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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 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, welcome to another great episode of Lender Lounge with Kevin Kim, our great podcast here at Geraci and today we have a very special guest with us, Eric, a good friend of the firms for a long time with Roc and Roc360. Thank you very much for joining us, Eric.
Eric Abramovich:
Thanks. Thanks Kevin. Thanks for having me. Happy to be here.
Kevin Kim:
Let’s get started. It’s just… Tell us a little bit about yourself and the company and introduce yourself to the audience for those who don’t know Roc, you guys have a pretty much of a household name today, but introduce yourself and the company and we’ll go from there.
Eric Abramovich:
Sure. I appreciate that. Yeah, I’m Eric Abramovich. I am co-founder and chief credit officer at Roc360. Roc360 is the parent company to several of our bands, including Roc Capital, which is how we’re mostly known in the marketplace. We have other companies, a direct to borrower company called Haus Lending. We have an insurance company called ElmSure, title company called Wimba. And these elements are the composition that is Roc360. That is how we envision servicing the real estate investor space.
And in that I guess I should go to our mission statement and brand promise, and I think that’ll make it clear. Our mission is to be the most innovative, trusted, and disciplined financial services platform for [inaudible 00:03:25] real estate investing. And our brand promise is basically our platform connects Wall Street to the farthest reaches of main street, efficiently transforming fragmented real estate markets and rebuilding the core of America in real estate.
Kevin Kim:
But you guys have been around since the last cycle. You guys started up in ’09. So you guys have been [inaudible 00:03:47] this entire time.
Eric Abramovich:
Well, actually, yeah. There’s certainly a backstory behind that and let me explain that. So basically the three of us met, the three co-founders, Arvind Raghunathan and Max Stavinsky and myself, we met around 20 years ago. I was a student at the Stern School of Business at NYU, and Max was a classmate. And actually Max somehow got his way in and got a job. At the time, Arvind was running a prop trading group, a quantitative long-short trading group at Deutsche Bank. The internal group was called the Equitech. And he was a very successful trader and/or portfolio manager. He had been running a strategy and Max got a part-time job [inaudible 00:04:48] as well for freshman or sophomore year. And I think at some point he got overwhelmed with the amount of work and studies. And one day we were in macroeconomics class and he tapped me on the shoulder and said, “Hey, you need a job? We’re looking for help.” And at the time I was reluctant and I thought, my God, I just started my freshman year and now I’m going to go work at a bank. I mean, that seems like a lot of work to take on [crosstalk 00:05:27].
Kevin Kim:
In the first year of B school or you’re in..
Eric Abramovich:
Well, that was undergrad. So I was-
Kevin Kim:
You were a first year undergrad?
Eric Abramovich:
Undergrad, so I-
Kevin Kim:
Wow.
Eric Abramovich:
Yeah. So I don’t think I was 19 years old yet. So I remember having my 19th birthday at the offices there. And I was 19 years old, part-time job, running uptown and downtown between NYU and Midtown, the office as a Deutsche Bank at… And that’s how it all started. And at that time that was one of the, if not most successful groups within Deutsche Bank, in terms of the strategies that we were running, but very different from what we do today.
And that evolved. I eventually graduated and I was given some capital to manage. Actually Max was managing the European portfolio and I was put in charge of the Asian desk for our group. I actually lived in Tokyo for a bit. I lived in London, I lived in Tokyo for a bit.
Kevin Kim:
Awesome.
Eric Abramovich:
And I was running the Japan strategy and Arvind was running most of the book, which was here in the U.S. And that worked very well for a few years and then came the financial crisis. And then actually interestingly enough, it continued to work well for us while the world was kind of going sideways or under water, you could say. For us things went quite well. The only problem was that banks were no longer allowed to do what we were doing, that is, they were no longer allowed to use their balance sheet to make speculative bets on markets essentially. And so because of new regulations that came about the result of the financial prices, we were forced to spin out. And that was the beginning of what I call Roc Capital 1.0.
Kevin Kim:
And this is ’09. So this is-
Eric Abramovich:
This is ’09. And we actually spun out and formed the biggest… It was the largest hedge fund launch post the crisis in the world, globally. It was a $1.3 billion launch. At the time, it was a big event. And we went on and continued running the same strategies, but as the luck would have it, the very things that worked great pre-financial crisis for whatever reason stopped working. And we continued managing that strategy for four or five years. We were just flatlining. We didn’t really lose any money, but we started to lose our faith in what we were doing.
And there were many reasons for that, I mean, technical reasons. We were running a quant strategy that generally played on trends in the market, reversion, momentum, things like that. And the quantitative easing that the fed we is doing post the financial crisis basically caused correlations in the market between stocks to go up. And when everything goes up together with a correlation of one, it’s very hard to play spreads and make money because everything’s going up together. And it became an unnatural market for what we were doing.
