Investing in “Personnel” Assets | Justin Ehrlich, Churchill Real Estate

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For this episode, Kevin interviewed Justin Ehrlich, founding partner at Churchill Real Estate. Kevin learned more about Churchill's history as an NPL buyer and how they came to be an asset manager and capital provider to the private lending industry. Justin also dove into the story behind Churchill’s meteoric rise.

Justin Ehrlich is a Founding Partner of Churchill Real Estate. Prior to founding Churchill, he completed over $3B of debt and equity investing and the development of over one million square feet of luxury mixed-use projects in Manhattan and California. In addition, Ehrlich has invested capital on behalf of several institutional clients and served as a developer partner for several Taft-Hartley pension funds. Prior to his development career, Ehrlich was a Vice President for Broad Street Advisors on their capital markets team. He holds a B.A. in Business Administration from Boston University and an M.S. in Real Estate Finance and Investment from New York University.

Episode Transcript

Thank you to our sponsors for this episode, Novare and Private Lender Link.


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Episode Transcript:

Kevin Kim:
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.

Kevin Kim:
We never get a chance to meet with Justin. He’s just a busy guy and I really appreciate you taking the time today. Justin, please introduce yourself to the audience and we’ll get started.

Justin Ehrlich:
Kevin, thank you so much for having me on the podcast. I’m Justin Ehrlich founding partner of Churchill Real Estate, and I’m happy to be here.

Kevin Kim:
Well, the industry knows Churchill now. Churchill has become quite the household name, but I like to talk a little bit more about explanation of what the company does. As the founding partner, as one of the principals, we rarely get to hear the exact explanation of what is Churchill?

Justin Ehrlich:
Well, Churchill is an investment manager where we manage capital on behalf of institutions and large family offices, and a lot of different banks, insurance companies, pension funds, and put that capital to work in the business purpose lending space. We provide warehouse lines to lenders, which I know you’re very familiar with.

Justin Ehrlich:
We aggregate residential transitional loans and either sell them, hold them on balance sheet in SMAs. We put them into CLOs that we have launched. In addition, we provide ground up multi-family construction loans and do 30-year DSCR loans as well.

Kevin Kim:
That’s the audience didn’t know. I’m sure a lot of our listeners know Churchill as the warehouse line program, the lender finance program that you guys have, the aggregator program, payroll funding program, but you’re a lender yourself. You make these commercial loans on multifamily, and that’s very cool to hear, and DSCR loans.

Kevin Kim:
That’s very good to hear. You’re on both sides of the transaction, which is great. You understand what it means to be a lender.

Justin Ehrlich:
We do about $1 billion dollars a year of the ground up multifamily loans. We’re pretty active in it nationally, mostly in the sunshine states in Sunbelt.

Kevin Kim:
That’s cool to hear. Well, I like to get to know you a little bit better because you know, we don’t know much about you, Justin. We always hear your name when we’re talking about when we’re planning conferences, especially, “We got to get Justin on a panel.” I don’t know much about you. I understand. We’re, we’re pretty close in age. You’re a younger guy. How old are you?

Justin Ehrlich:
44.

Kevin Kim:
I’m 40, so we’re pretty close. You’re from New York, right?

Justin Ehrlich:
I’m from New York. Merrick, Long Island is where I grew up.

Kevin Kim:
Then, always been in real estate or is this kind of a new thing for you, or what?

Justin Ehrlich:
Always been in real estate. Actually, the first year out of college, I actually worked for my father in the interior and exterior landscaping business and holiday decorations. That business was very antiquated. I said, “Dad, we don’t see eye to eye. I’m going to go to NYU to get my master’s in real estate.” I did that and then went to work for an investment broker called Eastern Consolidated Properties, where learned the beginnings of investment real estate.

Justin Ehrlich:
Then, from there went to work at a company called Broad Street Advisors, which was an investment banking firm handling large assignments for big banks and very large clients where we would sell assets all across the country and provide financing and figure out all different structured finance.

Kevin Kim:
That’s where you got your first pace in the institutional world, right?

Justin Ehrlich:
That’s it. [inaudible 00:06:03]

Kevin Kim:
From there, how did that evolve in the Churchill?

