Diversification is Key | Mark Jury, Sortis Holdings

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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 the personal stories. Overall, I really want to learn more about how they started and grew their businesses. So whether you’re a lender, a borrower, a vendor, an investor, or anyone just interested in learning more about private lending, this podcast is definitely for you. Thanks for tuning in and enjoy this week’s episode of Lender Lounge with Kevin Kim.

Mark Jury:
Hello.

Kevin Kim:
Thank you so much for joining us. You drove all the way down from L.A. I love to do these in person, so I’m so glad you came down. First of all, introduce yourself to the audience and the company and we’ll go from there.

Mark Jury:
Yeah, Mark Jury. Sortis, LLC, I guess. We have a couple of different businesses. We have an advisory business, which is where most people know me. We have a principal business. Actually kind of two legs of a principal business. I’m based in West L.A., so not too terribly far from here and companies up in Portland, Oregon.

Kevin Kim:
Okay, but Sortis is also a lender, correct?

Mark Jury:
Correct.

Kevin Kim:
Okay. When you say principle business, can you expand on that a little more?

Mark Jury:
Yeah, so we have two main principle businesses. Our private lending business, well, I guess I’ll just call it our fund management business, our largest fund being our commercial bridge private lending fund. So we’re about 150 million of investor equity, no debt, and we focus purely on commercial real estate. Every once in a while we’ll do some resi stuff, but typically we’re priced out of multifamily and mixed use because of all the usual suspects.

And then the other side of our principal business. During the pandemic we launched a private equity fund. We invested in 15 to 20 or so businesses ranging from hospitality to kind of more stuff on the retail side, health and beauty, food and beverage. And we kind of split that company off beginning of the year. So that’s kind of its own entity now. A little bit separate from the fund management business, but we kind of have those two businesses on the principal side in addition to the advisory.

Kevin Kim:
And are you a founder of the business? How long have you been with Sortis?

Mark Jury:
I’m not a founder. I have been there since 2013. The company was found in 2008 and kind of a history there. So started as a advisory company, that’s kind of where the advisory business comes from. At the time, we were advising banks on liquidating loss share assets. So it was mostly focused in and around the bank space and processing paperwork and kind of a pseudo competitor of a DebtX or, at the time, Mission Capital, and those guys. But that kind of evolved when that stuff cleared itself out. Most of the advisory business went away. Actually our founder actually split from two existing partners at the time and we started building more of the principal business. So we really launched our first fund in 2017, our private lending fund. But no, we have four partners, the founder, and then three others based in Portland. And like I said, a whole staff up there as well.

Kevin Kim:
And this advisory business has become quite well known in the sector. You and I actually now have shared clients and shared-

Mark Jury:
Yeah, a lot of them.

Kevin Kim:
… different relationships in the sector. And it’s kind of funny because now you guys have been acting as an advisor to succeed on as a lender and on the capital more asset management perspective I guess you can call it. So give us an idea of, in the private lending sector at large, what does the advisory service do for private lenders?

Mark Jury:
Yeah, I tend to call it institutional debt advisory to differentiate it from equity. Everybody, especially in environments like this, wants equity, more equity in their funds. That’s not something that we do and specialize in for a number of reasons. Probably the most important being if I have people that want to invest in a fund, I’m going to throw them in my fund.

Kevin Kim:
And that’s important for audience to know is a lot of you like, Sortis is an investor. Because I’ve been asked this before, as an investor, what do they do? Hold on. They don’t invest in your fund. They help you as the principal.

Mark Jury:
Correct. So most of it’s on kind of the debt side. So when I first got into this space, and maybe I’ll just use this as an opportunity to talk about how I got into the private lending space.

Kevin Kim:
Perfect segue.

Mark Jury:
So it was somewhat accidental. I come from the institutional subprime whole loan market. So I started my career with Merrill Lynch in 2003. I was an analyst on the subprime whole loan acquisition desk. A lot of the grade guys were in similar desks so I got to know a lot of those guys. So analyzing, acquiring pools of home loan packages from subprime originators, securitizing, and selling the bonds off, that whole thing. As you know, Merrill wanted to make their name in subprime and second liens. So given what happened in the market, that turned out to not be a great strategy, which is why Merrill doesn’t exist anymore. Or at least aside from the wealth management business.

So learned a lot, but as kind of things progressed, a lot of the subprime turned into non-performing scratch and dent, kind of all of that fun stuff. So as I went through the ranks at Merrill, I moved up and was managing the entire kind of distressed portfolio for them in the 2007, 2008 range. Did a securitization of NPL that was still somewhat of a lesser defined market, kind of that pure AB structure. And then sold off some loans. And then when things settled down a little bit and started moving into the B of a merger, we’re actually acquiring some pools from some of the old subprime guys, accredited and a few of the others that cease to exist pretty soon after.

Everybody knows the first Franklin acquisition from Merrill so dealing with a lot of that as well as warehouse wind downs. So was mostly focused in the subprime whole loan space. Left after moving up to the B of A and watched kind of the turf wars between B of A, Countrywide Merrill, and then a lot of the Bear Stearns and Lehman guys that had joined the teams when those companies went down. So it’s not really a good environment to be in.

Kevin Kim:
And you were all heading downhill, too.

Mark Jury:
It’s like, yeah, it was like why are we all grabbing pieces of a sinking ship here? This is silly. So I got out there, moved in and did a startup for a couple years with some ex-Merrill guys, one of my mentors, and then worked for another small NPL, REO shop. So really had kind of the NPL, REO acquisition asset management background. And then in that time I met a group that was doing… They were buying a lot of small properties in the southeast and they were fixing them up and they were selling them, the normal fix and flip. This was like 2011, 2012. They got the interesting idea of, hey, maybe we should start lending to some of these guys and charging ridiculous interest rates. I think at the time it was 16, 18%.

Kevin Kim:
2011?

Mark Jury:
Yeah, like 2011, 2012. And again when it’s small southeast stuff that was mostly a hundred grand or less, it was property value so you can charge anything, right? And so they were interested in originating loans and they quickly, most guys that start originating private loans, they say, oh man, this is a great business. We’re running out of capital, what do we do? So back then I worked with a lot of the funds from the kind of Merrill, B of A days that had raised a bunch of money to invest in residential mortgages. And that was kind of the mandate and they needed to fill that box with something.

And so my thought was, this is kind of a weird asset class I didn’t really know. Wait, 12 months, what kind of mortgage is that? That’s super short. What’s happening? So I started connecting them and seeing if there was an opportunity for them to acquire those, would that fit under their mandate? And it did, and so started selling to some of the first kind of players in this space, most of which aren’t active anymore.

Kevin Kim:
These are loan buyers that were spinoffs of the Merrill groups?

Mark Jury:
No, no, no. These were separate New York funds that I had worked with in the Merrill days. We’d done some co-investments, buying [inaudible 00:10:05] pools. So they were active whole loan buyers and the amount of whole loan paper that was coming out wasn’t enough to fill the coffers.

Kevin Kim:
This is so funny because we just interviewed Justin Red Churchill, I think he was one of those buyers back in ’11 and ’12 was kind of how he got his first entry into the space. And there’s so many folks that we met who were on the show that their initial exposure was they were working in subprime and they were dealing with the distress debt, and this opportunity just kind of rose to the top. Let me ask you this though, back then, and this is the Wild West back then, so 2011, this is 15-5. I mean…

Mark Jury:
Yeah, I think they were originating at 3-16, 3-18, something like that.

Kevin Kim:
And so the market, this is pre Dodd-Frank, it sounds like. So I mean, what was the industry at large, the ones that you were working with at least? What was it like back then from your perspective?