And around 2014, we basically returned our investor capital and went into search mode and tried to figure out, well, what next? And we were looking at so many different ideas and ultimately we came back to what we’re good at, which is finance. And there’s a backstory as to how we got into real estate as well. Max and I had been doing some private fix and flip transactions. We were the capital-
Kevin Kim:
So you were a builder. On the side, you were a builder.
Eric Abramovich:
Well, they were slightly more passive than transaction. We partnered up with someone that was sourcing the deals and handling the deals for the most part. But as a result of that, we learned the business. And yet at the time we didn’t really know what a fix and flip loan was. I had never heard of such a loan. At the time, I guess it was called hard money, but I really didn’t know what it was.
And in our looking at various strategies and different things, we happened to get introduced to a private lender. Actually, Arvind also knew through his contacts, some private lenders. And it was basically a chance encounter. And we interviewed that lender. I won’t name that lender here, but he sometimes calls himself the founder of Roc Capital, which by the way, I call Roc Capital 2.0, because it was a completely different strategy. It was a completely different business. We went from having a 100 people in Roc 1.0. We went down to five, back down to five. It was Arvind, Max and myself and an admin and a programmer and we started from scratch again. And that’s what I call Rock 2.0. Has the same rock name, but a totally different company.
And so the basic idea with that private lender was he was doing about a $100 million in fix and flip loans a year at that time. And he offered us to invest in his loans. At the time, most fixed and flip lenders what they were doing to fund themselves was they were raising friends and family money, and they were chopping up the loans and syndicating them. That was the most common strategy to fund loans. There was no real institutional capital in the space.
Kevin Kim:
No.
Eric Abramovich:
And the basic idea was, well, if this one little lender here in New York, that I just meant by chance, he’s doing a $100 million a year, there must be hundreds of guys like this. And I bet we could start a fund around this. And at that time, the housing market had bottomed out. It felt like there was no room to go down. It was post-crisis, there was just an endless supply of inventory that fix and flippers had coming out of the crisis, out of distress, out of the foreclosure markets. And we decided to do, at that time, we called it the private lender program. We created a private lender program and the idea was simple. The lender puts up a 10% BP in the loans, and we put up the remaining 90% and we go and raise a fund to fund those BPs in the loans and we’d fund private lenders across the country. That’s how we got started. Very [crosstalk 00:13:21]-
Kevin Kim:
And the model sustained you guys for a long time. I mean, that’s still partially what you guys do. I mean, it’s still a variation of that essentially, right?
Eric Abramovich:
Yeah.
Kevin Kim:
One component of your business.
Eric Abramovich:
There have been many iterations since, but what still remains is the private lender program.
Kevin Kim:
Right.
Eric Abramovich:
We still do that today.
Kevin Kim:
And that’s really interesting because it all happened by, and I always, lately I’ve been on this human element kick and talking with a lot of sponsors and there’s that the opportunity came through essentially a network of things that it wasn’t related to your or normal day to day business as a hedge fund manager or anything like that. It was through some projects that you had invested privately and you happened upon the space.
Eric Abramovich:
Well, it was the synthesis of all of the above. So we were in the hedge fund space, which enabled us to, one, raise capital, two, understand how financial markets work. And if you remember the brand promise, I said our platform connects Wall Street to the farthest reaches of Main Street. What we saw was an incredibly fragmented marketplace of lenders that were unable to fund their book of business and were really adding value to the economy. I mean, they were rebuilding America’s housing stocks. I mean, that’s the… And it made no sense whatsoever. The returns were very high. They were lending at very high rates and it was win-win for everybody. It was win-win for the borrowers. The borrowers were making money doing this. They were changing and transforming neighborhoods. It was win-win for the lenders. The borrowers made money, the lenders were happy, the lenders made money and this funneled all the way up to wall street. And we felt that with time, we could make this more efficient for everyone. We could institutionalize the space.
Kevin Kim:
Right. And I remember when you guys came on the scene, because that’s like I started in this space around ’13, and I remember you guys jumped on the scene in ’14, ’15. And we started seeing you guys at the trade shows and stuff like that. And all of a sudden, the market just exploded. And you guys are partially… I feel like you, and a couple of the founding groups that brought a lot of the wall street capital to the space were kind of… It’s a credit for that. The space has become much more highly regarded in 2012, ’13. It’s exactly as you described it. It was kind of what is that and what do you do? And it wasn’t well understood type [inaudible 00:15:53] industry. It still kind of isn’t, but you guys were really instrumental in helping bring that level of recognition to the space and help it grow.