Justin Ehrlich:
Churchill came years later. From Broad Street Advisors I actually went to go work with a college buddy of mine who had a relationship with a QPAM, a qualified pension fund asset manager that was financing some development projects for him. Suggested I needed a partner who can really help me grow and really take advantage of the capital that I have created a relationship with.

Justin Ehrlich:
I left Broad Street to go partner with, his name was Zach. We had approximately $300 million allocated to us in 2008 from several Taft-Hartley pension funds.

Kevin Kim:
Very cool.

Justin Ehrlich:
They really wanted to get out of the stock and bond market just because the volatility and go into hard assets. They liked our thesis of buying distressed debt in New York City, the best properties and the best located properties.

Kevin Kim:
It’s a good time to do that. A lot of opportunity.

Justin Ehrlich:
It was an amazing opportunity, plus they were providing us very high leverage. We really took advantage of the market. We ended up acquiring well over $1 billion of distressed debt, taking over the assets and executing the business plan, either residential condo or office or mixed-use, whatever it was.

Kevin Kim:
All commercial though, right?

Justin Ehrlich:
All commercial. Actually, in 2010, we bought a few distressed houses in Bel Air, California.

Kevin Kim:
Really?

Justin Ehrlich:
Yeah.

Kevin Kim:
As part of this mandate?

Justin Ehrlich:
As part of the mandate, yep.

Kevin Kim:
That’s interesting, very open-minded.

Justin Ehrlich:
It was actually incredible. We bought these houses in 2010, 2011. I forgot the exact addresses, but they were unbelievable properties. We ended up buying the houses for $6 million or $7 million invested. A few million dollars and ended up selling them for over $30 million.

Kevin Kim:
Your first fix-and-flip.

Justin Ehrlich:
That was my first entree to the fix-and-flip housing space, which [inaudible 00:08:50]

Kevin Kim:
That was when it really started to take off. Then at the courthouse steps, buy the house. We’re doing a luxury home, but still no different. That’s very cool.

Justin Ehrlich:
After that, the market started to really heat up. Land prices went crazy, construction costs went crazy. I had a really dear friend whose name was Sorabh Maheshwari, who was running credit, who’s my current partner, along with Travis and Derrick, who you hear a lot about, to start Churchill. We really saw an opportunity as the markets were getting heated, the banks there wasn’t really a lot of private lending at this time.

Justin Ehrlich:
The banks were really pulling back and being very conservative. We had some great relationships with some asset managers and hedge funds who wanted to put out capital into the real estate space and take advantage of the transitional lending space. We ended up pulling our capital together and just lending few million dollars early on. Then, we started getting the backing of Blackstone and a few other guys like Angelo Gordon. We quickly put out about $2 billion of capital. That was the beginning of Churchill.

Kevin Kim:
What year was this? When was this again?

Justin Ehrlich:
This was 2012, 2013.

Kevin Kim:
Early in the cycle.

Justin Ehrlich:
You had Dodd-Frank, [inaudible 00:10:38] people were still afraid of the construction market in New York.

Kevin Kim:
It was still hard money back then, very much hard money.

Justin Ehrlich:
Very and that’s exactly what we were taking advantage of. Sorabh had a real deep knowledge in the structured finance space. Understood how to slice and dice the capital stack to really generate the best returns for us and our investors. We were really off to the races. In 2016, we met Travis Masters and Derrick Land, who were running the real estate group at Man Group. They provided us with a warehouse line and we really got to know them really well.

Kevin Kim:
Basically, you started out as a lender, then? Churchill started out as [inaudible 00:11:33]

Justin Ehrlich:
We were a full credit shop.

Kevin Kim:
You were a borrower of Travis and Derrick first. That’s really cool.

Justin Ehrlich:
That’s right.

Kevin Kim:
I love that, that’s cool.

Justin Ehrlich:
We really got to know each other between 2016 and 2018, and really got to know their backgrounds and hear where the institutions lacked and how they could make it more efficient. Really take advantage for advantage of the business from all of our business backgrounds. We decided to partner in 2017.

Justin Ehrlich:
We came together in 2018 as full partners and launched Churchill as you know it, where we’re providing credit nationally. We are a big player in the business purpose lending space and really the residential space.