Mark Jury:
I’ll be honest, I wouldn’t really even categorize it as an industry that I knew. I knew a couple of segmented players both on the institutional side and on the private lending side. And I just organically met more and more people. But it probably wasn’t until 2014, 2015 where I really started leaning into the space and getting to know the different players. There was no real securitization market for the private lending space at that point. And so it was mostly people balancing it. And the thought was these are 12 month loans, who cares? There’s no reason to do a securitization, right? And there’s always the thought of can we mimic a credit card securitization, do a liquidating trust type of structure? And I think that’s kind of what they’ve landed on with some of the structures here. Or you know, it’s just a simple AB structure or a simple…

Kevin Kim:
A revolver seems to be the trend. Yeah, yeah.

Mark Jury:
But back then there was kind of no concept of it. People just had to deploy capital into mortgage whole loans, and this technically check the box. So it started getting a little-

Kevin Kim:
Because there was not much origination-

Mark Jury:
… mainstream.

Kevin Kim:
… on the new loans, on the conventional stuff. And everyone was still trying to-

Mark Jury:
Well, subprime didn’t exist anymore. The banks got ultra conservative.

Kevin Kim:
[inaudible 00:12:25] didn’t exist yet.

Mark Jury:
Even things like [inaudible 00:12:28] and that all kind of went away, mostly conventional. And so that, I think the combination, and I came at it from the capital side, there’s capital to deploy in this space. A lot of the lenders that I hear, they came at it from kind of the lender side where oh man, banks and other private lenders aren’t really meeting the needs that are out there. A lot of people got credit dinged up, a lot of people got whatever, had different forms of distress. So they needed to find alternative lending products and banks weren’t filling that. And so there’s a big space for private lenders to grow. So I think the combination of the two factors that there was a big need for private loans and private lending, and there was a fair amount of capital allocated to invest in mortgage loans.

Kevin Kim:
Well, what’s fascinating to me is that it’s institutional capital even.

Mark Jury:
Yeah, absolutely.

Kevin Kim:
So how does this lead you over to Sortis? I mean, you were at Sortis in ’13, there’s a two-year gap now. You’re trading hard money loans to the institutions.

Mark Jury:
Yeah, so I really started… So I got to know the group in my stint in 2011 to 2013 when I was with a small kind of private NPL and REO buyer. So I got to know them as a fixer and flipper. And then it was around the 2013 range where they started to get into lending. I moved over to Sortis, and I actually moved over Sortis because I sold them the remnants of our servicing operation, so happy to get into all that. But kind of a spinoff of this is how I have been tied to Portland my whole career.

Portland owned Wilshire… Or sorry, Merrill Lynch owned Wilshire back in the day, a big special servicer. We spun off as part of our startup. A handful of those people, some of those made their way into my interim company in 2011, 2013. And then I sold the remnants of that servicing business to Sortis. They owned a community bank. We put the servicer under the community bank to help service some of the loan portfolio that Sortis was starting to kind of invest in.

Kevin Kim:
So there’s a lot more history to the company than I knew. So they were a bank before all this.

Mark Jury:
Well, it’s hard to say they were a bank. We are-

Kevin Kim:
A bank?

Mark Jury:
No. We invested in a community bank. We never became a bank, although we retained the publicly traded holding company.

Kevin Kim:
I see.

Mark Jury:
We sold the bank assets off three, four years ago. And this was part of the whole law share banking piece that I mentioned early on. We, in addition to helping banks liquidate their assets, when we saw good opportunities, sometimes we would invest in those assets and help them clean up or invest in the platform and help them liquidate the assets.

Kevin Kim:
So Sortis was not only an investor in banks during the crisis, it was also a builder in fix and flip, and it saw an opportunity to acquire a servicing desk.

Mark Jury:
Correct.

Kevin Kim:
And so they bring you on as part of that transaction?

Mark Jury:
Yeah. So I sold them the servicing group from the kind of remnants of the organization then had been with me since really leaving the Merrill days. Sold that, that’s how I got introduced to them. They were all based in Portland, Sortis is based in Portland, so this L.A. guy introducing to Portland groups together, it was kind of funny but you know…

Kevin Kim:
You’ve never left. You’ve been there this entire time?

Mark Jury:
I mean, ever since I left the street when I was in New York. But yeah, I moved to L.A. in 2010, 2011 range.

Kevin Kim:
This is why I love this show. So for the longest time, I knew you were in L.A. now, but I thought you were in Oregon before all this.

Mark Jury:
No, it’s tough when you’re the only employee in California and your company’s based in Oregon, and you go to a conference and it says what address? What do you say?

Kevin Kim:
Exactly.

Mark Jury:
I’ve been working from home since 2010, 2011. Do I put my home address? That seemed weird. So I figured I would just list the Portland address. A lot of people think I’m in Oregon, even though now I’m from the Midwest so I have a Minneapolis cell phone number. People just get all confused as to where I am.

Kevin Kim:
Okay, so as a part of it now because from ’13 until now, the market has definitely changed a lot. And you know, you guys, if the company entered the space in ’13, is that when it started in the space?

Mark Jury:
Yeah, I really brought the hard money private lending piece to Sortis when I came.

Kevin Kim:
And it was a lender or it was a buyer of loans?

Mark Jury:
It started as just doing the advisory stuff. And then as I kind of shared the development of that industry with Sortis and the principles, we decided to start… We acquired a small private lending business in Oregon in 2000, end of 2015, early 2016 we started originating some loans. This was all on the resi side right before we pivoted to commercial. And so we launched our fund February of 2017, our Sortis income fund. So that’s kind of how we got into that space as a principle. We weren’t buying at that point. We were investing in other types of assets, bank assets, other commercial real estate. Our founder’s a third generation commercial real estate developer so there’s a lot more development, a lot more kind of side pocket commercial deals. That was kind of what our principal business consisted of prior to us starting our fund formally in 2017.

Kevin Kim:
Which makes sense. I mean, you hear a lot of, it’s a very common thread is once developer/real estate investor turned lender is a nice hedge. So you guys started in the private lending sector, and then transitioned over to commercial real estate?

Mark Jury:
Correct.

Kevin Kim:
So during that time, are you on the advisory side? Are you on the origination front? What are you doing for the company at this time?

Mark Jury:
Yeah, so right now I wear two hats. I run what’s left of the advisory business, which is what most people know me as in the space is going to the conferences. And we can talk a little bit more about what aspects, because I think we left off there. And then on the principal side, mostly what I’m doing is capital raising. So we have a separate lending team and an ops team that’s up in Oregon so they manage that. I mean, I obviously know enough about our lending to be able to talk about deals when people want to send me stuff. But for the most part I am focused on institutional capital raising for us.

Kevin Kim:
So let’s get into the advisory business, because this is what I feel like most of the people that we interact with together or folks that you refer over to us, and we kind of share a relationship with, know you for it. And advisor’s the broad term, right? Advisory could be almost anything. And so I mean, I’m a legal advisor so in a lot of ways we share the similar role. Give us a more detailed dive into what it exactly is that Mark is doing with I guess your clients who are being advised.

Mark Jury:
Yeah. So I’ll give a little bit of a timeline. So as I mentioned back in 2012, 2013 when I first joined Sortis, the industry was a very fledgling industry at that point. And so there wasn’t a lot of definition. There wasn’t a securitization market, there wasn’t all these conferences, there weren’t all these buyers. So that was just how do you sell loans. So a lot of it early on was just selling loans. Groups originated, they ran out of capital.

Kevin Kim:
When was this?

Mark Jury:
This was like 2013 when I first started. I started doing a little bit of lines of credit like 2013, 2014-

Kevin Kim:
That’s how we first met, because there were some conversations about lines of credit back then, and you guys were the ones that like hey they have different access points than we do. And I know people bring you guys up back then.

Mark Jury:
Well, if you think about our history with helping banks liquidate loss share assets, we got introduced to a lot of banks. Obviously a lot of those banks didn’t make it otherwise, we wouldn’t be helping them liquidate law share assets. But there were a handful that did, that turned it around, and some of them were somewhat flexible, they got good capitalization so they were interested, is there a way to lend to lenders the whole lender finance business? So again, back then it was very jerky. It was, “Hey, I’m a bank in Georgia, I’ll lend to an originator in Georgia that only lends in Georgia.” So it’s very regionally focused. I mean pre Axos, there was Bank of the Internet and they were kind of one of the bigger players. Western Alliance had been around for a while, but it was still an evolving industry and there were a lot of requirements and a lot of the guys that needed it were relatively small and kind of inexperienced and not particularly institutional.