But I want to talk about how you guys grew from there. So you guys created a new business model for yourselves in ’14, the five of you, you said, three partners and two staff members. And today, I mean, now there’s Roc360 and with all these ancillary services that you’re offering to really make it easy for an investor who’s investing in real estate. Let’s walk through the evolution from ’14 then, when did you guys really start scaling and start seeing that momentum behind you guys and to toward the company you guys are today because it’s a relatively short story. Because a lot of the folks we talk about had all these struggles from ’08 and coming out, building out their business. You guys are really exploded from ’14 to today and it’s a very short ramp up and have been very successful in doing it. There must have been you crazy stories in the growth process. I mean-
Eric Abramovich:
There definitely a lot of crazy stories. Well, it’s all relative, I suppose. I mean, it’s actually been seven years at this point. So it’s [crosstalk 00:17:02]-
Kevin Kim:
[inaudible 00:17:02] I mean seven years is not a long time to build a business of your size. And that’s interesting from my standpoint, because you guys have the access to Wall Street and you have that experience, but there’s also the operator component. You have to operate the business and capitals capital, you get have to operate. And so I like to hear about the operations of businesses because that’s something that rings true across the board from a managerial standpoint.
Eric Abramovich:
Sure.
Kevin Kim:
Building that must not have been easy over the past seven years.
Eric Abramovich:
Yeah. Well to give you some perspective, we were a few trader used to clicking our mouses and entering trades into a Bloomberg terminal or some trading software. We each had like six screens and we weren’t used to managing a lot of people. Well now our head count globally is 250 people. so-
Kevin Kim:
Over seven years. That’s crazy. It’s awesome.
Eric Abramovich:
Yeah. And it goes to show you how different we are today than… I mean, this is an operational business.
Kevin Kim:
Absolutely.
Eric Abramovich:
This is very different than trading equities
Kevin Kim:
And you don’t have the resources that a big bank has to make your life… Just generally meant operations resources that it provides. You’re responsible for that as a principal. And so taking that from 2014, the first big jump for you guys when you guys has really started to feel the horsepower, if you will, when was that?
Eric Abramovich:
I would say that in hindsight, we could have grown much more. We were very conservative. We’re a very data oriented risk oriented group. And our growth wasn’t hockey stick type of growth.
Kevin Kim:
It was slow.
Eric Abramovich:
It was slow and gradual. There are other players that came onto the market and aggregated a lot of loans very quickly. Our model was not like that. We did have an aggregation model, a third party origination model but we actually funded every single loan that we ever made. We never, ever bought a loan, which differentiates us from the aggregators in the space who set up programs to buy loans. I mean [crosstalk 00:19:24]
Kevin Kim:
Yeah, you guys were funding alongside the sponsor. And that was really important to a lot of people. They knew that you are a partner with them and I’m almost like an investor with them. And they had skin in the game with you and that was a very different. A lot of my clients that worked with you were talking about that we have to have skin with them and they want that. And I thought that was a good thing.
Eric Abramovich:
Yeah. Skin was very important for us to learn the business. And at some point, a few years down the line, we realized that we didn’t need it anymore, and that we were perfectly comfortable and then we created programs that didn’t require having any skin in the game. Obviously the economics were different. If you’ve got skin, you capture more the economics and the less skin you have, the less of the economics a lender was able to capture. But as we removed some of those restrictions, well, then the volume started growing. And as our cost of capital went down over time, the result of more institutional capital coming, bulge bracket investment banks offering warehouse lines, securitizations getting done, our investor base became very diversified in I’d say when we started, it looked more like a bunch of hedge funds. And where we are today, I mean, we have committed capital from insurance companies with a totally different return bogie or return target. And the profile is just very different. Stable long term capital.
Kevin Kim:
Right. I want to talk about, from an inside operation standpoint, when did you guys start adding a lot of people and making a lot of those key hires? So I remember you guys seeing you guys more often at the national events, and really guys were picking up your marketing game. But I saw you at every event, though, as the principal, and you still go to a lot of the events. But you guys grew as a company, right? You guys added a back office, front office, marketing and all that stuff and like, when did all that started to happen [inaudible 00:21:46]? Was that immediate as you guys started to pick up origination and volume, or was that after two, three years? When was that, okay, we got to start hiring and growing this group?
Eric Abramovich:
Yeah. I would call it gradual and linear throughout and until COVID happened. And when COVID happened for very, very brief period, we had to let a few people go, but literally within weeks thereafter we realized it was an opportunity of a lifetime and our head count went from the low 100s to the mid 200s.
Kevin Kim:
Oh, wow. Is this during 2020?
Eric Abramovich:
This is during 2020 and 2021.
Kevin Kim:
Wow. Wow. When most people are having trouble hiring people, you guys doubled your working group. I mean, that’s a lot. That’s fantastic.
Eric Abramovich:
That’s right.
Kevin Kim:
Yeah. And what created the need for that? Was it just like how we have such an opportunity to hire great people and we have the need for it, or was there a specific event that happened that required you to, okay, we need more people. This is absolute must?
Eric Abramovich:
First off, we were able to continue lending through COVID. We stopped lending for maybe a week or so. It was really our own choice, it wasn’t forced upon us. We didn’t have any margin calls. We were unlevered. We had committed insurance capital that was willing to see the crisis through. It became very clear very quickly that just like in 2009, which was a different crisis, government was going to step in and really put a backstop to the kinds of problems that could happen.
