. I think that’s just where it is.

Huy Do:
And so the question is, where do we go from here? Are there new entrants? When somebody is new that’s forming a fund or just starting to be a broker, is there still a business for them?

Huy Do:
Brokering is such an interesting thing because I do think that is as much as people try to make that more efficient. There’s so much regional and local knowledge that has to be applied-

Kevin Kim:
Of course.

Huy Do:
… and you can automate. We were talking at our table today you can automate as much as you want. But there’s a lot of judgment that happens.

Kevin Kim:
Of course.

Huy Do:
You can automate your fund docs and everything but there’s some judgment that needs to happen and that’s what you rely on. It’s the inefficiency of the market. So there will always be inefficiencies in localized geographic deals, types of deals, however you want to slice and dice and categorize. It’s going to be more efficient, we know that. There will be different products that come out.

Kevin Kim:
DSCR is on fire.

Huy Do:
DSCR, you got 30… A long time ago, you never would see a 30-year problem.

Kevin Kim:
No. And now there’s [inaudible 00:47:43] loan.

Huy Do:
You got reverse hard money mortgages, right?

Kevin Kim:
Yeah.

Huy Do:
You got stuff like that.

Kevin Kim:
ARM loans, too, and hard money.

Huy Do:
And you got prop tech coming in. There’s a company out there that I met with that has a concierge service. They have a concierge service. Homeowner wants to sell their house, they can borrow money from these guys and these guys manage the entitlement, architectural permit process, and the building and then they also, by the way, will buy your second house for you. They buy the second house for you and when you sell your first house-

Kevin Kim:
The transition.

Huy Do:
… then you transition in. But they’ve already automated the traditional loan that’s already done. So you get a bunch of interesting people that are in the space that are cracking the nut.

Huy Do:
Now, when you go back to getting a deal done, being a broker, there’s so much real estate and so much activity that I just don’t know that ever goes away.

Kevin Kim:
I was talking about this during our pool manager meeting today and it was like, “We’re not winning in the states we thought we could advertise and we can win,” and I stress to them like, “Guys, there’s a lot of local components to this.” You can’t go into Texas that you can just advertise when there are shops that have been there 20 years.

Huy Do:
It’s still such a highly relational localized business. Advertising is so… We’ve had a number of families that have exited marketing, web marketing, internet marketing, SEO type companies. One of them actually just went public last year. We’ve had another friend that sold off for nine figures out of Taiwan. These things… It’s localized, you can’t just go in, turn on a website, pay for AdWords, you can’t put in a flyer.

Huy Do:
Some of these systems that really are trying to aggregate deals, it’s more noise than it is quality sometimes.

Kevin Kim:
It’s a good way to put it. There’s a lot of fog around that.

Huy Do:
There is, there is.

Kevin Kim:
Yeah.

Huy Do:
I’ll tell you that the most effective thing that we do and we work mostly through brokers. Yeah. So our team has been dealing with certain people for a number of years.

Kevin Kim:
And we share so many friends.

Huy Do:
Yeah. Exactly.

Kevin Kim:
Yeah.

Huy Do:
And so we’ve tried working with the different networks and you end up with a lot of noise and to be able to sift through… We ended up doing about 25% of the loans that we see.

Kevin Kim:
It’s a pretty fair number one and fours.

Huy Do:
Yeah.

Kevin Kim:
Definitely not bad at all. I think you’re open minded enough, but you have to be saying no to a good chunk.

Huy Do:
Yeah. Yeah.

Kevin Kim:
It’s a common thread in the show. Kissing frogs, it’s a pretty common thread.

Huy Do:
I do think it’s a little bit frothy, though. It’s frothy when you got somebody that traditionally was one state and they’re moving at different states or they moving… So you’re either going to change your geography or you’re going to change your product or your underwriting standards.

Huy Do:
So your product, you’re going to do seconds now or you’re going to do some augmented first. You’re going to change a little bit, a different spin on something. Changing the underwriting boxes, maybe you’re heavier on asset base than credit based and all that. So you’re seeing that and that’s just the definition of a little bit more of a frothy market.

Huy Do:
We’re watching. We have that question of where do you think the market’s going to be next year. Certainly, everything on the news is inflation. Who knows? I do think there’s some variability. So you got to watch out for variability. And the ultimate way to control that is having no leverage and being short duration.

Kevin Kim:
Right. Let’s minimize risk that way. Yeah.

Huy Do:
So that’s how we minimize risk.