Kevin Kim:
That actually informs the question. I was going to ask you how did you choose this? I had read your bio and it screened commercial real estate to me, right?

Justin Ehrlich:
Yep.

Kevin Kim:
You had a lot of commercial real estate development and credit experience. Then you jump into this fix-and-flip, short-term loan, residential dominated space, but you were doing it as a lender from ’12 until roughly ’18-ish sounds like.

Justin Ehrlich:
Were always buying debt. We were always really distressed debt buyers.

Kevin Kim:
You were in the market as a distressed lender?

Justin Ehrlich:
Yes, and then just taking over the assets through foreclosure bankruptcy or whatever means necessary.

Kevin Kim:
A very common strategy and NPL was a big move. A lot of folks in the space came out initially as NPL investors.

Justin Ehrlich:
Exactly, really Travis and Derrick opened Sorabh in my eyes to the scalability and really the enterprise value that could be created from the housing market.

Kevin Kim:
This was when you guys first started getting to know each other in ’16?

Justin Ehrlich:
This was late ’16, ’17 and really understanding what their business was. They were providing warehouse lines. Also, aggregating on behalf of Man Group RTL paper. What they brought to the table was such a deep experience in the RTL space. Having worked at Wells Fargo, Wachovia, really doing the first CLOs as well. Travis is a coder by background, really set up the credit software for Wachovia back in the day and help build it.

Justin Ehrlich:
Derrick was a lawyer by trade and really understood the structuring. Actually, I believe did the first CLO when he was at Wachovia. They have an enormous amount of data and experience. Really, Sorabh and I really brought the capital to really start the business and capitalize the business. From there, the business just evolved so quickly. We were introduced through an old colleague of Derrick and Travis at Man Group that was raising capital in Japan.

Justin Ehrlich:
Invited Sorabh, myself, Derrick, and Travis over there to pitch the warehouse lending business. We ended up raising $2 billion from a large mega bank. That really started off our warehouse lending business.

Kevin Kim:
That was when the Churchill as we know it really-

Justin Ehrlich:
Before that we were really buying and selling just short duration RTL paper. Really, Churchill took off in 2020 when we received the $2 billion commitment for the warehouse lending.

Kevin Kim:
Well, let’s take a little bit of fast forward of 2020. I remember hearing about you guys, I think it was September 2020, it was the entire year of 2020 was we were keeping our year to the ground about people who were buying loans and providing credit lines. Just providing capital because the market was in the state it was in 2020. I had heard about you guys from, I forget who it was. Then, I think Anthony met you guys in Las Vegas at APL that year. It was the COVID conference and no one really went to it.

Kevin Kim:
Then, Sarper and I connected later in the year and we really started doing, at least trying to work together as much as possible. I guess you’d call flexibility and understanding and nimbleness of Churchill, even at that early stage was really apparent. You guys were willing to make it work with these people, really wanted to provide a better product than the banks were offering.

Kevin Kim:
Now, at the moment when you guys came out in 2020, was it just the offer product was just warehouse lines and lender finance? Was there anything else to the business at the time?

Justin Ehrlich:
We actually had a separately managed account, like a joint venture where we were aggregating just short duration RTL paper.

Kevin Kim:
Expiring loans.

Justin Ehrlich:
That’s it, yeah.

Kevin Kim:
I remember shortly thereafter, you guys started buying loans and acting as much of an aggregator as all the other aggregators out there.

Justin Ehrlich:
In March 2020, when COVID hit, we bought a bunch of performing discounted pools. From there, we just grew and now we have over $10 billion of assets under management.

Kevin Kim:
Today, you guys are one of the top aggregators in the space, but also just capital providers have a lot of different product offerings to a lending shop.

Justin Ehrlich:
We saw a real opportunity in the lender finance business with Travis and Derrick’s experience at the banks that we saw that it was just really antiquated and a lot of bureaucracy. It was very difficult for anyone to actually do business with the banks.

Kevin Kim:
Very rigid, very hard to qualify, and then after you qualified getting-

Justin Ehrlich:
You still have to go through credit and it’s not easy. We really tried to make it streamlined with technology and our people that we hired. Just try and make it easy experience to do business.