And our thesis very quickly became that real estate was going to be a beneficiary of everything that was happening. It just so happened that many, many people in the space were not similarly situated. They were actually levered up and they went through a period of de-leveraging and margin calls. And a lot of people were not able to lend anymore, so they had to let go of their employees. And we frankly were able to take advantage of that. And we are in a very strong place to today, the result of that. I hate to say it, I mean, it was a global crisis and it still is actually, but some people fare better and some fair worse. We always obsessed about keeping risk as low as possible, keeping [inaudible 00:24:47] as low as possible or none at all, which was actually our way to go about it. Because we had seen it before. We saw this play out before. We saw de-leveraging cycles happen before in 2009.
Kevin Kim:
So when you guys were capitalizing from ’14 till 2020, you were unlevered before that. So before COVID you were unlevered?
Eric Abramovich:
We were unlevered going into COVID-
Kevin Kim:
[inaudible 00:25:16] capital, no leverage.
Eric Abramovich:
That’s right. We were unlevered coming into COVID. Our business model was to originate the loans and place them with a diversified group of investors. And some of those investors of course, committed investors.
Kevin Kim:
And that’s very uncommon. I mean, from an institutional provider, I mean, I think you’re probably the only one. That’s fantastic. I mean, that’s probably why. I mean, that explains a lot, explaining why you guys were able to jump back in so quickly. Let me ask you this though, the phenomenon that is today though, post COVID, August-ish of last year of 2020, the market exploded, I feel like. And there’s just hyperactive, on fire. So many people are joining the space, both from people who are, what I would consider your colleagues or competitors and then also on the main street side. And you guys have grown as a benefit of that and what are you guys doing right now? What’s the big thing right now you’re pushing for as a company, because now, everyone’s repositioning pushing in different angles for different products since August 2020. Now we’re a year later, what are the things that you guys are pushing for right now and working hard on right now?
Eric Abramovich:
Well, look, the whole 360, funny to call it an angle, but the 360-
Kevin Kim:
It’s a vertical, angle vertical. I mean, the idea is what are priorities for the company right now to really continue growth and what’s a priority for you guys?
Eric Abramovich:
Right. So first off, we’re a data science driven company. We have data scientists on staff, almost 10 data scientists on staff. And I think where we add value most is first figuring out risk, creating new products and frankly helping our originators with their origination. So that may be by providing them with leads. That may be by helping them be more efficient, handling more of their back office, having a white labeled borrower portal in the third party originators name, by facilitating automated insurance solutions, by integrating title into the transaction. So that layer, that is how do we create more deal flow. How do we use our finance skills to make sure everyone has the lowest cost of capital possible? How do we provide a platform that makes the process more efficient for our third party originators and for our borrowers, for the borrowers of our third party originators. We’re attacking it all from all sides and we’re just seeking to make it more efficient and-
Kevin Kim:
Make it easier to buy, make it easier to transact, make it easier to operate with Roc.
Eric Abramovich:
Make it easier to transact. Yeah. I mean, if you really think about it, what’s happened in the world over the past 20, 30 years. I mean, you went from a world where it was all analog and you had to go to a shopping mall to buy the things you need and well, what’s happening now? Well, E-commerce is becoming a bigger and bigger segment of retail and that’s the same here, right? I mean, we’re automating and adding layers of technology to a complex process. I mean, it’s definitely a complex process. There’s a lot of [crosstalk 00:29:07]-
Kevin Kim:
Very much so.
Eric Abramovich:
[crosstalk 00:29:08] a real estate investor transaction has a lot of moving parts. And in the end, we’re really addressing a tremendous housing crisis in this country. Basically the products that we’re creating are bit by bit addressing a really staggering housing crisis in the country, an undersupply crisis.
Kevin Kim:
A massive undersupply. Massive. It’s insane. But that kind of business model though, right, adding all of these verticals to make the transactions easier both for the originator and for the borrower in a lot of regards, making everything easier, it adds a pretty hefty administrative load and operations load to a company. And I talked internally with our team members here that work with your guys behind the scenes groups and they were talking praises about, “Oh, [crosstalk 00:30:04]…” I mean, Lucas came up and shout out to Lucas on your team. They were speaking his praises, but a lot of us don’t know behind the curtain. And one of the themes of this show is to look behind the curtain a little bit and tell us a little bit about the behind the scenes company and the culture of the company to really execute well on those types of products. Because I mean, insurance, lead generation, I mean, even helping them with the underwriting, because you guys have that as part of your white label. That is no easy feat to maintain customer service, making sure that the transactions flow smoothly, but also as executives, making sure the company is not… There’s a lot of, what do you call it? Oversight over the redundancies because people come and go and that kind of stuff.
So talk to me about the culture of the company, because those things are not easy to execute on in seven years. I mean, that’s another thing. A lot of our guests in the show have built these crazy back offices, but they’ve been doing it for 20, 30 years. You guys have done it in seven. And tell me about how you guys have achieved such fast growth from an operational standpoint and the culture that aligns with that.