Kevin Kim:
And you made an interesting point about the idea of expansion by taking on more risk and what I’ve seen work from some of my clients who are retail, we’re not wholesale, we’re not an aggregator, we’re not… They’re just a retail lender, they’ve got a fund, they had to open an office locally and hire someone locally. They have not taken on more risk, they take on more expense to open up a shop there, branch there, if you will, and they had to write their local credit box to the locale, that’s less risk taking in their home state because they know their home state. And I found that to be a very successful strategy.

Kevin Kim:
But then we have some guys who just try to blast the whole country and that’s been… It’s a smoke and mirrors move I feel like. It’s projected success. Everyone thinks they’re killing it. Well, let’s look at the actual deals and how the deal flow. Are you winning against little competition?

Huy Do:
I think it’s a little bit of an inorganic growth. It’s an acquisition type growth. You’re just blasting it out so we always think about in business based business, organic growth, versus inorganic and so you’re shotgunning to be able to-

Kevin Kim:
And happening these days.

Huy Do:
It is, it is.

Kevin Kim:
Yeah.

Huy Do:
And a lot of people want to grow because they have so much overhead, they need to support the overhead, or they have access to so much capital that needs more deals and you’re making so much margin on these spreads. Makes total sense.

Huy Do:
I think it really comes down to who you are as a business, what your values are, what you want to be when you grow up kind of thing and that’s really this thoughtfulness-

Kevin Kim:
What you want to be when you grow up, that’s really important.

Huy Do:
Yeah, that’s really this thoughtfulness of five, 10 years. Do you want to be levered, selling, and have a secondary and originating 200 million? A billion? Two billion? What if the secondary goes away? What if that bought that buy box changes? You got to think a little bit about that. I do like…

Huy Do:
Certainly, when you look at the map… Actually, recently, we’re seeing deals all the time and we’re looking at equity deals. So these are LP equity into mixed use, all these deals that we do.

Kevin Kim:
Like a value add project or a syndication.

Huy Do:
So we looked at one in Chicago, we looked at one in Illinois, and we were looking at population growth. We saw the fact that it was a negative population growth there and generally the Northeast and then California is a minus 6.1%. Idaho’s plus 16%.

Huy Do:
And so we do look at that and we go, “Okay, that makes sense that you would go into the places where there are hubs for growth, hubs for business growth, migratory growth.” So we are looking at that and so we’ll end up doing through more strategic relationships different states because we have a very specific person that [crosstalk 00:54:08].

Kevin Kim:
But you’re choosing that new market because, A, the person that’s bringing you a deal you have a good relationship with or trust them.

Huy Do:
I do. It’s interesting because if you go to Nevada, for example, it’s a brick and mortar state like Arizona. So how do you find that guy? So you find the guy and you cut a deal with them. You want to treat it like a transaction but it’s actually relationship because you co-own something to somebody.

Kevin Kim:
Right. He’s either working for you or partnering with you.

Huy Do:
Exactly.

Kevin Kim:
So you trust the guy.

Huy Do:
So if your deal’s not rich enough incentive wise and he’s doing enough 25, 50 million, call whatever you want, he’ll go off on his own. So why should he pay the house when he can just go on his own?

Kevin Kim:
Yeah, but at the same time, you just mentioned extras you’re looking at. You’re evaluating a new market not because your competition is doing, not because everyone else is doing but because of population growth.

Huy Do:
Yeah, I do.

Kevin Kim:
Supply and demand.

Huy Do:
It is.

Kevin Kim:
Purely.

Huy Do:
It is.

Kevin Kim:
Population growth, the right population growth.

Huy Do:
Sure. Yeah.

Huy Do:
Certain markets grow because universities, businesses… So like Austin, five years ago, we were involved in Oracle and SAP went down there. We built some pretty big facilities.

Kevin Kim:
Now, Tesla is going out there.

Huy Do:
Yeah, Tesla is going out there. We saw that. And so there was a 500-unit apartment complex that was a value add that we were involved with and that did very well because it was down the street from Oracle.

Huy Do:
And so there are these areas like Nashville’s of the world, Scottsdale. It’s done… I would look at the South Carolinas of course the hottest place in the world.

Kevin Kim:
Yeah. I was just talking to the Lima One. They’re down in Greenville and it’s-

Huy Do:
[crosstalk 00:55:44].

Kevin Kim:
… growing so much like North Carolina, Tennessee. It’s just been fascinating to see that migration.