Kevin Kim:
Hard to lend.

Mark Jury:
And so it was hard for the big banks to really come in and lend to themselves-

Kevin Kim:
So you were effectively a capital markets advisor early stage in the market, which didn’t exist. I mean, you had a handful, you had the colonies of the world getting set up and doing their securitizations. But 99.9% of the space was effectively… There were entrepreneurs, startup businesses, solo operators. And this is when we first started really gaining steam in the space as well was kind of ’13, ’14, ’15 we started seeing growth in the space. But how does that evolve to what you’re doing today? Because you’re doing a lot more than just like, hey we’ll buy you loans and…

Mark Jury:
Well as you know, go to a conference, you throw a baseball, you hit 20 buyers. So like there’s no real market for an advisor in selling loans right now. I mean I still do a little bit every once in a while, commercial stuff. When DSCR first started, there was an opportunity there because that looked a lot more like subprime and some of the other asset classes that I have more of a background in. But selling a right down the middle of the fairway fix and flip loan, you don’t need me.

Kevin Kim:
Everyone in is buying now, right?

Mark Jury:
So what’s the point? Although COVID hits, my phone starts ringing.

Kevin Kim:
Yeah, yeah. Who’s still buying?

Mark Jury:
Interest rates start spiking and boxes start changing, “Hey Mark, who’s buying, who’s active? Who can buy this stuff? Wait, this was fall off from three other buyers. Nobody’s going to buy this kind of stuff.” So it’s a little bit more of a therapy session than it is helping people sell loans. Every once in a while there’s some traction again, I have a background in NPL and so if that market ever comes, I could play in that transaction. I did a little bit of NPL sales during kind of the COVID timeframe. But I’ve seen that movie a number of times where a lot of distress, a ton of people raise a lot of money to buy NPLs and then the supply never comes. And so I’m kind of not holding my breath.

So I’ve pivoted mostly away from loan sales. I would say the main focus on the advisory side right now is lines of credit, mostly kind of term lines of credit. I always have to differentiate a line of credit versus a warehouse facility. What does that mean? Warehouse facilities are designed to be short term in nature. You can hold it on your books for two weeks to maybe two months and then you have to put it with its permanent holder. Whereas a line of credit, you originate yourself on your own books and then you put it with someone with the idea of holding into maturity.

Kevin Kim:
These terminologies are thrown around so much. And I use the terminology in reverse sometimes.

Mark Jury:
Oh do you?

Kevin Kim:
I get confused, because when I was at the bank lines of… I used to be a banker, too. So lines of credit, whereas general lines of credit, right. Okay, well, it’s a revolving line of credit. Revolving line of credit. Credit facility is always something more esoteric, right? It was like weird terms. So I use the terms interchangeably these days because there’s so many weird products out there now. So just to be clear to our audience, the short term we are calling them repo lines. The short term pledge it, sell it type of… You’re referring to those as warehouse lines.

Mark Jury:
Yeah, well difference between repo means there’s a market component with repo. And so I try to avoid that because that holds a different connotation to it but…

Kevin Kim:
You’re holding it for wholesale definitely for [inaudible 00:24:15].

Mark Jury:
It’s meant to be a short term facility. Whereas, and the lines of credit, I mean, lines of credit in our world are two to three year terms. People are pledging loans and they pay off, usually they’re 12 month loans that pay off in 6, 7, 8 months. So long term isn’t really the right in the context of overall 30 year mortgages, but longer term than warehouse lines.

Kevin Kim:
So you’re acting as an advisor capacity for folks who are now starting to think about expanding their business to get leverage. Is it mostly balance sheet lenders?

Mark Jury:
Yeah. Well and more lenders have become balance sheet lenders. I mean, you know this with the fund business. You had COVID where there was a big disruption in the buyers. Not big, but enough to shake people a little bit saying okay, this isn’t given. And then with the rates kicking up and boxes adjusting and buyers kind of going in and out of the space, we’ve had a few blow up, we’ve had a few stop buying. We’ve had a lot of different versions of things. People stop having the confidence that that’s always going to be there and they want to control their own destiny.

And it’s interesting when you think about the buyer versus the bank market. They’re both institutional capital partners, but they have very different motivations and very different sources of capital. And even within them they’re subcategories. You think about the buyers and they often either rely on large bank lines or securitization, some of them have insurance companies or pension funds behind them. But it’s all more, I would call it finicky capital and capital that adjusts to the market quicker. You look at the bo-

Kevin Kim:
I want to dig get into that real quick because we’ve had a lot of these debates. We were just at APL, we recording in October, we just got back from APL. One of the debates that I had with someone there who’s a little bit more experienced but more retail was like, can you explain to me why? Why is it? And everyone’s saying they’re finicky, everyone’s saying they’re so picky. I’m just explain to me why. They told us they love this asset class and my response was cost of capital. It was literally cost of capital. They used to borrow at nothing, now they’re borrowing at four. But that can’t be the end of it. And I’ve never been on Wall Street so I don’t really know the details there. What do you mean when you say finicky capital?

Mark Jury:
Well, forgive my terminology, but shit flows downhill in this industry. So you start with the bond buyers who are the big pension funds or whatever, they can buy rated securities and whatever. So they’re the ones that adjust the quickest. The bond markets adjust the quickest and the bond markets have already taken into account additional interest rate hikes. They’ve already adjusted. So to some degree that market has moved quickly because it just moves more easily with the market.

Kevin Kim:
The adjustment’s quickly, yeah.

Mark Jury:
And so then that trickles down to the aggregators that depend on that for their liquidation. And so their cost of capital has gone up because the bonds have already adjusted. So they now have to pass that down, pass the buck down to the loans that they’re acquiring, and the lenders. And so then the lenders are looking at it and they’re saying, “Wait a second, why is my box changing?” Well the reason your box is changing is because the guys that you’re selling to relying on the bond market and the bond market changed.

And so the same thing, there’s this whole conversation about do you train your lenders to pass things through to your borrowers? And I don’t like the idea of training somebody, that sounds a little insulting. But again, the cost has to go all the way down. And it’s hard for lenders to talk to their best borrowers and say, “Hey, the market’s really adjusted. I have to increase your rates.” But that’s the story. You’re either doing that or you’re losing margin on your lending business.

Kevin Kim:
But there’s that, the game of telephone that needs to happen, it’s rolling downhill. And the game of telephone is where the crisis seemed… Like a lot of the stress points, a lot of the therapy sessions seem to be coming from the fact that okay, bond markets have adjusted, aggregator or institutional investor has to communicate that to their counterparties who are selling them loans. But the communication is not being done in the most optimal way. It seems like that?

Mark Jury:
Part of that, but also I think it’s the fact that private lenders that have been around for any period of time aren’t used to being subject to the secondary capital markets.

Kevin Kim:
That’s true. It’s only been around three, four years now.

Mark Jury:
All lenders are used to doing it their way. You hear this all the time, wait, I don’t want to fit in somebody else’s box. I don’t want have to use third party appraisals and third party inspectors and blah, blah, blah. I don’t want to have to jump through all these hoops. People come to me because they know how I work and I do it this way. Well, once you start relying on cheaper institutional capital, it’s no longer solely in your control. So the bucket’s passed down and you have to adjust with it, or go back to not relying on secondary buyers, raise your own market, which gets back to our whole balance sheet conversation.

Kevin Kim:
So since that market isn’t really viable as an advisor, the concentration going to the role as your advisor helping these folks obtain leverage, helping them to be able to expand their balance sheet. And are you acting as a conduit for them to find the banks that’ll provide this solution or is it more than that?

