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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, 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 a live episode. We are in the offices, the headquarters of Parkview Financial, up here in West LA with my friend, Paul. Thank you so much for doing this interview today with us for this episode of Lender Lounge with yours truly, Kevin Kim. We love it when we get to come and visit offices because it’s just so cool. I have to say, you guys have the most beautifully decorated office I’ve ever seen. Art, the view, all these cool features, the bar, I mean, it’s amazing. This is amazing. So thank you for joining us today.
Paul Rahimian:
Yeah, thanks for coming.
Kevin Kim:
For our listeners who don’t know who you are, I think we’ve known each other for a long time, and I mean, the firm and your company have been kind of friends or client-attorney relationship for over 10 years. But I like you to kind of give us an intro of who you are and the company, and we can go from there.
Paul Rahimian:
Sure, sure. Paul Rahimian, Parkview Financial. I’m a third generation real estate developer and contractor. Prior to Parkview, I had a different life in construction. My father and I, we used to build projects in Southern California. We built schools and hospitals for public work projects. And then at the same time, we built development projects for ourselves like multifamily and retail. 2008 hit, we put everything on hold.
Paul Rahimian:
And interestingly, my father is a very quiet, relaxed individual, came into my office one day in 2009. He was all nervous. He said, “We’re not doing anything.” I said, What do you want to do? The world’s coming to an end.” And he said, “Why don’t we lend money?” I said, “We don’t know anything about lending. We’re builders.” He said, “We’ll give …”
Kevin Kim:
He just decided right away?
Paul Rahimian:
Yeah. He said, “We’ll give money to contractors and developers. Banks aren’t doing it, and we’ve got money sitting in the bank. Let’s do it.” So that’s how we started. And we started with our own money for a few years, and then we ended up putting a fund together, raising investor money. And that’s how we’ve grown-
Kevin Kim:
This is back in ’08?
Paul Rahimian:
This is in ’09. Yeah, ’09.
Kevin Kim:
So at the height of just, the world is ending, especially if you were in LA still at the time?
Paul Rahimian:
We were in LA, yeah.
Kevin Kim:
I mean, LA was just bonkers. Everything was … No one knew what was going to happen. Buildings were shuttering. I remember, because I was in law school in LA and it was like ’09 was when we really felt it. I remember it was like, at my law school, they basically said, “If you’re a transactional attorney,” which I was going to be a transactional attorney, “Good luck.”
Paul Rahimian:
Yeah. Nobody was transacting. Nobody wanted to buy. Nobody wanted to build, nothing.
Kevin Kim:
My professors were like, “Go do litigation because you’re not going to find a job doing what you want to do.” And I remember Downtown LA was a ghost town and Koreatown was a ghost town. And it was started getting really scary. But that kind of fear was an … That kind of crisis was an opportunity for you guys.
Paul Rahimian:
We were lucky. We weren’t leveraged. We learned our lesson in 1991 where we were leveraged. First building we developed, my father and I together, we lost to the bank. I was 18, great lesson to learn when you’re young.
Kevin Kim:
And back in the ’90s, the leverage ratios were high.
Paul Rahimian:
They were high. And ’91 was a really bad recession, not as bad as ’08. But in terms of California, it was pretty bad. And that’s where we learned that leverage is good during the good times. Leverage is horrible during the bad times.
Kevin Kim:
Be cautious.
Paul Rahimian:
So we got lucky in ’08. We weren’t leveraged. It gave us the opportunity to pivot and do something else.
Kevin Kim:
When you started out in ’09, were you doing what was called back then hard money lending or were-
Paul Rahimian:
Pretty much, yeah. It was hard money lending, half a million, million dollars, small loan. Somebody is building a house, somebody is building a four-unit apartment building, really small projects, projects that we were managing ourselves, just my father and I, no team.
Kevin Kim:
So tell the audience a little bit about what Parkview Financial does today, because it’s very different asset. It’s lender business than the true hard money lender back in ’09, ’08 of doing the fixed and flips and the rehabs and the construction loans on the resi or the small multi. Now you guys are, I mean, pretty well known, at least on the West Coast for being some of the most …
Kevin Kim:
Well, this is what I’ve heard from a lot of my real estate clients. They asked me, “Kevin, can you introduce me any lenders?” “Well, who do you work with?” “Well.” “Who do you want? Who do you know?” “Oh, well we know Parkview, we know Paul, we know these guys. We know …” “Oh, Parkview, they’re pretty creative. They figure it out for us.”
Paul Rahimian:
That’s what we’re known for. Yeah. We’ve changed over the years and credit goes to our team. We’ve got a great team that we’ve built over the years. And creativity is one of the big words we use because we’ll literally sit around the conference table on a Monday morning when we do our pipeline meetings, going through every deal in the portfolio.
Paul Rahimian:
And we literally say, “How do we make this work? Let’s figure out a way to make it work for us. When we’re safe, our investors are safe, but the borrower gets the funds they need. They build the project.” You got to be creative. And it’s a team project. It’s not one guy. We’re all talking, we’re all thinking, how do we do it? How do we make this structure work?
Paul Rahimian:
We had an email go out yesterday on a very complicated project that I think will happen. And if it does, it’s actually a big project in LA. And talk about creativity and structure, there’s 10 bullet points of how do we do this? How do we do that? Make it work for the borrower, make it for us.
Kevin Kim:
So give us an idea. Today for Parkview, what is kind of the core asset class, core power base unit today?
Paul Rahimian:
Sure. So most of our projects are multifamily or mixed-use project, maybe retail below, apartments above or condos above. We also do office, industrial and retail. But a lot of our portfolio is multifamily.
Kevin Kim:
Is it short term, commercial, bridge or is it construction or is it all of the above?
Paul Rahimian:
It’s all of the above, but it’s mostly primarily construction. That’s what we’re known for. So I’ve got the construction background. We have an engineering team on staff. We have five or six engineers. They look at drawings. They do site in inspections. So we have the ability to handle construction projects, a hundred, 200, 300 unit projects. And that gives our borrowers the ease to know that, “Hey, you’re talking to people that have done what you’ve done. We understand your pain. We’re going to work with you.” And then our investors, obviously, they understand that we know what’s going on.
Kevin Kim:
Right. And I want to talk about construction and the process in a bit, but I want to go back to the history of the company because it’s very rare we get to interview folks that have had been around since, I would say basically, the start of the concept of non-bank or private lending. It didn’t really exist before ’09. It was being done, but-
Paul Rahimian:
It was being done on a small scale.
Kevin Kim:
Right. Talk about the growth, the key kind of milestones over the years. Because from ’09 until today, it’s been a long run for you guys. A lot of companies didn’t make it through the various, we had that blip in ’16, we had ’20. And then we’re in the current kind of market volatility we’re in today. You guys have really weathered those storms and you continue to grow. So tell us about some of the key milestones over the past few years as you guys have grown.
Paul Rahimian:
Well, I actually think the market disruptions are opportunities for platforms like Parkview. We were created in ’09 during one of the worst recessions in the past a hundred years. And the reason we came into business is because there was a void and there was a necessity for what we were going to provide.
Kevin Kim:
All the banks had stopped lending.
Paul Rahimian:
All the banks stopped lending. Even the private lenders were scared.
Kevin Kim:
No one did construction.
Paul Rahimian:
Nobody wanted to do construction loans. And I’ll tell you a quick story. One of the first conferences I went to, I was sitting in the audience and there was a panel of banks there, Union Bank, Wells and BFA and all of them there, and the organizer asked, people in the audience asked questions and everybody said, “Who does construction loans?” Everyone on the panel goes silent. Nobody is raising their hands.
Paul Rahimian:
And then the organizer says, “Who else has a question?” So I raise my hand and he comes to me and he goes, “What’s your question?” I go, “I do construction loans.” I mean, this is early, right? We’ve opened up three months. We’ve probably done two small loans for $200,000. And the panel ends 10 minutes later. I get up, and there’s 40 people around me asking for my card, and that was the aha moment. There’s a volatility in the marketplace, there’s a disruption, how do you fill that void? So we did that in ’09.
Paul Rahimian:
And during the years, we grew very organically. We never had a plan, we never had a milestone. We never said we’re going to do this by this year or this by this day. It was just slow growth. And when we put the fund together and we raised the investor money, that really gave us the ability to bigger loans, go bigger platforms.