Eric Abramovich:
Well, first of all, I think the reason why clients come back to a us is first we have a flat organization.
Kevin Kim:
Oh, you do. Okay.
Eric Abramovich:
We all sit together in a trading floor type of setup. Maybe that goes back to our old days.
Kevin Kim:
It’s a big pit, well, bunch of desks.
Eric Abramovich:
It’s just a bunch of desks. And that’s Wall Street of old, but actually that is a flat culture. Nobody has private offices. And in that sense, it’s a highly collaborative endeavor. I’d say we’re an… By the way, we’re an employee owned company, a 100%. Oh, fantastic. We don’t have any institutional sponsor at the moment. And this is our baby. And the founders are always there. The founders are obsessed with getting every deal done. Our clients know that. We fight as hard as ever to make sure that our clients are getting the best service possible. And that’s not easy to do. I mean-
Kevin Kim:
No, it’s not.
Eric Abramovich:
Candidly, most of my day is dodging a lot of people that are not always thrilled and trying to fix the problems that come up, because again this is an operationally intense business. So what differentiates us? Well, it’s employee owned. So it’s our company and we’re just obsessed about getting it right for the clients. That’s a huge differentiating factor relative to companies that are institutionally owned or VC backed. There’s sometimes not quite that level of intensity at companies that are not held.
Kevin Kim:
So everybody has an ownership interest as they come working with working for Roc, they get this [inaudible 00:33:31] plan for the employees and everyone owns a component.
Eric Abramovich:
No. No, we’re working on that now. No, we’re closely-
Kevin Kim:
You’re almost there. Okay.
Eric Abramovich:
Well, that’s certainly in the works as we grow. I mean, it’s important to retain talent that we find ways to have our employees participate in our growth, and we’re certainly working on that now.
Kevin Kim:
Right. And you talked about the shared workspace and the open workspace, but there’s also a component. You guys have offices in multiple countries. I mean, managing a remote work staff, we did it in 2020 via Zoom here in California for us was hard enough. Having people overseas, I mean, talk about that really quick. It must be very challenging for you guys to do that, time differences, cultural differences is, I mean-
Eric Abramovich:
Well, we all have mixed feelings about remote work. I mean, much of our head count, or maybe most of our head count is in New York [inaudible 00:34:33] any case. But yeah, sure, we’ve got offices globally and especially during COVID, we all went remote. Look, like the global economy. I mean, if you look at the GDP numbers that just came out in the U.S., we’re back to pre-COVID levels, and yet Manhattan is only 50% full these days. Well, what does that mean? That we’re able to do the work that we were doing and yet not come to the office. So we’re getting it done anyway. And by the way, we’re back to the office, [crosstalk 00:35:11] but we’re getting it done.
And I would say that remote work was not the tragedy that we thought it would be in March 2020. In March 2020 when we had to close shop and… I mean, we thought it was a calamity. I mean, we really didn’t know how we get through that, but we just all rallied and got there just like all other companies around the world and that worked out well. I mean Zoom and other virtual meet platforms are very powerful and they work pretty well. And our whole team is super dedicated and everyone’s on the ball and everyone wanted to make it work and we made it work. It’s really not a problem.
Kevin Kim:
[inaudible 00:36:06] I mean, and you mentioned that level of intensity, and to keep that level of intensity during a time where you’re working from home in your pajamas via Zoom. I mean, I’ve had problems with it, but I just can’t be as intense when I’m sitting in my bedroom, in my pajamas. And you’re right. I mean, we do have to make accommodation, figure it out and get it done. But you guys came back to the office and you’re all back now in New York and in headquarters, but is there a remote option now? Is it like if you want to work from home, you can, or you guys [crosstalk 00:36:42]
Eric Abramovich:
Yeah, yeah. There is a remote option. I mean, I think since we realize that it’s possible to work remotely, I think it may be difficult, frankly, at this point to mandate that everyone come back to the office [crosstalk 00:36:55]-
Kevin Kim:
No, yeah. We can’t do that. Yeah.
Eric Abramovich:
Again, we’re experimenting the same way everyone is. I don’t think it makes sense for a lot of young people to work five days a week from home. I mean, that’s just not a path to career growth, but I think some hybrid schedule is probably fine. And by the way, this is not a business for the weak. This is not a business where you can just lounge around. I mean, we had a billion dollars of loans come into the system this month, we closed almost $250 million in loans this month. You can’t take your eye off the ball for a second. There’s no slack anywhere in the company. There’s just no room for it. So when you say it’s hard to stay motivated, well, it’s hard to take a nap during the day, I’ll tell you that.
Kevin Kim:
That’s true. That’s true. That’s very true. That’s very true. You’re not able… And I think that’s what [inaudible 00:37:58] makes [inaudible 00:37:59] the choice in a lot of respects. Maybe you’re in your pajamas in your living room, but the level of work doesn’t change, it just happens to be remote.