Mark Jury:
It’s a little bit more than that. I mean there’s kind of the notion of are you just a finder or do you just connect phones, that type of thing.

Kevin Kim:
Because there are folks like that, right?

Mark Jury:
There absolutely are. And that’s never been something of interest to me. I really want to get to know my clients. I want to add value. Recently went through an exercise where I had an investor maybe looking for some other funds to invest in. And so having gone through a full diligence process with some of my lenders, I really get to know what makes them tick, and I can recommend them with a high degree of confidence rather than saying, “Hey, I met this guy at a conference. Here, go talk to him.” But yes, if you look at the conferences, the vast majority of the capital providers, there are buyers. There are some banks and some of the usual suspects we talked about, there are also a number of banks and the bank mentality is different as well.

A lot of the bank players in the space, while the buyers rely on different types of capital, even banks can be bifurcated into I’ll just broadly call it two groups. Groups that make their money on deposits and groups that make their money on fees. You know this coming from the banking world, and this talking to the banks that are active in the space. You have some of them that just charge all the fees in the world but don’t require a commercial banking relationship. And you have others that say, “Hey, the more deposits you can throw at us, the more flexible we can be on fees and rates and things like that.”

Kevin Kim:
And it seems to me at least the larger players who are providing these term finance, term lines of credit, term facilities are now insisting on treasury management being part of the conversation. Larger deposits, but they are on fees. I mean this is usually a treasury management call, doesn’t happen until they’re finished onboarding. Now it’s being part of the process… I used to call it the pre onboarding process. So what are you doing to… So it sounds like to me that you’re not just providing them access to the different bankers, but you’re also kind of helping optimize the business to be able to get ready for that because a lot of these folks aren’t ready for this kind of stuff.

Mark Jury:
Well, a lot of it is what are you looking for? And in this market, a lot of times I want more control because I don’t feel like I have control over the loan buying and selling market. And banks have, even over the course of the last two disruptive cycles, generally stayed the course much better than buyers-

Kevin Kim:
On this product.

Mark Jury:
On this product. Yeah, I can’t speak more broadly than that. So that allows them to control their own destiny a little bit better. Of course, there’s things that go into working with a bank, can be challenging and there can be boxes and things that you got to go through. But for the most part it’s been much more reliable capital than the buyers. So people are trying to build balance sheet, control their own destiny, yada, yada, yada. So it’s getting to know what type of loans do you originate. What do you want to do? What do you want out of this relationship? Certain banks won’t touch commercial, certain banks won’t touch ground up construction. So depending on where you are, a lot of banks are still regional, right? You have some national players but you have some that are only West Coast, some that are East Coast, some that only the Northeast whatever.

Kevin Kim:
And different philosophies on appraisal, different philosophies on credit. But beyond that, what I’ve noticed at least is that even some on paper, they look like they qualify, but the bank says no. One of the banks say no. And I go ask the banker, “What’s the story here?” “Oh you got to look in behind the scenes on this one.” I’m like, what? So are you doing anything beyond just get your financials right, get your fund right, that kind of stuff?

Mark Jury:
Yeah, so I have this newsletter that I put out every once in a while. I’ve kind of branded at Jury’s corner, and in a couple of issues ago I said beware the bank sales guy. And basically what I mean by that is you’ll go to these conferences, you’ll meet a sales rep from a bank and they’ll say, oh yeah absolutely you qualify, blah, blah, blah, blah, blah. It’s a completely different story when you start talking to credit committee. And it’s like anything, it’s loan officers versus underwriters. You get this whole kind of sales versus whatever you’re going to do. So part of it is getting past the sales guy and understanding exactly what goes into qualifying for a bank.

Kevin Kim:
This has been a real pain point lately.

Mark Jury:
Absolutely.

Kevin Kim:
And I’ve been telling people the same thing, but what’s fascinating is you twist the… There’s some of these, the officers are seasoned, they know their stuff, and this is not their first rodeo. And it’s fascinating to me, you’ve seen this avatar before. You know exactly what to ask for right now. And you are doing your credit application or your write up, whatever you’re going to call it, your bank, to your credit committee. You have five pending right now, 10 pending right now. It’s communication, and I really don’t fault the credit committee. I’m almost faulting the officers like guys, you can’t [inaudible 00:34:24] and switch these borrowers. And they’ll light you on fire cause they would never do this to their borrowers. And I’ve been on many phone calls where clients we’re done with that bank or…

Mark Jury:
I’ve had a lot of they burn bridges and it’s just because they felt like they’ve been misled, and to some degree things do change and banks change, not as rapidly. They have the turning radius of a battleship for the most part. But they do adjust with the times, and so things have changed. Audited financials have become more of a common requirement than they were a year or two ago, and there’s other examples of that. So there is some adjustment to change. We’re in a rapidly changing market. But yeah, there’s just a lot of people that’ll say, “Oh yeah, you totally qualify. Wait, you have no money and you broker and you white label loans right now. Absolutely, we’ll give you a line of credit.”

And I’m like there’s no way that you’re getting a line of credit from the bank, why would you tell them that? And so I almost need to step in to some degree and help those groups understand what it takes to get to institutional bank quality. And that means different things for different banks. And then when the groups get there, then helping them determine which bank is going to be the best fit and how do you get through this process because they are extremely lengthy processes. I’m sure you’re aware of this.

Kevin Kim:
Education management is key there.

Mark Jury:
I tell people, especially in the private lenders because they’re used to on closing two weeks, and so they expect things to move very quickly. The quickest one I’ve probably closed six, seven, eight months. Oftentimes it’s nine to 12 months before these things close from the time you start conversations. And these are with fairly engaged both sides. So it’s something people have to put a lot of forethought into and they don’t understand that. They’re like, well I want to close, how quickly can I get access to the capital? And I’m like whoa, whoa, whoa. This is going to be process.

Kevin Kim:
Well, there are options in town. It’s going to cost you a pretty penny, right?

Mark Jury:
Sure. You could go the private route and those are going to be instead of prime plus one or [inaudible 00:36:31] plus four, they’re going to be prime plus four or [inaudible 00:36:36] plus eight or something. And still going to be a process though. So yeah, it’s a lot about, I don’t think that the banks have really penetrated this space well enough to be able to articulate what they require.

Kevin Kim:
So let me ask you about the next level beyond that though because the space has grown up in a way where now you have prime target borrowers who are balance sheet lenders. They also sell to Wall Street, they maybe even had their own securitization here and there. And they’re still borrowing from the western alliances of the world. The larger banks, regional banks are doing high volume but they’re not with CS, they’re not with Wells.

And my experience with those groups is they would qualify, the balance sheet’s big enough, but it’s been either a question of one access or two just preference. They just don’t want to deal with the… Because that’s like a two-year process, it feels like at least. We’ve gone through it once. And so do you have any thoughts on why the market hasn’t shifted in that direction? Because clearly that is a qualify for the CS loan program and so it’s been fascinating. Why doesn’t anyone have one of these programs yet?

Mark Jury:
In the grand scheme of the street, a 100 million, 200 million, 300 million, it’s still not that big.

Kevin Kim:
Sure, sure, sure. But there are now funds that are reaching half a billion, even a billion and have hit origination marks of $2, $3 billion. And there’s not a lot of them. And I’m not counting the institutionally back guys, I’m counting the pure guys who guys have no institutional partners. They’ve done it themselves, they bootstrapped it, they’ve got their own funds but their funds are now really, they’re getting pretty big. And the volume’s there, too.

But I’ve always asked them like, “Hey have you started looking at the Wells program?” Like, “Oh we looked at it looks awful. We love it, we love the numbers but it looks awful.” Other folks have said, “We just don’t have access. I would be lucky if help me, I don’t know anyone at Wells either.” So the question’s become like when do you think that this market’s going to head in that direction? Because it’s obviously growing and people are starting to get really pretty significantly sized.