Kevin Kim:
What year did you choose to do a fund?
Paul Rahimian:
We started in 2015.
Kevin Kim:
Very early?
Paul Rahimian:
Yeah, very early. And then 2019 is when we decided to go nationwide. And that was another pivoting point, right before COVID, probably six months before COVID.
Kevin Kim:
For commercial lenders, that’s a little bit behind the trend because we started seeing that trend kick in around ’16, ’17. What was the reason you guys decided to kind of wait on going national?
Paul Rahimian:
So for us as a construction lender, and we’ll talk about it, but going and seeing every site every month, it’s very difficult to geographically say, “I’m going to go lend in New York and Miami. It’s very resource heavy.” So we had to open offices, we had to hire a team in Atlanta. We had to do the right things to be able to truly lend nationwide. And now, we do. And if you look at our map, you see we’re lending, I think last year, we lend in 38 states. And we’re lending in places like New York and Miami at the same volume that we do in California. So you see that we’re truly a nationwide-
Kevin Kim:
Are you going to site visitations?
Paul Rahimian:
That’s the one thing they let me do is that I go see every deal before we approve it. Once it’s approved and it’s closed, we have a construction team that does the monthly-
Kevin Kim:
But you’re still the one-
Paul Rahimian:
But I go. I was traveling yesterday, I travel next week. I’m always traveling because I want to see every deal. I meet the borrowers, see the real estate. I actually run the comps. I go see the comps and go look and try to evaluate what’s the true value of this project going to be when it’s built.
Kevin Kim:
And you’ve always done that?
Paul Rahimian:
I’ve always done that.
Kevin Kim:
Past. Now, it’s been what? So the ’09, ’20?
Paul Rahimian:
About 13 years. Yeah, I’ve always done that. And in ’09, I was doing everything that our team is doing today. But as we’ve grown, they’ve taken things away from me and they’re doing it. I don’t do originations at all anymore. I stopped doing it about two, three years ago and I used to do originations. So slowly, things have been taken away from me. And our team is just, they’re so phenomenal. They do it better than I ever did. And so the one thing that I bring to the table, creativity, structure, underwriting, but also is the site inspections, which is key.
Kevin Kim:
Of course.
Paul Rahimian:
You got to kick the tires. Real estate, this whole Google alert and this-
Kevin Kim:
Well, that’s lost in today’s-
Paul Rahimian:
It’s lost.
Kevin Kim:
You have this commoditization, and even in the construction and the bridge lending community in commercial, we started seeing a pretty significant commoditization. We started seeing the big banks come in. We started seeing Wall Street come in, bonds and CLOs were happening for these short term loans, not just the big CMBS deals. And what was fascinating was that we saw the same phenomenon in resi. We’re like, they’re doing these deals that they’re commodities, but construction, there’s so many people involved in this project and especially today when-
Paul Rahimian:
You’re touching it constantly. We’re not doing a bridge loan where we give money to somebody and say, “See you in 12 months, 18 months, pay us off.” We’re literally in communication with them all the time. They have draws, have construction, there’s issues. It’s construction. I did it. There’s always problems. You got to be patient, you got to be flexible, you got to be able to pivot when there’s an issue.
Kevin Kim:
So it’s starting out as a basically father-son business in ’09 and today, tell us about the size of the company now, volume and origination now.
Paul Rahimian:
Sure. So last year we did $1.2 billion in new originations.
Kevin Kim:
Fantastic.
Paul Rahimian:
This year, we’re in September, we’re close to a billion. So we’re probably going to either hit last year’s number or likely surpass it. Team-wise, we’re about 30 people now.
Kevin Kim:
Very lean.
Paul Rahimian:
We are very lean. For the amount of origination we do very lean, but at the same time we’re closing about 30 to 40 loans per year. We’re seeing-
Kevin Kim:
So bigger deals?
Paul Rahimian:
Yeah. We’re seeing about 9,000 loan requests per year. And we’re closing 30 to 40. So that shows you the funnel of how we’re working through-
Kevin Kim:
You’re saying no a lot.
Paul Rahimian:
We’re saying no a lot or they’re saying no to us. We give them our pricing and they say, “No, thanks, we’ll move on.” So it’s a give and take. But it is a lean team. But it’s bigger loan size. I think our average loan size is about $40 million right now. Earlier this year, we closed to $200 million loan. So we’re doing bigger deal sizes, but it’s truly a good team that works well together. We have an origination team that’s about eight people. We have an underwriting team that’s about seven, eight people. We have a construction team that’s about seven, eight people. These teams all work together-
Kevin Kim:
And they touch every deal?
Paul Rahimian:
But they touch every single deal. And that’s the key.
Kevin Kim:
So one of the questions I wanted to ask, and I asked a lot of our guests who do these bigger deals, is there a difference … For our audience, is there a big difference for how you approach these bigger deals or the fundamentals in [inaudible 00:15:22] the same? Because you guys have done smaller deals. You guys started doing construction loans early on. They weren’t that big. Now, you’re doing 40, 50, $100 million, $200 million deals, how do you guys differentiate?
Paul Rahimian:
There’s pros and cons. One of the pros of going bigger is you’re dealing with more sophisticated borrowers, which makes the process easier. Believe it or not, if you’re doing a $500,000 deal, they’re not as sophisticated. They don’t know what to expect. You got to hold their hand through the process. When you do bigger deals, they’re more sophisticated.
Kevin Kim:
He’s a developer. They come, they’ve got counsel. They come-
Paul Rahimian:
They’ve got counsel, right. And we like that. They come with their counsel, we come with ours. They know each other most of time and we let them do their thing. I think the cons is you got to be concerned about market disruptions. We’re going through a volatility right now. I call it a recalibration where really it’s becoming a new normal.
Paul Rahimian:
We had a long run where we had low interest rates and a lot of us really believe low interest rates were going to be the way it was going to go forever. And now, we’re at this point where we’re saying, “We don’t know.”
Kevin Kim:
What did you think when you saw rates that low?
Paul Rahimian:
A lot of people, and me included, thought this was a 20 to 30-year run.
Kevin Kim:
Really?
Paul Rahimian:
Because when you look at interest rates over the past 60 to 80 years, you see that it goes up and down in 20 to 30-year runs. And the fact that we’ve only seen this truly low interest rate for the past 13, 14 years and it’s going up makes a lot of people think that it’s temporary. It’s going to go up, we’re going to get rid of inflation and then it’ll come down again.
Paul Rahimian:
But who knows? This could be the beginning of higher rates. Because if they can’t get rid of inflation, there’s a lot of people that think it’s going to take a much more than just a couple of rate hikes. It’s going to take 12 to 18 months of rate hikes to get it there. Then you might see higher rates for a long time.
Kevin Kim:
We might be back to the rates that we saw in the ’90s or the ’80s.
Paul Rahimian:
So that’s the concern. You’re going bigger, you’re doing a $50 million deal, more exposure to one asset. That asset goes sideways because the borrower can’t handle it or the asset goes wrong or something happens in that geography. Now you’ve got more exposure. I think that’s one of the cons of going bigger.
Kevin Kim:
And have you found yourself, I guess, what do you call it, tackling concentration risk? Because you guys are still private. You guys don’t have an institution behind you, you’re still privately funded-
Paul Rahimian:
That’s correct.
Kevin Kim:
… through investors and various different sources. How do you guys alleviate concentration risk on the books because these are big loans?
Paul Rahimian:
So we do look at concentration on different levels. We look at geography. How much do we have in California and New York? Those two compromise probably 40% of our originations, about 20% each. That’s one concentration. The other one is asset type. How much do we have in things like retail? We don’t love it. Land, we don’t love it. SFR, we don’t love it. They’re usually in the 2% to 4% range.
Paul Rahimian:
We want multifamily to be at least 70%. And at times, it’s 80%, 85%. And then there’s concentration risk with an individual borrower. We have a borrower right now that we have five deals with right now that are closed and active construction. We’ve kind of hit that limit. Great borrower, we’ve had great success. He paid us off.
Kevin Kim:
[inaudible 00:18:40] by a bus.
Paul Rahimian:
Exactly. Yeah, so there is a little bit of risk and then there’s risk of where you are geographically in a specific market. So we’re in LA. We love Koreatown, we love doing deals there. How many deals do you do before you say it’s too much? We haven’t seen that as much because we’re so widespread nationwide. But we think about those things.