Huy Do:
I think figuring out the criteria… You look at, all right, is it population growth, is it number of professional job growth. Whatever it is, I would have a disciplined approach to it and I wouldn’t do it just because it’s higher rates there. A lot of people have felt like moved to states like Florida because they was higher rates-

Kevin Kim:
High rates. They’re choosing yield.

Huy Do:
Yeah. But Florida makes a lot of sense because it’s no state tax. I just worry about sinkholes and it’s a judicial foreclosure state.

Kevin Kim:
[crosstalk 00:56:21] a large chunk of the state is actually sinking. So I’ve been told at least.

Huy Do:
We’ve spent a lot of time out in Naples and that area and I’ll tell you that a lot of the bad equity deals we did were Florida back in 2008 and ’09 and some of these deals that pop up. It’s hard because it’s just a little bit different there.

Huy Do:
And so for us to be able to understand new market, we try to really understand the new market. But some people are brokering, some people are fine with the deal.

Kevin Kim:
And that’s okay too.

Huy Do:
… and that’s fine. That’s a business strategy.

Kevin Kim:
I actually have… For brokers who know and hold themselves out as brokers, I think it’s great.

Huy Do:
I look at it as there’re many, many old houses. When we’re talking old, 2005 is old now, right?

Kevin Kim:
Yeah.

Huy Do:
So those houses need to get remodeled and because people like us, if you’re buying another house, you’re probably not going to do a lot of work.

Kevin Kim:
No.

Huy Do:
You don’t have the time to do the work.

Kevin Kim:
Turnkey, please.

Huy Do:
Right. So there are so many houses across the country that need that and we provide that specific piece of capital, that’s bridge capital, to be able to get that value add done.

Huy Do:
And so I think that makes total sense and there are many models out there where people go and get all the different states and they go out there and get it. But some of the tertiary areas I’d be concerned about. I wouldn’t want that on my balance sheet.

Kevin Kim:
Mm-hmm (affirmative). All right, so last question for the show. We got about a little time left.

Huy Do:
Sure.

Kevin Kim:
I always asked this on everyone. And you’re an investor and you have such strong insight and just big picture, the state of the market, I’d like to ask you bullish/bearish next three years for private lending. For private lending.

Huy Do:
We’re a net lender, lower LTCs. I would stick in high density, high volume areas.

Kevin Kim:
Right. So your core philosophy, are you bullish on it still?

Huy Do:
I am.

Kevin Kim:
Okay.

Huy Do:
I am. So on that I would watch duration. There’s a little bit of duration risk, I think.

Kevin Kim:
It’s true. The length of your average bridge loan is creeping.

Huy Do:
Yeah. People are pushing it up a little bit. We were still one year and under and our average, our whole portfolio will turn in 10 months, less than 10 months.

Kevin Kim:
The popularity of the rental loans nowadays I feel forced the bridge to be a little bit longer.

Huy Do:
A little bit, yeah.

Kevin Kim:
Yeah.

Huy Do:
Yeah. There’s a lot of good data out there in the rental loans, especially if you do… There’s more short term rental loans out there for the Airbnbs. There’s not many lenders that did that. But there’s-

Kevin Kim:
It’s becoming more popular, I think.

Huy Do:
There should be probably a fund that gets started somewhere maybe for your clients. But there’s a lot of data you can buy now like AirDNA and some of these sites where you can basically buy data and figure out the rental and the debt service coverage on it. So that’s interesting.

Huy Do:
But we are net buyers on things that makes sense. We’ve been big on industrial buildings for a while along transportation corridors. So for us in Southern California, the 10, 40, the 15, we’re net buyers of those. We think distribution, logistics will be there. We like multifamily world. We do like value add more than ground up construction. But that’s where the value is. Certainly, you got to chase things like that.

Huy Do:
We’ve done some venture work on the… We just invested with a large family, that’s a food family. So this venture fund does basically integrated food solutions. So that’s interesting, supply chain for food. Think about food as you go into space and things like that. We’ve done a lot of investment in robotics.

Kevin Kim:
Wow.

Huy Do:
Certainly, robotics is heavy. We’re office with another family that’s got four funds and this guy’s had, gosh, $6 billion exits in seven years. A lot of robotics.

Kevin Kim:
[crosstalk 01:00:15].

Huy Do:
Machine learning, AI, robotics, construction equipment, farm equipment. We’re in those venture funds. So we like that.