Mark Jury:
I actually think that there’s going to be, obviously there’s going to be changes in the market with currently what’s going on? I actually think it’s going to go the opposite direction. I think it’s going to become more fragmented, more back to 2015 levels.

Kevin Kim:
So the smaller bank’s going to win then?

Mark Jury:
Yeah. Because I think people are going to appreciate the more hands-on approach. The street, just like the buyers, just like everybody else that can be fickle, a new asset class pops up and then all of a sudden their mandates go a different way and they can kind of shut those down. Not to say that small banks can’t do the same thing, but working with the street is akin to working with securitization. Most of the big street firms that do large lines of credit, they end up often syndicating those out or doing some diversion of a securitization to get it off of their balance sheet. And so it ends up just becoming… By going that you’re kind of doing a deal with the devil where you’re locking into more or less the securitization market. And that may not be where people want to go.

Kevin Kim:
Which explains the trend I saw last at the end of last year and the beginning of this year, the institutional level of discretionary credit funds being formed by even these institutional shops and bringing the balance sheet into play. Makes sense. So I want to get your thoughts now. I want to head more on where it’s a good segue. You hinted at it, where do you think we’re headed? Because right now it’s October, toward the tail end of October, it’s 2022. We’re due for another rate hike, probably another 75 bibs. We might be due for another one after that. Who knows?

We just got back from APL, which was a really interesting conference because it’s very well attended, but it was kind of half and half. I met a lot of new lenders there, a lot of new market entry folks there. And there wasn’t a clear kind of sentiment of where things are going. You talk to some guy thinks the world is going to end, talk to another guy, he thinks, yeah, we’re killing it. We’re busy as hell. The only unifying factor that I could find was folks that had their own money effectively. They have their money, haven’t been saying this the whole time. They have their money, they have their captive capital, they have their financing figured out. They’re not as stressed out about where things are headed, but they’re smaller. So that’s my take on it. What are you thinking about where we’re headed these days?

Mark Jury:
Yeah, it’s funny, when you go to the conferences, the best news tends to come from the people that are up on the stage. And I think it’s because people just want to paint a rosy picture. We’re not in this bad of a shape. I think when you get people alone, and I’m sure you had both types of interactions with folks, people understand the harm. But exactly what you said, those that have their own balance sheet are much less stressed out. In fact, they’re probably doing better for a couple of reasons.

They’re probably getting more deals and better deals because they’re competitors. Were either levered rely on the secondary markets or maybe our banks who are tightening their credit box as well. There’s more opportunity for loans in the private lending space for those that don’t rely on secondary markets. And same thing with raising capital. You look at what’s happened in the stock market, you look at what’s happened in other alts like crypto and things like that. Where are people going to put their money?

Kevin Kim:
They’re getting pummeled, they’re getting pulled.

Mark Jury:
People are getting destroyed. You know have maybe a down quarter, maybe instead of nine, you return seven for whatever reason. Compared to the S&P, that’s still a home run for your investors.

Kevin Kim:
I want to be very clear on this. I’ve had this talk about kind of comparing it to Wall Street. I’ve also had clients come back to me and say my investor, for example, one of my clients was talking to his investment. One of the investment advisors that allocates to him and the investment advisor was, well actually we’re going to pull a little bit on the allocation to you guys because we’re seeing a lot of interesting opportunities on Wall Street. And my client was like crashing his head, you came to us because you wanted stability.

And the second issue was a pension plan had pulled out because they had to change their position on allocation to equities, the debt fund, so there was an LP position. So it felt like, while I agree with you from a Wall Street standpoint, you got to get pummeled if you try to go out there and just do an allocation into primary correlated assets. But it seems to me that some, I guess smaller minds than me maybe have a different perspective on it. I want to get your thoughts because you’ve been on both sides of the business.

Mark Jury:
There’s a lots to dive into there. I would say in terms of the bigger allocations, like the pension funds or whatever, there is a shift towards understanding and wanting to do more allocation towards alts, which is what this industry falls under. And so to some degree there are more opportunities to tap into those institutional investors, but they’re also pretty well allocated at this point. And it’s hard to get them to move and look at new opportunities. And most of are some of the other capital providers, let’s wait until the market settles down before we really start doing something. And I think that’s the sentiment for a lot of big money managers out there.

On the rate side, yeah, we’re going to see some more rate increases. I think the Fed is limited. They have one lever to pull to try to get inflation, and at this time we’re about to have midterm elections and so there’s some political leanings in that whole thing. We’re going to overcompensate, and then things are going to get under control because inflation lags a little bit. It’s not as quick. So inflation’s going to get under control, and then they’re going to cut rates a little bit again. So I see that happening, but I think we’re going to be in for another year if not more paying-

Kevin Kim:
So if you’re a ideal avatar fund investor, you’re either a high net worth investor or small family office. It’s been the bread and butter of debt fund managers to raise capital from. Is there the same sentiment as what the RIAs are having on this issue? Are they more like, all right, I just want a solid 8%, 9% and I’m golden?

Mark Jury:
I think it depends on the investors. So we have a number of investors that are shrewd real estate guys. And what happens is if you’re a SRU real estate guy, we’re entering into a part of the cycle where there’s going to be distressed in real estate. It’s not going to come out in waves and droves. People were expecting post 2007, 2008, but there’s going to be opportunities especially for high net worth guys. So they’re going to pull money out of funds and they’re going to buy this distressed retail play. So they’re going to buy a multi-family local.

So shrewd investors are always going to find great investment opportunities in dislocated markets, which is what we’re in. Folks that are more passive investors, they’re going to just say, “Man, I get crushed in everything else I’m in so I’m happy to just kind of re-up into the funds, because you’ve been stable and we’re secured by real estate and that’s relatively stable.” So I think it’s somewhat bifurcated depending on…

Kevin Kim:
Because, and a lot of folks are like, they have been accusing me like, “Hey, have you been promoting funds the past year and a half, two years,” because it seems to be the move to have longevity and stability. I’m not saying that this is an easy climb. Like I’m saying, raising money is not easy, it’s not for everybody. But it seems to me that this is the unnecessary tool that you have to have in your business to make sure that you’re going to be around in 10 years and still lending and growing through that cycle.

Now you mentioned distress, and I kind of want to talk to touch on that because this was also a conversation I had with many people during APL. I had some folks that were like, and they were more ambassador types and they were really excited about NPL. I was like, hold your horses, hold your horses. Because my thought was always been one, the bigger shops out there have been gearing up for this for a decade. Number two, there’s not going to be a lot because a lot of these guys have two and a half percent mortgages like me. And then the commercial and then they said, “Well what about commercial?” And I said, well in commercial it seems to me that…

Mark Jury:
A commercial asset class?

Kevin Kim:
A commercial real estate, commercial real estate, the distressed bridge, distress construction, how can I position myself to maximize their distressed multifamily? Because cap rates aren’t moving the way they should. And so the way these folks made it sound was like, oh there’s going to be massive opportunity. And I was like, hold your horses, hold your horses. Because this is very short term for now. We don’t know where we’re headed at all. But I am not in the business. I am an advisor to the business. And you guys all have a commercial real estate piece of the business. I mean, on the NPL side, should people be thinking of it as an opportunity from a more raise a bunch of money kind of thing? Because you mentioned it earlier, so.

Mark Jury:
I tend to agree with you. I would think not raising a bunch of money, I would say there’s going to be bits and pieces here and there. And if you’re a real savvy investor with your ear on the ground, you’re going to find some interesting deals but-

Kevin Kim:
You might find a deal or two.

Mark Jury:
But to your point, there’s been a ton of big institutional guys. I talked to another credit fund, three or 4 billion at the conference under management, they already have an NPL strategy built out.

Kevin Kim:
All of these banks have it too?

Mark Jury:
Yeah. And so some of the banks will even finance NPL funds and stuff now. So it’s going to go way over the head. It’s like when there was a bunch of loans that got traded coming out of the 2007, 2008 crisis, they were all behemoth institutions selling to other behemoth institutions, and at the best smaller operators like us. And most of our industry maybe fed a little bit off of table scraps, but there was not raising hundreds of millions of dollars to go play in the NPL space.