Kevin Kim:
I know you guys did a lot of deals in KTown. That’s cool. Some Jamison’s properties-
Paul Rahimian:
Not Jamison’s but other ones. I don’t think they want to pay our rates.
Kevin Kim:
Yeah, I know about them. What I’m hearing though is through the growth though, what’s really interesting to me is that you guys have still kind of kept a private mentality about things, and you’re going to do it your way. And let me ask you this, during the past 13, 14 years now, there had to have been opportunities for, I just call it a big Wall Street Bank or big institution to come knocking at your door and, “Hey, we want to effectively …” The carrot they dangle is capital. Then the stick that comes with that carrot is, “Here are our asks.” Did an opportunity ever come to your company?
Paul Rahimian:
It has. It’s happened multiple times and there’s different asks. When the ask is a monetary issue, we’re more okay with it because we’ll give up some money to have a bigger capital partner. The bigger issue is the lack of control. So we have the ability to, like I said, sit around a room where eight underwriters and we literally restructure the deal. And the credit committee is myself and my business partner, and that’s it. And my business partner defers to me on a lot of issues. So that ability to be creative and structured deals goes a long way. With bigger capital partners, that’s one of the problems. So we have bigger capital partners, but it’s fully at our discretion.
Kevin Kim:
So the ask is always, we need to maintain control over credit-
Paul Rahimian:
We need to maintain control. And that gives us the ability to be creative. It was the first thing you said when you sat down, is Parkview is known to be creative and to pivot and to make deals work because we want to make deals work. We want to close deals, we want to deploy money. The only thing we want to do is be safe for our investors. So as long as we can be safe and we can get you, borrower, what you need and get you where you need to be, there’s a synergy.
Kevin Kim:
Let’s talk about that now. So I want help with the construction, I guess, underwriting process because a lot of people have … What’s unfortunate about the market conditions today is that we’ve had this massive kind of run-up. It’s been great. Things have been hot and that has led to a lot of companies taking on construction loans like start a construction lending where they really shouldn’t be.
Kevin Kim:
So let’s talk about the kind of like, I’ll call it the proper way to do a construction loan. And then also talk about how you guys get creative with a situation that I actually would like, if you can give us one, a specific episode of this deal came to us like, “Ugh, it’s got a little hair on it, but we actually figured it out. The borrower made these combinations and we made it work.”
Kevin Kim:
And so if you can give our audience some intel on that, because I very rarely interview people that have such a long background in construction lending in commercial. Most folks that we’re talking to in commercial are doing a lot of bridge. But what we noticed was starting in ’17, ’18, we started seeing a lot of ground in construction lenders come to the market and a lot of them were not doing things very well. And some of them aren’t here anymore. So please educate our audience.
Paul Rahimian:
I think the key to construction lending, and it’s probably the key to lending in general, is to not be greedy. Like I said, we see a lot of opportunities, right? 9,000, 10,000 loan requests a year, and why do we close only 30, 40 is because we’re weeding out the deals that don’t make sense for us and the borrower. And by that, I mean look at a deal that, A, is this a good deal to build? You’d be surprised how many projects are not viable projects, but people fall in love with it and they want to design it.
Paul Rahimian:
Is it the right geography? Is it the right asset type? It might be a great corner for an office building and now you’re building retail and that doesn’t make sense. So those are the things, those are the initial things we look at real quick. And then in terms of construction, how long is it going to take you to build? How much is it going to cost you to build, and how much is it going to be worth? If it’s going to be worth less than how much it’s going to cost you to build, then you have a broken project. You’d be surprised how often we see that.
Kevin Kim:
How do you kind make these projections though? It’s so hard.
Paul Rahimian:
So underwriting can do valuations. That’s easy. It’s like any other bridge lender. You assume the building is built, what’s the comps in the area? It’s multifamily. What are the rents? That’s easy. You pick a cap rate. The hard part is how much does it cost to build? The borrowers telling us their projection. They have a general contractor. They have engineers. What we do at Parkview, and I think a lot of people do, but I think it’s a little bit different and we’ve done it from day one, is that we do all our estimating in-house. We use no third party vendor-
Kevin Kim:
So you’re copying their estimates?
Paul Rahimian:
No, we’re doing our own estimates. So we get their drawings and we act like we’re going to build it. We have estimators on staff, they’re engineers, and they literally take the drawings and they build out the project as if we were to build it.
Kevin Kim:
So they’re running their own-
Paul Rahimian:
Their own estimates down to the last nut. I mean it’s a detailed eight-page document.
Kevin Kim:
And then you’re comparing that?
Paul Rahimian:
We’re comparing that. And if it’s close, great. If it’s far, let’s talk about it. And if it’s far on certain items, let’s talk about it. A lot of times projects fall on the sideways based on that. We can’t see eye to eye because we’re not seeing this the right way.
Kevin Kim:
And it could be something simple. Very, very simple.
Paul Rahimian:
Very simple. And so that’s the number one thing. Once we see eye to eye and we have a budget that we like, borrower likes, everybody approves, we do another thing that’s unconventional and none of the banks do is that we never change the budget or the detailed line items. So you have a cost overrun in concrete, solve it. You have a cost savings in concrete, great. Keep the money. We’ll give you the money because we told you we would. So whatever line item we come up with and we do it collectively with the borrower and we agreed-
Kevin Kim:
How are you monitoring that over time?
Paul Rahimian:
So we have construction managers, three, throughout the country and they go see every project every month. And they’re talking to the subcontractors. They’re talking to the borrower. They’re visiting the site.
Kevin Kim:
Oh, they’re meeting?
Paul Rahimian:
They’re meeting on site.
Kevin Kim:
They’re not requesting documents, they’re meeting?
Paul Rahimian:
No, no, on site. And they see the progress every month and they see what’s going on. Again, I think that’s the key. It’s what I did when it was just me and my father. I would literally go to the site, but it was only in LA. Now that we’ve grown, we have to have offices-
Kevin Kim:
But that kick the tires approach, not a lot of people do.
Paul Rahimian:
No. I’ve heard a lot of people don’t do that. I don’t know why. I think it’s so simple and fundamental. I think it’s the right way to do construction lending.
Kevin Kim:
I think maybe it’s a fear of, I’ve heard a couple questions about it. It’s like, well, number one, I don’t know if I can afford to do that because the borrower is fee-sensitive. And when you have such a hot environment, fee sensitivity became just a big topic.
Paul Rahimian:
Sure. And then the borrower doesn’t pay for that. We pay for it through our overhead, but we think it’s worth it.
Kevin Kim:
So it’s part of your incurred expenses and you’re willing to take that expense. I think that’s a smart move, because there’s no way to know through paperwork.
Paul Rahimian:
There’s no way to know. You can Photoshop any picture right now.
Kevin Kim:
… Contractor’s secret. You never know.
Paul Rahimian:
I’ve told my team this. I’ve told borrowers, it’s no secret. I used to be in the construction business and this is 15 years ago. Any invoice can be forged. Any lean waiver can be forged. None of these documents mean anything. If you really want to know what’s going on, you got to have boots on the ground and see what’s going on.
Kevin Kim:
But those construction managers doing site visitations, they have to have a pretty seasoned background to be able to, “Hey, I’m seeing different brands of concrete you’re using or I’m seeing different types of steel that you’re ordering. I’m seeing this doesn’t line up what’s on paper.”
Paul Rahimian:
100%.
Kevin Kim:
Because you can’t tell if you’re not a seasoned pro.
Paul Rahimian:
No. So our head of construction, he worked at Jacobs Engineering for 10 years, and he’s well versed. He used to do public work projects just like I did, but from a different viewpoint. I was the contractor, he was the construction manager. We didn’t know each other, but that was his role. Our head of our Atlanta office, also a construction manager that used to have a 90% team. So he has the ability to understand construction. He knows what to see and what not to see.
Paul Rahimian:
And remember, we’re the lender. We’re not directing them how to build it. We’re just saying we want to know what you’ve done and how much money you’ve spent and what your percentage of completion is. If you’re 50% done with concrete, we have a concrete line item, here’s your money. If you’re a hundred percent done, here’s your money. Did you pay your subs? Show us your lean waivers. Let’s make sure title says everything’s okay, we’ll give you the money. That’s it.