Kevin Kim:
Let me ask about that. Getting that program set up because I always like to ask this question. I guess you’re calling it the RTL space, I call it private lending. What about this industry really did appeal to you guys at first? It’s very interesting. On the show, we’ve had a couple of people who, who started out as real estate investors or NPL investors and the stories are all different.

Kevin Kim:
I’ve always heard different reasons for the appeal. I like to hear your version of this. What is your appeal? What was your appeal to the RTL as a retail industry not buying them foreclosed or discounted?

Justin Ehrlich:
The first and foremost was the scalability of it. How large that market was. I think when we got in, it was estimated to be a $40 billion market. We just saw that the rates that you could buy this paper at and the short duration and the nature of the credit being able to get fairly good credit. It really attracted us as well as you can get really good leverage and there was the securitization market. All those really made it extremely appealing and that’s why we jumped in.

Kevin Kim:
The short-term duration and combined with the quality of the credit, and its liquidity all combined.

Justin Ehrlich:
Exactly, plus we had all this data from Travis and Derrick going back.

Kevin Kim:
They had been operating in this space for a while. Man Group had been operating since ’14 or ’13, I think, in the sector.

Justin Ehrlich:
2011.

Kevin Kim:
’11? That far back.

Justin Ehrlich:
Yeah. We had a tremendous amount of data. We felt like we had a leg up and with their relationships, we really felt like that we could take advantage of our capital across the capital.

Kevin Kim:
Let me ask you, turn that story the other way. When you’re speaking to your investors, because this space is not very well known to a lot of investors, a lot of institutions, even pensions don’t really understand it that well. They’re coming around to it. It’s become much more popular and well-known. Even in 2020, or ’19 or even ’21 having to explain this space was still part of the conversation when you’re talking to someone.

Kevin Kim:
What do you think appeals them appeals to them? How did you guys explain it to them to make it appealing?

Justin Ehrlich:
At first, Sorabh and I put our own capital to work to really understand the trading nature of how the RTL space works. How you buy a loan from an originator and then sell it to an aggregator. We saw just how much money you can make and how we can make it more efficient. In addition, we had some past relationships that really understood what we were talking about.

Justin Ehrlich:
It was very easy for us to, I don’t want to say very easy, but easy for us to raise the capital with us having first went through it, and really with Travis and Derrick’s background we really had the team in place to execute. They felt very comfortable with us managing their capital in the space.

Kevin Kim:
That’s cool. It was more of a firsthand experience. You had data to back it up, but also, I guess you can call it from their perspective boots on the ground with the people who’ve been in trenches, dealing with the CLO side of things and liquidity. That’s cool.

Justin Ehrlich:
Don’t forget in 2020, we really had a dislocation for a short period of time that really made it appealing. You were buying a lot of the guys that Sorabh and I dealt with were really NPL buyers. When you’re buying discounted performing loans that’s very appealing to them. They knew that we knew how to manage the pools and could execute. With our background in the NPL space, the synergy was great.

Kevin Kim:
Let’s talk about you guys come on the scene in 2020, make a big splash in ’21, and really scale. The amount of scale you guys went from, I think it was a $2 billion allocation to now $10 billion under management today. I mean, that level of scale is immense and it must have been a whirlwind. Talk about some of the key milestones over the past two years-ish in Churchill’s evolution. There’s so much has happened the past two years for you, guys.

Justin Ehrlich:


I would say first we’ve built out an unbelievable team. Sarper who really runs originations-

Kevin Kim:
Everyone knows Sarper. Everyone knows that guy.

Justin Ehrlich:
Everyone knows Sarper, yep. He was an incredible milestone as well as Jason Zhang who really runs our lender finance business. Kyle, who’s really running operations. I don’t know if you know Mike Pizzitola who’s just assisting Sorabh and the partners on a day-to-day basis. The hires that we’ve been able to obtain have really allowed us to grow significantly and provide the reporting.

Justin Ehrlich:
Just what it takes to manage this kind of capital. In addition, Travis along with his team of coders have built out an incredible software package that allows full transparency up to the aggregates’ data extremely quickly, really just allows originators to upload loans for us to aggregate as well as we know exactly what our investors want to see on a moment to moment notice.