Eric Abramovich:
It doesn’t change. And frankly, I think a lot of people were working more than ever. I mean, I-
Kevin Kim:
That’s true. No one’s going home. You’re home. You just keep working.
Eric Abramovich:
You just keep working, you just keep working. So that worked out well.
Kevin Kim:
Well, I want to shift gears a little bit and… We talk a little bit about private lending industry at large and something that I wanted to get your thoughts on because you have a unique perspective on it because you have the institutional background, but at the same time, you’re partnering with these lenders in a lot of respects, especially during the days when the model required the skin of the game. And I want to, you touched on this how the industry’s evolved, since when you entered in ’14. And I want to get your thoughts on it right now, current conditions right now.
It’s 2021. I mean, August, since I [inaudible 00:38:59] August, maybe even June of last year, this industry is on fire. People are doing record numbers. You guys, you said a billion in origination volume coming in a month. I mean, it’s just insane. And lenders all across the country are telling me, they’re doing record months. What are your thoughts? I mean, this is a crazy time. Cost of capital has never been as low as before in this space and opportunities to fund have never been as large. And we’re seeing a lot of commoditization and standardization, securitizations are happening more often. There are times where I’m like how did we get here sometimes? This is crazy. And I give a lot of credit to companies like yours, but I want to hear from you guys and what are your thoughts on where we are today and how we got here?
Eric Abramovich:
Well, first of all, it’s a good asset class. Delinquencies on real estate, investors loans have been low. The backdrop to that has been an incredibly strong housing market, low interest rates and incredibly strong housing market. I think Wall Street has come to realize that this is a pretty sweet asset class to be part of. And so as the Wall Street money comes in, product guidelines are created, standardization happens. And when I said the market was fragmented when we got in, it’s defragmented now. It’s becoming less and less fragment. And the capital is reaching the farthest corners and local lenders are seeing that. And so you’re right. It’s all of the above. The backdrop of a strong housing market, institutional capital coming in, imposing from a high level guidelines and that’s trickling down. I mean, there are still pockets of the wild west happening. There’s still some lenders that call themselves hard money lenders.
Kevin Kim:
Hard money still exists in some places or parts of the country. Yeah.
Eric Abramovich:
It still exists. But for the most part, the private lending industry has moved away from a loan to own mentality. I’m not even sure that… It wasn’t there when we got into it. There was pockets of that.
Kevin Kim:
No, no. Yeah.
Eric Abramovich:
It was all about the borrower being successful, the lender being successful, that’s still there today. And we’re just standardizing it. And the more we standardize, the more professional the space becomes. It just starts to look and feel more like a mainstream product. And that’s great for everybody. I mean, look at what happened in the housing market in the last 12 months. The unprecedented spike in the housing market, home price appreciation is up 25%. We’ve never seen such a move on the up side in such a short period of time, really unprecedented. And look at what it’s created. I mean, if you think about it, the housing market pre-COVID was roughly $35 trillion to $40 trillion. 20% of that is owned by real estate investors. Now the housing market appreciated by 20 to 25% nationally on average. So now it was worth 35 to 40, it’s worth what? Close to 50 billion now. And take 20% of that, that’s 10. Sorry, I used the word billion, it’s trillion.
Kevin Kim:
It’s trillion. Yeah.
Eric Abramovich:
Trillion [crosstalk 00:42:58].
Kevin Kim:
Yeah. Yeah. Yeah.
Eric Abramovich:
So 10% of that, or 20% of the total housing market is roughly $10 trillion owned by real estate investors. Now, interest rates are at record lows and all of those houses, all of those properties are eligible for some sort of refinance long term loan.
Kevin Kim:
Right. Right. And that’s the craziest part. What the funny part was that we were at a seminar about four years ago, and someone had gave us an estimate about the industry, the private lending industry. So real estate investor [inaudible 00:43:36] a residential real estate was approximately about $3 trillion, and now it’s approximately $10 trillion in value, and that’s the crazy part. It’s just climbing and climbing and climbing. Although that does kind of make me nervous and the continuous growth. It’s just continuously increasing in value. And the-
Eric Abramovich:
By the way, these are all estimates, so maybe I’m not sure the $10 trillion is entirely correct.
Kevin Kim:
Could be. Could be.
Eric Abramovich:
[crosstalk 00:44:01].
Kevin Kim:
We’re decimating. Yeah.
Eric Abramovich:
Right. So may maybe if it made the growth of the segment. Actually, I remember looking back at stats from the National Association of Realtors and pre-crisis, I’m talking 2009 financial crisis and post-crisis, the level of real estate investment remained pretty static. It was 20% annually. So if all homes purchased annually, investors kept a pretty consistent share of that at around 20%. So the crisis didn’t actually change that that much. What’s staggering is first of all, home price appreciation in the last 12 months and the real estate investor segment itself. I mean, I guess you were alluding to maybe it feeling frothy, is that-
Kevin Kim:
Yeah. Yeah. Very frothy. And sometimes that can be a bad thing or dangerous thing.