Paul Rahimian:
But by going to the site, you also see what’s going on. Sometimes you realize that the plumber and the electrician have an issue together. The developer might not even know that because he’s not there all the time. But if you are there and you have a relationship, it really goes a long way. And then the last thing I’ll add is projects go sideways, and sometimes as a lender you have to take back projects. We don’t want to. 13 years we’ve taken back only two assets and we really try not to. We really try our hardest. We literally begged the borrower, help us help you to get out of this mess to move on to the next.
Kevin Kim:
So what are you guys doing in that context?
Paul Rahimian:
But if you were to take back an asset, now you’ve got all those relationships in all those cities because you’ve been visiting those sites. You know the contractors. You know the plumbers. You know the electricians.
Kevin Kim:
Right, it’s an easier transition.
Paul Rahimian:
It’s easier transition.
Kevin Kim:
They’re not fighting you this entire time?
Paul Rahimian:
No. Yeah, exactly.
Kevin Kim:
So what are those instances when you actually kind of solved those problems? Because if a product goes sideways, kind of a lot of times lenders, they don’t think through, “Let’s salvage this situation.” They’re just thinking, “All right. Well, foreclosure it is.”
Paul Rahimian:
It goes back to getting greedy. And we’ve had this conversation internally. A lot of people on our team, sometimes they questioned me. They go, “Why are you trying to work this out? There’s a ton of equity in this deal. We have the right as the lender to foreclose it.”
Kevin Kim:
Exactly.
Paul Rahimian:
I go, “That’s not the business we’re in. We’re in the business of recycling capital. We want to give money out. We want to get money back and send it out. We don’t want to take over projects.” And we can talk about the humanitarian side of it. I used to be a developer. I used to be a contractor. Nobody wants to lose their project.
Kevin Kim:
No, and you lost that property with the bank.
Paul Rahimian:
Yeah, I lost it and I was young, and we get that. And that’s not the reason we don’t foreclose. That’s a part of being human. But the reality is, if you the borrower can exit this and us lender can get paid back, we’re not discounting our loans. We expect to get fully paid and maybe we’ll give you a little discount on the default interest or something to get us out of this mess that you’re in. But we understand their pain, they’re in a mess. A lot of people, this is their life. It’s their investor money.
Kevin Kim:
Especially with bigger deals, they’ve got a lot of money and time into it.
Paul Rahimian:
They’ve got a lot of their own money in it. And then they’ve got investor money. They’re answering to people. The last thing they want to do is lose the asset.
Kevin Kim:
But what kind of things can you guys do besides just on the loan terms itself? Are you guys getting down and dirty on the ground with them and helping them dig themselves out of the hole or-
Paul Rahimian:
No. So we’ll give them time. We’ll find them other lenders. We’ll do things that we’ll see what it is they need.
Kevin Kim:
So you’re helping them on the capital stack-
Paul Rahimian:
On the capital stack. We don’t get into the construction or anything like that.
Kevin Kim:
So the issue, I thought of it as like, well, if you’re on the ground there, it could be easy for you to have your construction manager insert himself like, “Hey, no, no, no, no. Do these things.”
Paul Rahimian:
Right, but we don’t want to do that.
Kevin Kim:
That’s conflict of interest.
Paul Rahimian:
It’s a conflict. We don’t want to create a lender liability. We’ve directed them to do certain things a certain way.
Kevin Kim:
Smart. Understood. Understood.
Kevin Kim:
I hope you’re enjoying this episode so far. I wanted to take a brief moment to tell you about Geraci, the nation’s largest law firm dedicated to the private lending industry. We have three legal departments vertically integrated to serve a private lender’s business. We handle everything from licensing to new entity formation, fund formation, loan documents, national compliance, litigation, bankruptcy, foreclosure, and so much more.
Kevin Kim:
Talk about when you’re doing … These deals are ground up construction projects. You’re building multifamily in different locales. I mean, one of the things that I’ve always kind of scratched my head about is every city has different, I guess you can call it, local rules. Not just in zoning and entitlements, but even on building apartments. It’s just the fact that you’re building housing, the city or the state inserts itself in various things. What are you guys doing to navigate that component like the zoning and the permits and making sure everything’s clear? Because sometimes the developer has no idea.
Paul Rahimian:
Yeah, and that can be tough. You’re in all these different cities, different states around the country.
Kevin Kim:
Why is it about those kind of issues? It’s tough.
Paul Rahimian:
And they’re very different. So we’ve got an existing deal in Nashville, had a subterranean garage and our construction manager was doing the draw and the borrower said, “Hey, I don’t need to do the wall in the subterranean garage. I don’t need to do the wall because there’s existing rock, natural rock and that’s going to be the structural engineering.” We all kind of looked at each other and said, “What? That’s … I’ve never heard this.
Kevin Kim:
So you’ve got a cave in your garage?
Paul Rahimian:
I’ve been in construction 35 years. I’ve never heard. Yeah, exactly. I’ve never heard … How could a city allow this? So we said we’re going to suspend draws until this happens. He said, “Well, give me a little money.” We said, “Okay, well give you a little bit, but we got to figure this out. You’re going to build this subterranean garage and then you’re going to build …” And I don’t remember, I think seven stories of multifamily on top and there’s no subterranean wall. How’s this possible?
Paul Rahimian:
So our construction manager went to the city, talked to the inspector, talked to building and safety, and how are you guys letting this happen? And they said, “There’s structural design, we’ve done the calcs, it works for us.” So it’s a learning process. I love learning something new every day. My initial reaction was, “There’s no way. You’re full of it. I’ve never heard of this.”
Kevin Kim:
You’re letting us build a bat cave.
Paul Rahimian:
Right, exactly. What? So you going to drive down the driveway to park your car and you’re going to see natural rock in the background? What? I get it from an architectural standpoint, it sounds cool. But it can’t be structurally safe. No, but it was. So, it’s just you literally, when you say boots on the ground, you literally got to go into the city, go into building and safety sometimes. It’s time sensitive.
Kevin Kim:
And they have to learn the local-
Paul Rahimian:
And then you have to learn.
Kevin Kim:
… I guess unique arrangements they have.
Paul Rahimian:
Exactly.
Kevin Kim:
Right. And let me ask you about this component, because a lot of times, well at least in California, the advent of … It adds a new layer to the capital stack. And you and I talk about this privately, is pace. In California, pace is a big factor. But now nationwide, I guess you can call them green components to the build and the way buildings are being built is changing. I mean, I’ve heard of like modular housing. I’ve heard of prefab modular construction. I’ve heard of 3D printing construction. How do you guys keep up? Are you guys allowing this stuff? And if you do, how do you keep up with this kind of trend?
Paul Rahimian:
Yeah. So we did a modular project in Truckee. It’s close to Reno. I had never been there. Everybody kept telling me, “Go to Truckee, see what’s going on there.” And I’m like, “Well, first of all, the name is Truckee. It sounds so weird.” So I went up there. Wow, super high end. Ritz Carlton, ski in, ski out. Beautiful buildings, they’re all modular. And I said, “How do we wrap our head around that?”
Paul Rahimian:
So we went and our head of construction went and talked to the modular company, figured out how they build the process. I looked at the finished project. I looked around, I could not see where the seam was where they put these buildings together. It was that well done. It was impressive. And we got comfortable with the fact that they’re going to build this house high end. These are $3 million homes in Truckee.
Paul Rahimian:
In different pieces, in a different factory, they’re going to truck it over here, put it together. We got comfortable because we got to know where the factory is, who the supplier is. We had them tag each one, so they’re tagged Parkview so they don’t get lost, they don’t get … Because we’re funding dollars towards that.
Kevin Kim:
Right. That’s your collateral.
Paul Rahimian:
Yeah. That’s our collateral in a different city that’s not bolted down.
Kevin Kim:
If you think about that, that’s why I always had a problem with question mark about modulars. The collateral, the improvement itself is being moved from one location to another. It’s not being built on site.
Paul Rahimian:
So the things we do is we tag it, so it’s our collateral. We get a proper insurance for it, for the trucking. Because what if something happens while it’s on the road, now it’s damaged collateral. So you got to get all those pieces of the puzzle. It sounded much more complicated before we did it. And then like everything else in life, you do it and you realize it’s not that bad.