Kevin Kim:
But back then I felt, I feel like there was so much distress assets out there that even you had some middle tier, I call it middle market operators that had a decent time. They did great. I mean they made a lot of money for their investors. And I have a family friend who’s an investor in one of those funds up in L.A. and their family went from here to here. I mean they lived in a really nice home in Bel Air living in a castle somewhere of it. It’s just ridiculous.

But the amount of money they made was a product of them being in the access to that middle market. But because of the amount of inventory that came out during the ’08 crisis. But I mean even from a pure inventory standpoint, I mean these loans right now are being refied it feels like. Loans that are troubled right now. I just got a phone call today. I mean it sounds like things are heading in that direction where refis are happening or rescue loans are happening as opposed to…

Mark Jury:
Yeah, I mean think there’s going to be some of that. I also think certain asset classes are going to struggle more than others on the commercial side that we have our own thoughts. You know, you can talk about office for example, right? High amenity office and nice areas. I think it’s going to continue to do really well. You see in certain markets price per square foot of office sales are reaching all time highs. So there’s still a market for that. But this kind of outdated low amenity, people would rather just work from home than go into a crappy office.

And so do you want to go into the distressed buying on low amenity bad area office? I don’t think so. I feel like that’s just going to be an asset that probably dies out. So you know, also got to be careful about what distress you’re talking about. But I don’t think in the loan space there’s going to be a huge amount of distressed opportunity. I could be wrong, but this is now kind of the third cycle. I guess if you count COVID where-

Kevin Kim:
And that was the speculation during COVID and it didn’t happen.

Mark Jury:
It didn’t happen. Even not the amounts that were supposed to come out during the 2008 crisis really came out. I know so many managers that raised a ton of money to buy in NPLs and then they turned into servicers or they became tech platform firms. Because they wanted to try to monetize all this stuff that they had ramped up and invested in that they didn’t end up investing in any loans. And so I’m always hesitant, and again, I love to be wrong because again, I think the distress cleans a lot of stuff out, but I just don’t see it coming.

Kevin Kim:
And that raises the interesting question cause during COVID there were these tapes being thrown around the market at least, and people that kind of feed the frenzy a little bit. Certain tapes are being passed around, but it seems to me during this cycle, we’re at the same place effectively. Secondary is effectively pulled out. Handful of folks are still buying here and there, just in ’20, honestly. And this time though, there are no tapes being shot. And so I feel like they figured it out as well what to do with their distressed paper.

Mark Jury:
Yeah, there’s going to be, like I said, I think there’s going to be a little bit, it’s going to be pretty under the radar. So I did want to go back to an earlier point that you had, which might be a little bit of a kind of alley loop to you. But I’ve been pushing control your balance sheet, get a fund, it’s the easiest.

Kevin Kim:
Agreed. Of course.

Mark Jury:
It’s the easiest vehicle to plug into institutional capital with bank lines, everything else.

Kevin Kim:
And that’s where the disconnect with a lot of our listeners and a lot of my clients, they don’t think of bank lines as institutional capital. I’m like, no, no, hold on. It’s the best kind of institution capital.

Mark Jury:
It’s the cheapest capital you’ll find.

Kevin Kim:
Cheapest, reliable. Because I mean, how many of the lines that you worked with over the past few years now have been called? I mean none. I don’t know a single one, none.

Mark Jury:
I know some groups that have tapered their ability to take on new clients, but that ebbs and flows.

Kevin Kim:
That’s a operations issue.

Mark Jury:
Well, it’s also potentially be a regulator issue. You see this, you get a new bank and they kind of go lean hard into the private lender finance business. And then all of a sudden the regulator is like, wait a second, this is now a big part of your portfolio. You need to reel that in. And so you’ll get groups that go like that, but nobody’s getting called. At worst, people are not getting expanded to the size that they would like. But yeah, much more reliable than what we’ve seen in some of the secondary markets for sure.

Kevin Kim:
And I mean, our listeners have heard me stole the virtues of debt funds and that balance sheet strategy.

Mark Jury:
And listen to Kevin, he’s right. He’s right.

Kevin Kim:
And I’ve been doing this but at APL, but I want to hear your take on it. What’s the reason why? He says it’s the easiest way to plug in. Beyond accessing a line of credit, beyond that, what makes it so attractive do you feel like from your perspective as an advisor? Why is it a good thing?

Mark Jury:
I feel like I’m going to be stealing a lot of your thunder, but maybe it’s just helpful to hear it from a different perspective because you and I have had conversations about different types of fund. What’s the pros, what’s the cons? And I’m sure the listeners have all heard a lot of this before, but it’s protection for you as a fund manager, it’s protection and diversification for your investors. It’s an easy vehicle to go in.

You don’t want to get to the point of when you start doing matchmaking loan with investor, one of your loans goes bad. That investor happens to get shellacked because they just invested at that particular time. That’s just waiting for a lawsuit. And so there’s just a lot more reasons and it’s just easier to raise capital. You have an SEC registered vehicle that investors can glam onto. It’s much easier than, hey, we’re just going to assign you this note in the mortgage. There’s all-

Kevin Kim:
And that seems to be a myth that a lot of folks can’t overcome, right? They’re like, oh, but there’s so many trusted investors. Hold on, think about it. Think about it. Your average investors are not a trusted investor.

Mark Jury:
There’s wealthy intelligent investors that are always going to prefer that because they really get real estate.

Kevin Kim:
Of course.

Mark Jury:
That’s fine. Keep those guys in the side pockets. You’re going to always have side pocket deals to do with them. But also build a fund so you can broaden the amount of investors you reach out to. You can protect them better. You can tap into other vehicles like bank lines easier. And it just becomes to play this whole matchmaking game. Oh my gosh, I got a loan that needs to be fun. I’m going to go down and call investor A then investor B, then investor C. At some point you’re going to spend all of your working hours. And that’s a lot where people get to the breaking point when they come to me, they say, “I spend 90% of my time lining up investors to fund particular deals and 10% of my time running my lending business. This makes no sense.” Or some version of that.

Kevin Kim:
Well, if you integrate in the secondary market into it, a lot of folks have now it finally clicked. But even now it’s like they seem to have a lot of trouble. I call it pulling the trigger really just, all right, I’m going to do it. And it feels like it’s almost as if the secondary market is dangling a carrot in front of them making it seem like, okay, we’ll fund enough of your deals to keep you around, and keep you interested, and almost incentivize them from going this direction. I only know one secondary market group that is supportive of the fund being the primary means of funding loans and they understand the math but…

Mark Jury:
I don’t think most of them care because ultimately you’re selling the loan. So regardless of what entity it went into for a period of time, I don’t know that it matters that much if you’re buying the loan. And I think maybe the reason they don’t want that is because it tends to lead to people balance sheeting, raising more capital and therefore not selling to them and relying on this-

Kevin Kim:
You don’t need me as much anymore.

Mark Jury:
But guys, the carrot is poisoned sometimes. And you’re right now and during COVID you know that there’s challenges selling into the secondary market. And I’ve also spoken to guys that have not experienced a hiccup whatever from some of their buyers. So I’m not trying to say all buyers are doing bad things. I’m saying a lot of them are giving the party line of we’re focused on our current investors, we’re really not adding new clients, yada, yada, yada. And their boxes are tightening a little bit. And I think that’s a story that most people have experienced. There are certainly some that have done very, very well and not experienced any hiccups. And there’s others that have been completely shut off and cut off and it’s a wide range in between.

Kevin Kim:
And that’s the inconsistency. And it feels like, and I’m not pooping on them either. I think that they’re a lot of people get mad about it and I’ve on the ethics committee of APL and they’re like, “I’ll bring them all in front of ethics committee.” You’re like, hold on.

Mark Jury:
They’re adjusting with the markets.