Eric Abramovich:
Well, first of all, the fix and flip segment is a small segment.
Kevin Kim:
It is.
Eric Abramovich:
Only $50 billion a year plus or minus get fixed and flip annually. Again, the size of the consumer market that gets transacted annual is $1.6 trillion. So the $50 billion is such a small piece of that $1.6 trillion that’s trading annually. It’s really a small little tiny piece. And what’s really happening in that bridge space, they’re fixing up old houses. By the way, your average house in the U.S. is what? 30 or 40 years old. All up for being fixed up, made more green, more sustainable, I don’t really see an end to it, frankly given the undersupply. You’re right. The investor segment may feel a little bit frothy, but the backdrop is a very old housing market, massively undersupplied housing market. Those are long secular trends. This is not a trade right now.
Kevin Kim:
No.
Eric Abramovich:
It’s not like a quick hedge fund trade, let’s go long and then let’s get out. No, this is a secular thing that’s happening.
Kevin Kim:
At the same time, right, the issues that a lot of folks have identified when it comes to the rehab component, there’s… While the aging inventory is still… There’s plenty of it out there, right? That’s fine from the inventory standpoint. That’s good target put for the [inaudible 00:46:53] . The challenge seems to be that we’re running out of room to build. There’s not as many places to build. People don’t want to live in the desert. People don’t want to live in the mountain. They want to live in the community.
Eric Abramovich:
Are you sure? Especially post-COVID?
Kevin Kim:
Well, that is true. And we are starting to see secondary tertiary markets really boom. But when we talk, I was talking to some retail folks in Texas, and they’re even saying, and even in Texas we have a lot of land. There’s only so far that developers want to go to build houses because they don’t want to live too far from the city or from the suburbs, at least. And that raises some questions on my mind, like how can we solve this massive undersupply with just that small fixed and flip component and how can we… The only way to do that is to build more housing, actual new housing. That has to be built. And I think our industry does play a part in that we’re not the major driver of it, but we play a part in it.
But what are your thoughts on that? I mean the need for more, not just repairs and rehouse, but the need for more new housing. Because it’s a really… You can’t find a house to buy right now. If you’re a buyer, you cannot find a place to buy right now, and that’s the craziest thing.
Eric Abramovich:
Yeah. We’re developing products that address that, including new construction products build to rent. Yeah, there are elements of… I think the perception post COVID has changed a little bit and people feel like if they’re not glued to daily commute and coming into the office every day that they can live further away, at least at the margin, they can live further away from urban centers. And that actually, that shift in perception is really causing, is one of the factors that’s causing this boom in the suburbs around the country. But I think that it’s also opening up opportunities to build on in places where people we’re not planning to build before. There’s plenty of land that’s just.
Kevin Kim:
Desirable though. That seems to be the balancing issue for folks. Do I want to build this far away from some type of density? That seems to be the challenge and it’s going to stop us from building more houses. That sentiment is going to stop us from building more houses because we need houses. We need houses.
Eric Abramovich:
Well, I mean, I think the local governments are trying to address that through urban planning, zoning changes as well.
Kevin Kim:
Let’s hope. Yeah.
Eric Abramovich:
It’s a mix of all of the above. It’s not just by building up the suburbs that we’re going to this problem. I mean-
Kevin Kim:
No. Not at all. Not at all.
Eric Abramovich:
… smart cities will find ways to address local problems as well by changing zoning. I keep on talking about Japan because I happen to-
Kevin Kim:
How many years has it been in Japan?
Eric Abramovich:
I didn’t live there for more than a year, but-
Kevin Kim:
You were in Tokyo?
Eric Abramovich:
Yeah.
Kevin Kim:
Awesome.
Eric Abramovich:
But actually Tokyo is an interesting place for so many reasons by the way. One is with respect to what happened in their housing market. Actually, they have much less restrictive zoning than we have here in the US and so they’re not seeing the undersupply issues.
Kevin Kim:
You can build anywhere in Tokyo. You can buy a house, you can build an apartment and you can build a restaurant all in the same place because everything’s gone vertical. You don’t have as much land as we do, so they have no choice. Same in Korea, and that’s why I know it very well. We have the same model in Korea. You can build a restaurant underneath an apartment and it’s not a problem.
Eric Abramovich:
Yeah. I think zoning changes will have to be a part of addressing the problem.
Kevin Kim:
Make it easier to build. Getting your permits is definitely a problem, at least where I live here in California.
Eric Abramovich:
Sure.
Kevin Kim:
I want to transition now and we’re about almost out of time. I want get to know Eric a little bit more because we’ve had some discussions, we got to know each other over the years, but a lot of our audience know Eric from Roc and we’ve seen you on stage and you have a great stage presence talk about data and the industry, but a lot of us still know Eric. You grew up in New York, right? You’re from New York, born and raised or where’d you grow up?