Kevin Kim:
Apartments, hotels, homes are being built in this fashion and now with 3D printing coming out and it’s just like being a construction lender and keeping up with these new trends …
Paul Rahimian:
You have to be able to pivot.
Kevin Kim:
It’s crazy.
Paul Rahimian:
The newest trend for us post-COVID was this repositioning of hospitality to multifamily.
Kevin Kim:
Oh, like conversions.
Paul Rahimian:
Right. We had never done it before. I’m not saying it didn’t exist.
Kevin Kim:
Condo conversions were a huge deal.
Paul Rahimian:
We never did the hotel to multifamily. Now we’ve done probably $400-500 million in the past 24 months?
Kevin Kim:
But you’re like stripping rooms and kind of combining rooms and installing new bathrooms. And it’s a lot of …
Paul Rahimian:
So the first home we did was also in Reno. It was the old Harrah’s Casino, I mean main-on-main of Reno. And they bought three buildings, high-rise buildings and they were converting into 500 multifamily units. And if you’ve ever looked into Reno, they’ve built a huge tech area there where Google and Slack and everybody’s there. All these employees are working there, nowhere to live. People were literally living in their cars.
Paul Rahimian:
So this was a great product and a lot of people looked at this. We closed the loan, sent out a marketing blast. And people literally, other lenders that were colleagues, friends of mine called me and said, “What are you thinking doing a hundred million dollar deal in Reno? This is Reno.” And I said, “If you know what’s going on in Reno” and you understand that they’re taking a dilapidated hotel that nobody wants to stay in. They’re gutting it and they’re taking that single room and making it a studio, or they’re taking two hotel rooms and making it a one bedroom unit. It’s really not reinventing the wheel. It’s actually really easy when you think about it.
Kevin Kim:
But they’re not thinking about it as a builder?
Paul Rahimian:
No.
Kevin Kim:
They’re looking at it from a lender’s perspective. The MSA doesn’t look good to me.
Paul Rahimian:
No, exactly. It’s Reno. Why would you do Reno that it’s not a great MSA.
Kevin Kim:
But you’re setting the local demographics.
Paul Rahimian:
We’re looking at the demand. We’re looking at the literal demand of literally people sleeping in their cars, employees-
Kevin Kim:
How’d you guys get that intel, because it’s very hard to get that kind of on-the-ground level of information?
Paul Rahimian:
I think the only way is to go there. So I went there, I spent a day there, I met the borrower. We had done another deal in Reno.
Kevin Kim:
[inaudible 00:38:26] I’m going to guess.
Paul Rahimian:
And we had done a deal in Reno, so we knew about the issue of the demand and the lack of multifamily. But just the fact that this borrower had the ability to convert hospitality to multifamily. And like you said, from a lender perspective, maybe it sounds a little dicey. From construction perspective, simple. And that opened up the ability for us to do multiple. We’ve done it Colorado, Orlando. We did it in New York. We’ve done everywhere.
Kevin Kim:
Especially in New York, they’re doing a lot of that right now. I mean that actually raised an interesting point, like topics. So a lot of us on the show, we talked a lot about disruption during COVID in kind of the hard money resi space, but we didn’t really talk about it for the commercial space. And you guys are builders. I mean you guys are construction lenders. How did that impact you guys? Was it difficult? Was it difficult time for you guys?
Paul Rahimian:
COVID was scary. It was scary just because nobody knew what was happening.
Kevin Kim:
We don’t know what this is valued at anymore.
Paul Rahimian:
Zero idea. Is the world of construction-
Kevin Kim:
… Can they continue building?
Paul Rahimian:
Yeah. Can you build? So we continue doing our construction draws because the last thing we wanted to do was ruin our reputation in terms of not doing draws. But we did stop originations for four months because we didn’t know what to do. We actually look back on that and we regret it. And that’s why during this market, instability that’s been happening in the past 90 days, a lot of our colleagues have frozen. We’ve been lending like there’s no difference.
Paul Rahimian:
And it’s because of COVID, we learned our lesson. We learned our lesson that things will change, markets will change, markets will disrupt. There will be a new normal. As long as you’re lending to your fundamentals, as long as you’re sticking to what you know and what you understand and you’re not getting greedy, it’ll be fine. You’ll work through these ups and downs. So, COVID was tough because we were still doing construction draws all over the nation.
Kevin Kim:
Were your builders-
Paul Rahimian:
Our builders were still building, believe it or not. There was a couple times, we had a deal in Portland where actually the city shut them down for three weeks.
Kevin Kim:
That’s crazy.
Paul Rahimian:
Yeah. There were a couple of those incidents. But surprisingly, construction actually proceeded better than any other industry.
Kevin Kim:
We were actually pleasantly surprised here in LA at least that it didn’t cease. I think they were, that was the one area they were willing to kind of let go because we need housing.
Paul Rahimian:
I mean look at it from different facets. From a buyer’s perspective, we need the housing, from our perspective. And then you look at from the people that are on the ground, the workers down there, they need the work. They’re not going to make it until Friday if they don’t work. So shutting down a construction site has ramifications way beyond COVID or the industry. You’re talking about people that rely on that paycheck every Friday. So everybody was incentivized to keep on working and we were incentivized to keep on funding.
Paul Rahimian:
And we talked to our bank and we said, “What’s going on?” And they said, “We don’t know. What do you think?” We said, “We don’t know what’s going on either,” and this is March of 2020. And we asked the question point blank, “Are you going to stop giving us money? Because we’re going to keep on giving money to our borrowers.” And they said, “No, we have a great relationship with you. Keep going.”
Kevin Kim:
That was also one of the pleasant surprise for a lot of our lenders was that the warehouse lenders out there, the banks, they understood. They understood, hey, even if the values dip to a lot, we’re protected. And the lenders that we’re working with have sound underwriting guidelines because they qualify for our lines, they’re protected. So what are we worried about? And I didn’t see a lot of … When March hit, we were like Anthony and I were like, “Uh-oh, is it margin call time, is it margin call time?” And thankfully, all of the true warehouse lenders didn’t do a single margin call.
Kevin Kim:
The big ones had all kinds of weird provisions in them. Some of them called. But the industry standard, some of our friends out there we just interviewed on the show, I can’t [inaudible 00:42:28] their names, they didn’t call and that was great. And they worked with their clients all shapes and sizes. I remember being on a lot of phone calls and it was … Even if we had defaults, we’re like, “Okay, let’s figure this out.” And that was nice. That was very nice. It saved a lot of our clients from freaking out on their end because their borrowers were freaking out, their staff were freaking out. Last thing they need is their bank freaking out.
Paul Rahimian:
Yeah, exactly. That’s the last thing you need. But the reality is the banks are the best protected entities in this whole process. The developers are at risk. Then us as lenders have some risk. And then the banks that are giving us money, they’re at 30% LTV. They’ve got nothing to worry about.
Kevin Kim:
So let’s talk about today now. So the market is a little bit weird. That was before we started the show, it was like the market’s a little bit weird. Rates are somewhat up. It feels like not too bad. I feel like they’re back to kind of like 2010-’11 rates. They’re not skyrocketing just yet. But it is causing a pretty significant disruption. How is it causing, how has it disrupted you guys? How are you guys reacting to it?
Paul Rahimian:
Yeah, great question. So, we’ve been talking about a recession for years. We talk about it internally all the time because we’re always concerned about how is it going to play out. The one thing I know being gone through five recessions is that no recession looks like the last one. And you can never predict what’s going to cause the next recession. So when we looked at this a year ago and people were talking about, oh, inflation being transitory or not transitory or what’s going on-
Kevin Kim:
That was already a year ago? Wow.
Paul Rahimian:
Nobody thought about this super quick rate in hikes. Everybody thought like we talked about it, it’s going to be a low interest rate scenario. And from a personal standpoint, I’ll tell you, I bought an asset earlier this year and I got a variable rate because I believe rates were going to be low. And now my rate’s going up, so you live with it.
Paul Rahimian:
But what have we done? So we started saying internally in January that the recession’s here and it’s coming, and Q1 number-
Kevin Kim:
In January?
Paul Rahimian:
… January. So when Q1 numbers came out and there was a dip in GDP, we said, “Guys, we’re here,” and everyone said, “No, we’re not here.”