Kevin Kim:
They’re doing the right thing for them for their own business. Whether they bait and switch is a whole different story. But if they’re notifying and they’re communicating, they’re doing the right thing for their investors and their people, they’re doing what they feel is the right thing. You’re going to be unhappy because they’re not going to be able to do what they did a year ago. But they’re doing what they feel is within their business judgment.

Mark Jury:
But our private lenders also aren’t blind to what’s happening in the market. They should know that hey, the market is changing, that’s going to affect everybody. So it’s not the old time where you had your own pot of capital and whatever happened in the broader market didn’t impact you because you were doing two loans a month only in your backyard. You’re tapping into institutional capital. You got to go with ebbs and the flows of it.

Kevin Kim:
That begs an interesting question, and I ask this to other advisors out there. They’re usually CPAs and maybe a handful of attorneys on in this space. There’s not a lot of us. So as an advisor of this space, what do you think is the blueprint for a successful private lending business?

Mark Jury:
I’ve been trying to come up with that balance, and really what I think is you have a fund, you have your side pocket investors that don’t want to go into your fund. You probably have some version of moderate leverage, whether it’s just pure cash management line or maybe 25 to 50% to juice returns and allow you to keep some of your best borrowers a good rates. And then you sell overflow, or you sell stuff that falls squarely into somebody’s box. I always have kind of thought the fund that you’re creating is almost your cats and dogs fund. It’s the stuff that doesn’t fit super well into an institutional group. But you like the deal for whatever reason the institution doesn’t. And for you, it makes all the sense in the world, that’s what your fund is for. If you have ones that are right down the middle of the fairway, chances are the institutional guys are going to have better cost of capital.

Although at the buy rates now versus what people pay out to their investors, it’s a little bit upside down. But in a normal environment when you could sell off to whomever at 6%, 7% you were lending out at eight, nine, recycle those points, sell that off, and go about your merry way. But you have to understand that that loan product is going to be very fickle because the secondary markets are fickle. So you want diverse paths. You don’t want to only be in your fund because when capital raising is tight, it’s going to be difficult.

Kevin Kim:
100%.

Mark Jury:
You want probably want a small bank line and I know that’s a little self-serving cause I help facilitate bank lines, but at least the cash management line because it’s expensive to have a lot of dry powder when you’re paying out 7% to 8% to an investor. And it sucks when all of a sudden all of your competition struggles like they are in this environment, you got a ton of deal flow. How do you tap into that, be able to serve these new clients and take a bigger portion of the market? You need some scalable capital and that’s what bank line provides and to some degree selling loans, too. So I think you need a little bit of everything but all measured. And again number one is having your own discretionary capital in your fund always be raising money into your capital. That should be a number one priority for every lender.

Kevin Kim:
I can’t agree more, but that raises another interesting question or I guess topic is that this isn’t for everybody. Because what allowed for the growth of private lending was the secondary market came in and it diversified the way a loan can get funded. And it gave people who without it would effectively be brokers, the ability to become-

Mark Jury:
Table funders or white labelers.

Kevin Kim:
And eventually become national lending shop. And that is threatened today.

Mark Jury:
And I think for a good reason, I think a lot of that should go away frankly.

Kevin Kim:
Because you’re representing yourself as a lender to your borrower when you’re really not right and you’re not lending your own money. And there’s very little service servicing going on when it comes to borrow relationship. But at the same time, there seems to be some virtue in it. You see a lot of these folks who have institutionalized their businesses and brought a lot of better practices to this space. So we have less cowboys. So the pros and cons to it. But I mean guess this leads to my next question for you is where do you think we’re headed? Because it’s October, we’re about to end the year soon, the industry shows are kind of coming and rolling down. We’re probably due for another right hike it seems like. I mean, so where do you think we’re headed?

Mark Jury:
I think people are going to just kind of buckle up for the next three to six months and see where right hikes go in early 2023 into or into the Q2 of 2023. I think there’s going to be some purging in our space. I think-

Kevin Kim:
We’re already seeing signs of it.

Mark Jury:
I mean, you and I were at the conference, there were big names that didn’t show up. We saw that. And there are lenders that are struggling because they relied too much on capital markets. So they’ve either just bitten the bullet and taken the higher economics or they’ve just reduced a lot of their lending in order to survive this. And I think that where we were in this kind of, I’ll call it 2017, I think that was a fairly healthy balanced market for us where there was institutional capital, there was still securitizations and things like that. But you didn’t have a ton of nationwide lenders that were lending other people’s money and just trying to make a spiff.

There were groups that understood their markets and really focused in, and the secondary market’s capital was drawn to those groups rather than just trying to feed a machine with whatever loan they could get. I think most institutional and secondary markets guys have said, “Those lenders are not for us anymore.” We’ve had defaults, we’ve had bad practices. Everybody that I speak to, they’re like, look, we will love to take on a new lender if he knows his backyard, sticks in it, has kind of a core business, that doesn’t try to do too many things at once. And I think that-

Kevin Kim:
How much of that is also skin in the game? That’s what I’ve been hearing.

Mark Jury:
Yeah. Yeah. I mean it’s both. If you’re not lending with your own money, you don’t have any skin in the game and you’re just a glorified broker and you’re just skimming points and nobody wants that. They want to know. And you’ve seen it, a lot of the buyers have gone to more of a participation structure that was common back in the 2017, the 90-10, 80-20 model so that the lender stays in a first loss position. So in that regard, it’s not that dissimilar from a line of credit.

Kevin Kim:
So some compression back to back to kind of ’17, ’18 stand. Because that was when we started seeing interesting growth and we just saw massive growth in [inaudible 01:04:00]. And so what it sounds like to me that you’re advocating for as a statement that one of my clients made during COVID was private landing is private again.

Mark Jury:
I would tend to agree. And look, I’ve gotten a lot of things wrong in my years so I have no crystal ball by any means, but that’s why I think it lands. I think there’s less groups buying, I think there’s less groups lending or those that are lending are sticking more regionally. And it kind of gets back to your point where private lending’s private. Again, I think that’s a great way of putting it.

Kevin Kim:
I don’t see it that way, but I also don’t like to see too much compression because I mean, our businesses are dependent on the size and growth of the industry. So it’s kind of interesting balancing act. I have a vested interest in the growth of the industry at large, but I also have a vested interest in growing I’d say regional lenders. And that’s what I love to do. I think that those folks are insulated. They always say don’t bite the Fed. But I feel like those regional lenders can bite the Fed because they’re not really, they don’t really care that much about what the rate’s going to be as long as they can make a decent economics for their investors.

Mark Jury:
Well the reason you and I have worked so well together over the years is I think we want to help the same kind of groups. We see the same intelligent approach to lending where you help them set up a fund and help them get their equity raising structure in order, and I can help them scale their balance sheet through lines of credit. But it’s all the same thoughtful, intelligent guys that have been doing this for a while rather than some of these groups that just entered in and like you said, went from one city to a national lender and lending somebody else’s money. I think there’s some of that just has to clear out and it’ll get back and then the rates can really adjust. I would say on the bridge space, the rates that lenders are lending to borrowers hasn’t adjusted nearly as much as it kind of needs to. And that’s because there’s so much competition.

Kevin Kim:
I mean, we didn’t even put the data out at the conference. We thought it’d be a huge difference.

Mark Jury:
I mean you see what DSCR has moved, why has DCSR moved? Because it’s so much more correlated with the securitization market because it was forced to, and a lot of people that were interested in DSCR have now moved away from DSCR. Whereas fix and flip or bridge or whatever you want to call it, is kind of the bread and butter, and that needs to adjust. And back in the day, borrowers were used to paying these ridiculous amounts and to some degree it was in setting them to get the projects done quicker, right?

And so it’s going to be more costly for the borrowers because you still have supply chain issues, you still have increased costs to develop, labor costs, material costs, et cetera. So there’s going to be some slowing down of the business, but we’re still in a big housing shortage in most of the country. And so there’s going to be a need to turn these around so our business isn’t going anywhere. It’s just going to be a little bit more expensive. And I think that’s appropriate where the market is.