Eric Abramovich:
I was actually born in Atlanta, Georgia.
Kevin Kim:
Oh, fantastic.
Eric Abramovich:
My parents are from Russia. And they came to this country speaking not a word of English with $75 in their pocket, I don’t even know where they got that. But my dad was an engineer and actually they made their way to New York. I grew up in Queens, middle class family. My dad was an engineer, an electrical engineer. He actually moved on to designing solar panels.
Kevin Kim:
Cool.
Eric Abramovich:
So that was pretty cool. Yeah, a product of New York City public schools.
Kevin Kim:
Nice.
Eric Abramovich:
I then went to NYU. I got a degree in my bachelor’s in finance, in actuarial science and a minor in math. So definitely a quantitatively [crosstalk 00:52:34]
Kevin Kim:
Oh, yeah. Data driven guy. Yeah.
Eric Abramovich:
Definitely [crosstalk 00:52:38].
Kevin Kim:
Were there thoughts back then to go into the actuary or that kind of business or were you always going to go into finance?
Eric Abramovich:
Life is funny in that way. I went to business school in New York, got a job in New York. It was on Wall Street. Wall Street was an amazing place at that time. It was around 2000. It was booming. I got that job at Deutsche Bank. I learned how to program. They entrusted me with… The culture on wall street was pretty wild at that time too. At that time, my manager Arvind, he said, “Hey, why don’t you just start a portfolio in Japan? I don’t know, few $100 million.” And thought to myself, “Are you sure? I’m 22 years old.”
Kevin Kim:
Wow.
Eric Abramovich:
“That doesn’t sound like a great idea.” But anyway, they trusted me and that was amazing. That was the culture if we could handle it. It was given to us. And obviously I didn’t do anything wrong there and that worked out well. And I mean, basically, have been in New York the whole time with some stints in London and Tokyo, definitely a product of New York.
Kevin Kim:
Very cool.
Eric Abramovich:
And so it was our business, by the way. We’re very regionally focused and we eventually converged with you guys on the west coast. It took some time. You probably didn’t know much about us in 2014 when we started, because we were for very New York tri-state focused.
Kevin Kim:
And that’s one of the things I regret looking back, like man, we should have had a New York office back then.
Eric Abramovich:
Actually one of my biggest regrets in this business was not having a proper presence on the West Coast early on because frankly, California is the biggest market in this space for the type of stuff that we do. And it’s amazing that we built what we built having almost no presence there in the beginning stages. And so that’s definitely something that I regret and-
Kevin Kim:
Well in the next cycle. Right? Next cycle will be okay.
Eric Abramovich:
We’re doing it as part of this cycle.
Kevin Kim:
Exactly, exactly. And so, I have to close with one other personal segment. So what’s one thing that not most of our audience knows about Eric, because we hang a lot, we see each other at conferences and we go out for dinners and drink, but what’s one thing that a lot of us don’t know about you.
Eric Abramovich:
I play the piano a little bit. Oh, nice. I play classical piano a little pop. I’d be happy to put on a demo for you at some point.
Kevin Kim:
Yeah. We’ll get a piano on one of the shows. We’ll get [inaudible 00:55:41]. Nice. Nice. Sometimes the conference centers will have a piano just sitting in the hallways. So maybe we’ll just prop one up for you one of these days.
Eric Abramovich:
Definitely. Definitely sounds like a lot of fun.
Kevin Kim:
All right, man. Well, during cocktail out, right?
Eric Abramovich:
I’m ready for it.
Kevin Kim:
All right. Sounds good. Well that’s all the time we have for today. Eric, thank you, but very much for joining us on this episode of Lender Lounge. We’ll see you at the next conference for sure. And look out for Roc and Roc360 and all the great things they’re doing in 2021 and beyond.And we’ll see you at the next conference there. Looking forward to it
Eric Abramovich:
Thanks Kevin. This was a lot of fun. Really appreciate it. And thank you for your partnership. We’re always thrilled to work with you guys and you guys have helped us expand in California and I really look forward to strengthening that.
Kevin Kim:
I appreciate that and thank you very much for that. And definitely ditto to you and here’s to a great 2021 and hopefully the rest of the next few years [inaudible 00:56:41] and we’re going to be doing well going forward. Thank you very much, Eric. And that’s all we have. That’s all the time we have for today. And once again, this is Kevin Kim on Lender Lounge. See you on the next one.
Thanks for listening to Lender Lounge with Kevin Kim. I hope you’ve enjoyed this episode as much as I did. If you did enjoy, please leave us a five star view on your podcast platform and be sure to follow our show to be notified of new episodes. If you’re on YouTube, don’t forget to smash that like button and hit subscribe for more content from all of us here at Geraci. Lender Lounge with Kevin Kim is available on all podcast platforms. Referrals really help us spread the word, so please send this over to someone you think might enjoy it. See you next time. This is Kevin Kim, signing off.