Kevin Kim:
That was a small dip though. It wasn’t even like-
Paul Rahimian:
It was a small dip.
Kevin Kim:
It was notable.
Paul Rahimian:
It was a small dip. But at the same time, and we have quarterly reports that we sent to our investors where we started telegraphing, “Guys, we’re seeing issues.” So it goes back to what do you do? If there’s going to be issues … We’re lenders, we’re not on the equity side, we’re already protected. If we’re at 60%, 65% LTV, even 70%, we’ve got a big cushion.
Paul Rahimian:
So the things we always do is stick to your fundamentals, underwrite properly, originate properly, don’t get greedy with deals. But what do you do now? Now we’re looking at cap rates. So we got compressed with cap rates. I remember when multifamily traded at a seven cap. A lot of people here are too young to remember that. But now we were getting pushed to doing deals at a three and a half, four cap. And I said, “Those days are over.”
Paul Rahimian:
Our minimum cap rate, exit cap rate is four and a half. I even think that’s aggressive. In some markets, you got to be at five, five and a half, six. You do not want to look at this deal in two years and say, “Why were we writing it at a four cap when interest rates were going up?” So that’s the first thing we did is let’s increase our cap rates-
Kevin Kim:
So, you are setting the cap rate for the exit and underwriting to that cap rate. Let’s talk about where things are currently at because they’re not following, not tracking where we thought they’d be tracking.
Paul Rahimian:
That’s true. Cap rates haven’t gone up yet.
Kevin Kim:
It’s strange.
Paul Rahimian:
Well, if you look at it historically, cap rates and interest rates don’t always correlate together. Naturally we think they do. Logically, you think they do. They have to.
Kevin Kim:
Right, capitalization rate.
Paul Rahimian:
If the US Treasury is at 3.5, why would I buy a real estate asset at 3.5? It just doesn’t make sense. But eventually, it creeps up. So our concern is maybe it won’t for a while. There’s a lot of money in the marketplace. There’s people that have to put that money to work. So people will still buy things at a low cap rate, especially a hundred unit, 200 unit, 400 unit assets that are institutional in quality. But we’re just concerned that over time, if the Fed fund rate keeps going up, we’re at 2.75. They’re saying maybe by the end of the year, what, 4.25. Can you legitimately say you’re going to buy a four cap property when the Fed fund rate is 4.25? It’s hard.
Paul Rahimian:
So we’re assuming even if it doesn’t go up today, it will go up with time. And if it doesn’t go up, all we are is a lower LTV. And maybe we lost a few deals here or there, but remember the business we’re in. We’re in preservation of wealth. All we want to do is preserve our investors’ wealth, recycle the capital, and go to the next deal. If we close less loans, we close less loans. But we don’t want to close loans and take them back.
Kevin Kim:
You’d rather be, yeah, that makes sense. What’s tricky in today’s market is that there’s still a lot of activity, and there’s a lot of lenders that are still basically doing what they’ve been doing. I haven’t really changed the model. Even though a lot of the institutional guys have pulled out, it’s kind of dried up a little bit. But they’re still in finding ways to get their deals done. And it raises the question for you, has your no rate increased in the past, I guess gone six months now?
Paul Rahimian:
It has, naturally. So we use SOFR as an index and we have a spread over SOFR. When SOFR was 0.28, believe it or not, five months ago, if we’re SOFR plus 700 or SOFR plus 800, you’re looking at 8.5% interest rate. Now, SOFR is at 2.4. So you’re talking at 10.5%. So even if we don’t change our spread, the index alone has taken up.
Paul Rahimian:
But we also took our spread up. So when markets started getting a little volatile about 90, 100, 20 days ago, we said, “Guys, there’s less people lending out there. We’re a known product. We have a certainty of execution, we’re going to get it done.” We have the ability to charge a little bit more because our investors are going to expect a little bit more. They’re going to say, “Hey, there’s more risk right now than there was a year ago. If you want me to keep my money in your fund, we were expecting a higher yield.
Kevin Kim:
But I feel like our audience on the lending side are so nervous about rate increases like, “Oh man, I’m so screwed. My rates are going to have to go up. I’m so nervous about telling my borrowers about rates going up.” But I have a lot of real estate clients who develop and I always ask them, “Are you worried about this?” “Man, I’ve been waiting for this to happen for a while. I knew it’s coming. I’ve known it’s coming. I’ve been ready for it. We write to it expecting a higher rate.”
Kevin Kim:
And it’s kind of one of the disconnects I feel like lenders and builders, they don’t … Lenders are worried that they’re going to freak out, but the builders are always like, “Yeah, I knew it’s coming. Surprised that you asked me this late.”
Paul Rahimian:
It’s the brokers in between. The brokers want to get the best deal. And they tell lenders, “We didn’t go with you, we went with lender B because his rate was cheaper.” And the more you say this, the more it gets ingrained in lender’s heads. And so our origination team, they’re so rate sensitive. And we tell them, “Guys, relax. We want to do the right deals.”
Paul Rahimian:
And like you said, how long are we married to these borrowers, 18 months, 24 months? So they pay 2% more, 300 basis points. It’s not going to kill your deal. You want to get the deal done, you want to have draws go quickly, you rather go with a lender, pay a little bit more, but get that project done and built and sold or refinance sooner. You go with another lender with a bank where it takes 30 days to do a draw, now what?
Kevin Kim:
That’s the other thing that’s been really, I guess, kind of fascinating to me. Banks jumped back in head first into construction lending. The banks that I used to work for, I used to work for Wilshire State, now Bank of Hope. And back then, I worked there after college as that was in early 2000s. The construction lending was all they did back then and they stopped. But now they’re back in.
Kevin Kim:
But they’re still really, really strange in their approach. I don’t understand the approach because every lender that I know who does construction loans, they’re beating them out every time. And now I’m hearing about these banks doing like AB financing and all kinds of weird structures because they’re missing out on the deals. How much has the banking industry caused any distress for you guys? Has it caused any disruption for you guys?
Paul Rahimian:
It hasn’t caused stress. It actually creates opportunity because they make their process so difficult. They have global cash flow, they have documents, they have tax returns. We say don’t send us that. We don’t want to see your tax returns. We’re looking at the asset. We look at the borrower. Does the deal make sense? The banks make it so difficult before they close the loan and then after they closed loan, their draw process, it’s like pulling teeth. And for us it’s like-
Kevin Kim:
… Almost a month.
Paul Rahimian:
Go to the site. Did they do the work? Give them the money. We want to give them the money because we’re charging interest when we give them the money. That’s created opportunities and now yeah, they want to do all this A/B structure because now they’re super safe. The private lenders in the B spot, the bank is in the A spot. We’ve done a few of those here or there. We don’t love it just because again, it’s leveraged. So you have a warehouse slide-
Kevin Kim:
And control issues too.
Paul Rahimian:
Yeah. You want to make it as simple as possible. So we try to avoid that. But we did a bridge loan on office in Sanford, Connecticut. It was 550,000 square feet of office with credit tenants. Deloitte, Hanco, McDonald’s, great tenants. It was 110 million. We didn’t want 110 million sitting, so we did an A/B note on that. [inaudible 00:52:19] returns, got low 50% financing, more than enough cash flow from an existing product that a bridge product to pay for it. So a situation like that is okay.
Kevin Kim:
Is the bank inserting themselves too much on that?
Paul Rahimian:
Not at all.
Kevin Kim:
That’s the key, right?
Paul Rahimian:
That’s the key, right. We told them, “Hey guys, you’re going to give us money, we’re going to give you a coupon. That’s it. You don’t get involved with …” But it’s also, again, credit tenants, they’re paying their rent on time. There are no issues.
Kevin Kim:
It’s a home run deal.
Paul Rahimian:
Yeah. It’s a home run. That’s where I think an A/B makes sense.
Kevin Kim:
It’s basically a bank loan, but the banks can’t win the bid. And so you guys are stepping in and working basically kind of participating with the bank, making them happy. They can avoid credit risk because they can just do lender financing now.
Paul Rahimian:
And they’re lower leverage. We’re at $110 million, they’re at $55 million.
Kevin Kim:
And then now they’re OCC compliant. They’re not overleveraged.