Kevin Kim:
Yeah, I feel the same way. So there’s one component that makes me a little bit nervous is that it has to do with the housing supply, and having discussions and listening to various economists in the past six months with all of this volatility has made me wonder if this shortage is really going to get solved for. Because at least in our sector, in the bridge and private lending stuff, not new construction, but rehab, it requires someone that has an existing house to want to sell it, and sell it, a dilapidated house and age out to… And if they refi at 3%, two and a half percent, they’re not going to sell it.

And it’s scary because then okay, that means we’re reliant on new construction and there’s so many roadblocks in new construction right now with the supply chain issues. And that gets me a little bit nervous where is this landing going to be harder on real estate than we think it is, at least in our sector. And I feel like the only way to really get around that is to bat the hedges almost like they have to really tighten their belts and get conservative and get really disciplined.

Mark Jury:
I mean, the housing crisis is a problem. I mean it really is. Our industry’s in the grand scheme of things, relatively small, so we can’t be responsible for saving the housing market and all of that.

Kevin Kim:
No, the volume is it’s no joke, right? It’s enough where Congress is not paying attention to our space and I feel like it can get to that level again, just we have to figure out how we do it.

Mark Jury:
Well some of the advocacy that I know groups like AAPL and others are doing, I think is really helping to raise awareness. But Congress has so many other big problems right now that’s a small sector of the mortgage market isn’t really on their radar.

Kevin Kim:
True, that’s true. And hopefully we’ll be able to grow it organically and in the right way as opposed to the shortcuts that are available, ease of access that are available in that way. So I want to kind of change gears a little bit because it’s getting a little bit doom and gloomy, so I want to make sure we-

Mark Jury:
Sorry.

Kevin Kim:
No, listen, at the time of the year, it’s time of the market. But at the end of the day, I feel like both you and I are saying the same thing. There is light at the end of this tunnel.

Mark Jury:
Yeah, absolutely.

Kevin Kim:
And there’s positivity to be had. You just got to change your mentality a little bit.

Mark Jury:
And just focus on what you know and get back to basics. We’ll get out of this and there’s a lot of opportunities to still grow your business. If a lot of your competitors are faltering, there’s ways to expand your business, grow it. There’s a lot of lines of credit available right now, so there’s ways of doing it. So it’s not all doom and gloom. And in fact, a lot of times disruption creates opportunities. So hopefully the really good lenders can really expand in this space.

Kevin Kim:
It’s the ones that have been building their business, not just their lending origination, but their business. The past three or four years, they’re going to kill it the next few years. So great, but I want to shift gears now. We again, the rapid fire questions and you know what these are. So the first question I like to ask is, what is your favorite business tool that you cannot live without?

Mark Jury:
Microsoft Excel.

Kevin Kim:
Excel.

Mark Jury:
I am a Excel junkie. Came up as an analyst. Oh, everything for me is Excel spreadsheets, tapes.

Kevin Kim:
Do you have any resources that are listeners, and including myself who are bad at Excel, could use to get better at Excel? Is there anything that you like to use?

Mark Jury:
I don’t, but I was lucky enough to get the full Wall Street training where they take away your mouse and you have to do everything with keyboard shortcuts and stuff. And so you get used to all the shortcuts and then you can move around pretty quickly. I haven’t had to tune up in a while, so unfortunately I don’t, but if I come across something I’ll let everybody know.

Kevin Kim:
I would love to learn more about it. I’m terrible at it and I have to do everything manually. All right. Next question is, when you’re not out there serving the private lending industry as a lender and an advisor, what are you doing in your own time? What is Mark doing in his own time?

Mark Jury:
Love travel and love game nights. I actually I have a group of friends. We have nerd board game nights once a month or-

Kevin Kim:
[inaudible 01:10:57] nowadays. Yeah. What’s your go-to bowl game, Settlers?

Mark Jury:
I mean, I like Settlers, Dead of Winter’s been kind of fun recently. I like Dominion and there’s a million expansions for Dominion, so it gets to be a bit much. But no, there’s a lot of them and I still code names and some of the others that are a little more party games. There’s all these weird games. I forget some of the names, but we try new games periodically to that scratch our nerding itch. And then volunteering, I like doing a lot of that. I volunteer in a cat shelter, which is kind of interesting. I like cats. It’s kind of random. Involved with my church, do some political volunteering from time to time. But yeah, I would say that’s…

Kevin Kim:
Well you’re using your time well it sounds like.

Mark Jury:
Trying to.

Kevin Kim:
All right, so last question is, what was your very first job?

Mark Jury:
I was a valet.

Kevin Kim:
You parked cars?

Mark Jury:
Parked cars.

Kevin Kim:
Where? Was it in Minnesota?

Mark Jury:
Yeah, this was in Minnesota. This was during high school. I got a job with a valet company, so I wasn’t at a particular restaurant. We had, I don’t know, eight or nine restaurants in our purview. And I did on weekends because I was still doing other things during the week. But yeah, got cars in Minnesota, not the same as cars in LA so I wasn’t driving Bugattis and Maseratis and anything but Corvette’s and BMWs and Mercedes and for a college kid you’re like whoa, that was pretty sweet.

Kevin Kim:
But you have to do the snow as well.

Mark Jury:
Had to do it in the snow and that’s fine. Although it was mostly a summer job so that part was easy. But you know, grew up in Minnesota, you know how to drive out. So grew up driving a stick shift and a lot of those cars were at that time more stick. Everything seems to be manual now.

Kevin Kim:
I saw in LA and there’s a sign up on a cone, no stick shift.

Mark Jury:
Oh my god.

Kevin Kim:
No manual cars will be accepted because no one drives manual anymore.

Mark Jury:
I missed that. I haven’t had a manual in a while.

There are a very few left.

Kevin Kim:
It’s like you have to get them special made or a ridiculous sports car or something.

Exactly. It was very cool because we never get to hear about this and I love asking that question. So did you learn anything on this job when you were doing this that you still think you used today? Anything?

Mark Jury:
You mean the valet job?

Kevin Kim:
Yeah, the valet job.

Mark Jury:
I mean I don’t fit well into a lot of cars. I’m six five with a long torso, so that was kind of brutal. I don’t know. I mean, you have to do things immediately as they come up I guess, that kind of-

Kevin Kim:
Urgency.

Mark Jury:
Yeah, I mean everything is a sense of urgency because if you think about the valet, most of the people are arriving around the same time, most people are leaving around the same time, and so that’s when you’re just running and gunning. And so it’s a learn to balance. And I guess being more of an entrepreneurial spirit, you kind of get that where things come in waves. There’s certain times of the year where things are super duper busy and you just got all hands on deck and just work your butt off. And then there’s other times where, you know, you get a chance to catch up so I don’t know.

Kevin Kim:
Well, I mean, nothing drives me crazy in the thing of LA’s, like on his phone I’m like, hello. So there’s a level of urgency. I feel like communication, urgency and communication in our space is so key. Yeah, I love that. That’s cool. All right, well I think that’s all the time we have from Lender Lounge this time recording here at [inaudible 01:14:04] headquarters. Mark, thank you so much for coming down.

Mark Jury:
Thanks for having me. It was long overdue and I really appreciate you taking me.

Kevin Kim:
Absolutely, absolutely. We love to do interviews live and in person and I’d love to learn more about companies and this was a great one because I didn’t know all this about you and the company. So once again, thank you so much for coming down to our headquarters and doing this interview. This is Kevin Kim for Lender Lounge. We will see you on the next one.

Thanks for listening to Lender Lounge with Kevin Kim. I hope you enjoyed this episode as much as I did. If you did enjoy, please leave us a five star view on your podcast platform and be sure to follow our show to be notified of new episodes. If you’re on YouTube, don’t forget to smash that like button and hit subscribe for more content from all of us here at [inaudible 01:14:42]. 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.