Huy Do:
But private lending world, there’s always a market out there. I would probably scrub pretty hard on acquisition costs and values and where you think it is. We do a lot of stress testing on a portfolio. So we tested-

Kevin Kim:
Not a very common practice-

Huy Do:
[crosstalk 01:00:40].

Kevin Kim:
… which it should be done all the time. But…

Huy Do:
Yeah, there’s resources out there where you can do it efficiently.

Huy Do:
So net buyer, I’d watch the durations and I’d watch leverage. Anytime you mismatched-

Kevin Kim:
And we say leverage, we’re not talking about leverage like [inaudible 01:00:56] LTV risk?

Huy Do:
No. Warehouse lines. I would say now’s the time to be careful because what we saw in 2008 and ’09 was people were mismatching their warehouse lines with the duration of their end loans.

Kevin Kim:
That’s true.

Huy Do:
Right? So you had one year loans that got extended to 15 months, but then you have these warehouse lines that could get called anytime. That’s a mismatch and so you’re going to end up upside down.

Kevin Kim:
Negotiate your term sheets, people. But it’s so important.

Huy Do:
He’s an attorney.

Kevin Kim:
It’s so important.

Huy Do:
Yeah. So the sales side is interesting because it really goes off your balance sheet and as long as there’s no large recourse clauses and buybacks-

Kevin Kim:
And that’s why you negotiate them.

Huy Do:
I would look at your buybacks and understand, to make sure that you have enough margin to cover-

Kevin Kim:
Everyone always say, “Oh, it’s not a real risk. Not a real…” It’s starting to happen.

Huy Do:
It is. It is. There’s a place where the music stops and maybe it’s a temporary thing like COVID.

Kevin Kim:
I hope so.

Huy Do:
At the beginning of COVID, we’re like, “What the heck?” And a month in, it freed up a little bit. And so who knows if it’s a long kind of ice age or it’s just a little blip in the radar.

Huy Do:
I do think there’s variability. No clue how long it lasts. No clue what it really looks like as far as percentage. I do know that if you have a lot of equity and we run no debt, you’re in a better position.

Kevin Kim:
Yeah. That is the traditional approach, especially here at CMA. We’re very, “Leverage is a bad thing.” I think leverage is okay but it has to be-

Huy Do:
Smart leverage.

Kevin Kim:
… smart leverage, cash management tool, risk management tool, not yield enhancement tool, and no mismatch. Mismatch on timing is going to be-

Huy Do:
Cash management. That’s right. That’s the right way to put it. We use the family line of credit. So even though I say no leverage-

Kevin Kim:
Yes. Yeah.

Huy Do:
We still leverage on the fund.

Kevin Kim:
It’s cash management.

Huy Do:
It’s cash management because you’re always managing… You could do a whole episode on portfolio management and fund management

Kevin Kim:
Oh, yeah. We could. I did a class on it basically at [inaudible 01:02:59] and we’re doing that this year and most of the time is going to be spent on portfolio risk.

Huy Do:
Yeah. For us, we look at portfolio risk as far as the full portfolio individual deal and then the duration issues which we don’t have duration issues because we don’t have any leverage.

Kevin Kim:
And you’re short term.

Huy Do:
And we’re pretty short term.

Kevin Kim:
[crosstalk 01:03:20].

Huy Do:
I do. I do. I do think there’s a space for that because-

Kevin Kim:
Oh yeah, there is is. There’s a market for it. It’s probably not like these privately held companies that are primarily looking at this from a fixed income perspective. It’s not the right move.

Huy Do:
It seems to me that people write these longer term deals but they end up refying. The loans get paid off a lot quicker than you think. Anybody that takes a 10% loan for three years, it’s not very wise.

Kevin Kim:
Yeah, you got to get out of it as soon as possible. That’s the move. Yeah. Anyway.

Huy Do:
Right.

Kevin Kim:
All right. Well, you know what? I think that’s about all the time we have.

Huy Do:
Great.

Kevin Kim:
Huy, thank you so much for joining us on the show.

Huy Do:
Hey, I appreciate it. Yeah.

Kevin Kim:
Yeah.

Huy Do:
Always a pleasure.

Kevin Kim:
As always, this hat is given to our guests so there you go.

Huy Do:
All right. I’ll wear it proudly on the golf course.

Kevin Kim:
All right. We’ll get this episode out soon, season three, and we’ll see you on the next one. Thank you very much for listening.

Huy Do:
Okay. Thanks.

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 5 star review 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 it. See you next time. This is Kevin Kim signing off.

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