Paul Rahimian:
Exactly. All those reserves and all those issues that they have from a regulatory standpoint that we don’t have, they can hit it with the A/B. And because it’s no construction, it’s easy. When you do a construction loan with an A/B, oh my god. We’ve done a couple of them and they have questions. It’s like, “Why are you asking so many questions? But you’re in A position, you let us … We’re in the B. You let us-“
Kevin Kim:
You want 30% LTV or something like that.
Paul Rahimian:
Exactly. 30% LTV and you’re worried about stuff that we’re not worried about.
Kevin Kim:
And you’re getting first laws because you’re B. So you’re taking on the property. So yeah, that’s been the kind of head scratcher for me because when I saw my old bank jump back into construction lending, I was just like, the fact that you guys are back in, I know how you used to operate and that’s not going to fly today. And notably, that bank built a lot of the buildings in Koreatown, but they can’t keep up, and they’re realizing it.
Kevin Kim:
But it’s been really interesting to see them jump back into the space over the past six, five-ish years and to, because I see like Mitsubishi and I see some of these Korean banks and some SBA banks come to the events. I’m like, “You guys are better off just offering lender financing.” But they don’t want to do it. They want to win the bid. And it’s been interesting to see them kind of flounder in this new market that’s been kind of created over the past, I guess, 10, 15 years now.
Kevin Kim:
Let me ask you this. Parkview Financial, we talk about up until now. A lot of folks don’t know much about Paul. So you were a builder, but you’re local, always California guy?
Paul Rahimian:
I always lived in LA my entire life. I travel a lot for work and people say, “How do you living in LA?” The first few times I thought about it and then I realized I don’t know any different. I’ve traveled a lot internationally, domestically. But I’ve always lived in LA.
Kevin Kim:
You live here in LA.
Paul Rahimian:
So I’ve only known LA.
Kevin Kim:
Went to college here in LA?
Paul Rahimian:
I went to UCLA for undergrad, USC for graduate school.
Kevin Kim:
Oh, man. You never left.
Paul Rahimian:
No. And now I have twin boys that are seniors in high school and I tell them, “You are leaving because you got to do what I didn’t do.”
Kevin Kim:
So they’re not going to follow in dad’s footsteps and be a Bruin?
Paul Rahimian:
I hope not. We’ll see. We’ll see. But you need to get out. You need to live other places. But I love LA. It’s a great place to live.
Kevin Kim:
I mean you’re pretty well known in the private lending community here in LA. I mean everyone knows Paul. Everyone knows Parkview. It’s been nice. And you’re a local guy, everyone knows that. And I remember, I did not expect this. I went to a local charity event here in LA and you were there a couple years back, the Jewish home event. I’m like every client is here. It was really weird.
Kevin Kim:
But the interesting part about this LA community is there are so many private lenders now here in LA, and a lot of them are new. Have you mentored any of the new lenders here in LA and given some pointers that come to you?
Paul Rahimian:
A lot of us know each other and I’ve had lenders mentor me when I started and I’ve talked to people that are starting, and it’s always good to talk about these things. I don’t look at people as competition. There is so much demand out there for our product that we can lend 4X of what we lend and there’s still enough. I told you, 9,000 to 10,000 loan requests.
Kevin Kim:
You can’t do every single one of them.
Paul Rahimian:
So my doors were always open. Anytime somebody wants to come in, go to lunch and talk about, “Hey, how’d you do it? What do you do differently?” I mean in this conversation, I told you everything that some people think it’s our secret sauce. No, this is the way we lend. This is the way we do construction. This is the way we underwrite. I don’t think there are secrets here. I think you just do the right thing, you don’t get greedy, you play it safe and you’ll be fine.
Kevin Kim:
It’s a mentality of abundancy. That’s important.
Paul Rahimian:
Yeah, it is. It really is. And it’s interesting, one of the things that’s interesting about Parkview is that I actually love what I do. And when I was a builder, I hated it. But I did it because that was my job. That’s how I made money. That’s how I put food on the table. And I remember when I was a builder, somebody once talked about working and doing something they loved and I thought they were crazy. I’m like that’s impossible.
Kevin Kim:
Who loves their job, right?
Paul Rahimian:
Yeah. That’s a fantasy. How could you possibly love what you do? Now I realize it’s actually possible. And it makes it so much easier because as a group, we laugh together, we joke together, we do various things. But we go to lunch, every time it’s somebody’s birthday, all of us. And we make sure it’s a Friday and we leave at one o’clock and we go home at five or six. And we try to Uber because we’re eating and we’re drinking and we’re having fun and we literally have fun.
Paul Rahimian:
And sometimes, people bring up work and somebody else goes, “No, we’re not talking about work.” And so we really do have fun, and I enjoy it because there is no formula and there is no milestone like I said at the beginning.
Paul Rahimian:
So I met Jamie Siminoff, the CEO and creator of Ring few years ago. And he told me something that always stuck with me. He said, “When I started Ring, people would tell me, what’s the goal? And I said there is no goal. We’re building out a platform and we’re enjoying it while we do it.” And it resonated with me because Parkview is the same way. We’ve never tried to hit a milestone. We’ve never tried to hit a target. We’ve never tried to say we’re going to sell. We’ve always said, “Let’s just grow slowly, organically.”
Paul Rahimian:
And he even said, “Somebody told me at a hundred million dollar sell.” And I said, “Why?” He said, “You’re at a hundred million dollars.” And he said, “But why is that the number?” And eventually, he sold to Amazon at a billion dollars which is crazy considering it’s not a proprietary product. Anybody could make a ring.
Paul Rahimian:
But I think that the lesson there is if you target yourself to hit a certain milestone or get to a certain thing, it takes away from the dynamic. So we have a dynamic here in our team where it’s all about enjoy the process, do the right thing, recycle the money, get the money out, bring the money back, preserve wealth. And that’s why we keep increasing our investor base. We keep increasing our origination base. We don’t get greedy. We do the right things.
Kevin Kim:
I think that’s so important because a lot of people have … This is the problem when you talk about institutionalization of the space, is that you see a lot of people with that kind of mentality. We have to have KPIs, we have to sell the company. And all these have, I guess you could call it corporate America things. But what I’m hearing is you’re still maintaining, it’s not a startup mentality. I almost like to hear … I’m hearing more of a family business mentality.
Paul Rahimian:
Yeah. That’s exactly it.
Kevin Kim:
And I really like that because like Geraci is still very much a family business and I don’t think we ever want to, that we had offers to be bought by the big law firm. Absolutely not, because then we can’t do what we want to do.
Paul Rahimian:
Right. And that’s one of the things that allure people to Geraci is that it was created with this idea, this family business. And you guys all know each other and you guys all hang out with each other.
Kevin Kim:
Oh, too much.
Paul Rahimian:
But that’s what makes it great, right?
Kevin Kim:
Exactly.
Paul Rahimian:
We have people on our team that hang out outside of the office and on the weekends. They go work out together and they travel together and they hang out together with their significant others or alone. That’s amazing just to have that ability. And it only happens when you don’t have that big corporate mentality of where are we getting next? Where are we getting next? We’re getting to next week. We’re getting to next month. We want to hit certain targets per quarter because we got to make sure we close enough loans.
Kevin Kim:
But if you love what you’re doing at the same time, it’s going to naturally come.
Paul Rahimian:
It’s natural. Yeah.
Kevin Kim:
All right, we got to get in the rapid fire questions now. So these are the fun questions. So first of all, first question we always ask, what was your very first job and was it being a builder?
Paul Rahimian:
Well, it depends what age, so at the age of 10.
Kevin Kim:
… very first job. Yeah.
Paul Rahimian:
At the age of 10, I was living in a condo project with my parents, five condos. And I was the one who had to collect the mail and clean up for the other units. And my mother still jokes about this, but she said that … And I don’t remember it as well as she does, but she said, somehow I got our housekeeper to do the work and paid the housekeeper and collected the money.
Paul Rahimian:
I don’t know if it’s true, I’m just repeating what she said. So that’s the first job at the age of 10. But then the first real job, I started with my father at the age of 17, started building projects. And that’s how I learned construction. You don’t learn construction in school, but I did. I still went to school. I got a graduate degree, but it was always going to be, I’m going to be in the family business. And my father tried to talk me out of it. I finished law school and he said, “Why would you want to do construction? It’s dirt and nails and wood and it’s disgusting.”
Kevin Kim:
Go work in ivory tower.
Paul Rahimian:
Yeah. Go wear your suit and do … And I said, “Because working in a family environment, you grow together and it’s very different than …” Again, it goes back to that corporate discussion. Why would I want to be in a law firm where I’m wearing a suit and tie in a big high-rise building?
Kevin Kim:
I forgot to bring this up. I forgot about that. You went to USC Law.
Paul Rahimian:
Yeah, exactly.
Kevin Kim:
But you never practiced a day in your life.
Paul Rahimian:
I got an active license.
Kevin Kim:
Yeah. But you jumped into the real estate right away.
Paul Rahimian:
Immediately. And I handled our own cases or disputes, I should say, for about 12 months. And I said, “No. It’s either your …” Well, it does suck, spoken like a true lawyer. Either you’re a lawyer or you’re a businessman, you can’t do your own stuff, right? So I quickly got out of it and started farming it out. And then I had close friends that said, “If you’re going to go into construction building, why’d you go to USC? You could go have gone anywhere.”
Kevin Kim:
No, I mean I see a lot of folks in LA, they do it because the education component, it’s more of a, it’s a family thing.
Paul Rahimian:
Oh yeah. You learn so much. You want a different way of thinking. You get that critical thinking that you really need.
Kevin Kim:
You’re not going to get that just by working. So the education component, and my family’s the same way of that. You can go be banker if you want, but go get your advanced degree first and then go back into the world. I ended up becoming a lawyer.
Paul Rahimian:
But you don’t look like a lawyer.
Kevin Kim:
Thank you. That was the goal the entire time. All right, next question. What is one business tool that you cannot live without, business tool?
Paul Rahimian:
Business tool.
Kevin Kim:
It can be any tool that you use, but it’s a business tool.
Paul Rahimian:
I don’t know if you define this as a business tool, but one of the things I use and I’ve tried to instill in our team is fairness. So I’ve got this gut check of fairness. When somebody’s being unfair with me, immediately, I feel it. And I always say, “Make sure you’re being fair to the other side.” It doesn’t mean you don’t want to do well, you don’t want to make money or you don’t want to do X, Y, Z. You don’t want to protect your remedies and your rights as a lender. But be fair. If there’s something you can do that’s fair either before closing, during the construction process, or even during the takeout process, be fair.
Kevin Kim:
Very cool. Very cool. All right. So the question is now when you aren’t dominating the construction anymore, what does Paul do in his spare time? What are you doing in your spare time?
Paul Rahimian:
So I like to bike. I like to hike. I like to play tennis. I really, really enjoy being with friends and family. So whether that’s traveling or in LA, where you’re around a table and you’re having good food and good cocktail and just laughing.
Kevin Kim:
That’s the best. Yeah.
Paul Rahimian:
I always think laughter is the best medicine. I joke around a lot. We actually joke around a lot in our office to the point where we say, “Guys, we’re joking too much. Let’s make sure we don’t cross any lines in today’s world.” Life is about enjoying the journey. There is no destination because we never know what tomorrow is or what next month holds or next year holds. So you got to enjoy that destination. But to me, doing it with family and friends and our team, I think you enjoy it more than ever. And we’re planning a company-wide retreat in Nashville this year.
Kevin Kim:
Oh, wow. That’s a long trip.
Paul Rahimian:
It is. But purposely we want to pick a city that all the different offices come to because we have an office in New York. We have an office in Atlanta and LA. And then we decided we need to make it a neutral city because if you pick a location, Atlanta for example, people in Atlanta go home. And then we said, “Let’s pick a fun city.” So we’ve picked a fun city, we’ve got great speakers coming. We have an itinerary with dinners and drinks. I think that’s part of the process of enjoying it.
Kevin Kim:
So it’s not just the means for your national team to bond, but you’re actually doing a company retreat so you’re preparing for the following year.
Paul Rahimian:
Yeah, exactly. And we’ll talk about just like the stuff we just talked about.
Kevin Kim:
That’s so cool. I don’t think I know many company actually do a full-on company retreat like that, offsite like that.
Paul Rahimian:
Yeah. We’re excited. It’s going to be …
Kevin Kim:
The first time you guys done it or is it?
Paul Rahimian:
Yeah, three nights and two full days. First time we’re doing it. We’ve had holiday parties, but you need that time away where you wake up in a hotel and you have breakfast and you listen to a speaker for an hour and you’re like, “Wow.” And none of them are lending speakers. They’re different speakers of … One is a nutritionist. Hey, how do you make your lifestyle healthier? Because we talk about it a lot here, work-life balance. How do you make sure that … We work really hard. You can tell by what we do and how we originate and what we’ve produced. But we want to love our life as well, whether it’s on the weekends or on the weekdays, how do you incorporate that? So it’s important.
Kevin Kim:
Very cool. Very cool. All right. Well, I mean that’s actually really fascinating. I’ve been wanting to do one of those for our firm forever. It’s really hard to figure out how we do that for the whole … We have guys in New York. We’ve got a guy in Florida. I do have the whole company and get them all to neutral location is kind of key thing.
Paul Rahimian:
That’s the key. So you just got to … So our marketing director, she’s based in New York and you should talk to her. She’s taken the lead on the whole thing. I helped her pick the city, but she found flights for everyone. And we told everybody from the minute you get on that flight, everything’s paid for you, so your flight, your hotel, your Uber, your meals, everything. And literally, all they got to do is show up.
Paul Rahimian:
And she’s doing everything. She actually flew from New York to Nashville just to check out the locations because she was trying to pick some locations. I said, “You can’t do it all. It’s like real estate. You got to go there.” And she goes, wow. She went there, she picked a great hotel, restaurants, bars. But it’s just that getaway, right? We all travel and when you travel and you come back, sometimes you forget about things that you talked about the week before because you were able to turn it off for two days.
Paul Rahimian:
So I think turning it off for two days, but also being with your team and meeting people from different cities that you see on the Zoom every week but you don’t really connect. And you see them at the holiday party once a year for three hours and you have cheers with the champagne, you need more than that. You need something where there’s a team building experience.
Kevin Kim:
All right, so the last kind of question I want to ask is like what are you excited about for the next few years? What are you excited about?
Paul Rahimian:
I’m excited to see what’s the next step. So people ask me, “Did you ever think when you started Parkview in 2009, you’d be where you are today?” Hell, no. When we started in 2009, my father’s words were, “Hey, why don’t we lend for 18 months while the market corrects itself and then we’ll jump back into development?” Guess what? We never went back to development. And it’s been such a great run in every step of the way we’ve grown and we’ve surpassed our own expectations.
Paul Rahimian:
2020, we originated $600 million in originations in a COVID year, and that was our record. And then last year, we hit $1.2 billion. But we never tried to hit a number. We just said, “Let’s close loans and let’s raise money.” And as you raise money, it gives you the ability to close more loans. And as long as you’re doing the right thing and that money is recycling and coming back, and the investors are getting a yield and they’re not seeing defaults build up, you’ll continue.
Paul Rahimian:
And who knows what’s the next step, but I’m just excited to go through the process, go through the journey, and just experience it. It’s been a great run so far, and we’ve enjoyed every minute of it.
Kevin Kim:
Oh, it’s going to keep going. It sounds like it’s me. I mean, there’s no reason to stop, right?
Paul Rahimian:
Yeah, exactly.
Kevin Kim:
That’s awesome. That’s awesome. Oh, I think that’s all the time we have for this episode of Lender Lounge with Kevin Kim. Paul, I want to thank you for coming out, having us in your office, in this beautiful office and having this interview. I love doing these onsite, so this episode’s going to come up pretty soon. We’ll see you at the next conference somehow, someway, have drinks then. Thanks for watching this episode. Tune in for the next episode. This is Kevin Kim signing off.
Thanks for listening to Lender Lounge with Kevin Kim. I hope you enjoy this episode as much as I did. If you did enjoy, please leave us a five star review on your podcast platform and be sure to follow our show to be notified of new episodes. If you’re on YouTube, don’t forget to smash that like button. And hit subscribe for more content from all of us here at Geraci. Lender Lounge with Kevin Kim is available on all podcast platforms. Referrals really help us spread the word, so please send this over to someone you think might enjoy it. See you next time. This is Kevin Kim signing off.