Justin Ehrlich:
Really, opening up our office in Tokyo has allowed us to be really, really hands-on in managing our relationships over in Japan. These guys are unbelievable. One of the ex-employee that Travis and Derrick knew from Man Group is now a partner of ours in our Japanese venture. Listen, we all have skin in the game and we’re all growing in the right direction. It’s just the people that we have are really what created us to-

Kevin Kim:
That’s a story that I rarely hear from an institutional capital provider it’s people. You guys you’re concentrating on people and the value that they’ve been able to bring to the company and help you guys scale. That’s really heartwarming to hear. You’re right, my closest relationship on your team is with Sarper. I consider him a friend and that man is always available. Works like no one I’ve ever seen before. Also, he’s got great business ethics.

Justin Ehrlich:
The culture here is really like a family.

Kevin Kim:
How many employees now?

Justin Ehrlich:
We have approximately 100 employees and that is between New York-

Kevin Kim:
Across the different offices, right?

Justin Ehrlich:
Yep, it’s really just fostering and mentoring everyone and really focusing on educating our employees on exactly how we want to operate the business and what results we’re trying to achieve.

Kevin Kim:
Through the past two years, what takes a lot of folks, many, many years, you guys hit very large milestones in, I guess, can call it origination both on lender finance side and capital deployed, but also on the loan buying side. Then, what year was it when you guys partnered with Redwood and brought them on as a partner?

Justin Ehrlich:
We brought on Redwood, I believe in 2020 or 2021. Really that was to help us get the working capital to grow our staff and infrastructure. We really wanted to invest in technology as well as make some really strategic hires, that capital was really utilized for that.

Kevin Kim:
They’re also in the business where they buy loans and do all that through CoreVest, and all these other different channels. Was it also a partnership on the loan side? Did they also buy loans for you guys? [inaudible 00:29:37]

Justin Ehrlich:
They do buy loans from us, but there’s the extent of the relationship was really a convertible note that could convert into a percentage of ownership.

Kevin Kim:
I see.

Justin Ehrlich:
Really that money was, was really lent to us to really [inaudible 00:29:57]

Kevin Kim:
He saw an opportunity through you guys.

Justin Ehrlich:
It’s not like we were forced or mandated to sell loans to them.

Kevin Kim:
It makes sense from their perspective another avenue to get volume, but also another way to partner with a group that has access to the industry.

Justin Ehrlich:
I think one of our large counterparties in our lender finance business we really help each other as well as get data from them and they get data from us. It’s a really good relationship.

Kevin Kim:
Well, that’s cool. The reason why I bring this stuff takes forever for even some of the larger shops out there to achieve and you guys did it in a year.

Justin Ehrlich:
I’ll give credit to Derrick and Travis again, because they both worked for Dash who-

Kevin Kim:
Going back to the people factor and I love that you stressed that as part of your guys’ recipe for the growth of the past two years is the people and the relationships that they have and they bring and they foster, and that’s so important. I love that you’re giving them the credit for it. It’s so cool that you guys are talking about that as a people thing.

Kevin Kim:
Not necessarily like a capital or institutional strategy, but at the end of the day, both under the people, which is really cool.

Justin Ehrlich:
Don’t get me wrong, the money, the cost of capital is extremely important. We definitely want to have the best cost of capital and most flexible cost of capital. At the end of the day, it’s really about the people and our ability to drive business and help maintain the relationships of the investors.

Kevin Kim:
Let’s get into the weeds of the people then. A lot of us have heard of you and Derrick, Travis, and Sarper, and all these people, but what do they exactly do? We know Sarper leads your origination because he’s always out there and we know him. What is your exact role within the company? What do you do? Are you the visionary? Are you the whip-cracker? Are you the chief janitor? What are you doing?

Justin Ehrlich:
I wish I could take credit for that, but really it’s business development and focusing on overall strategy. Being a partner, you really have to get your hands into almost everything. Every day bring new tasks. I really love the business development aspect of the business. Really, I would say I get my hands into almost every aspect of the business.

Kevin Kim:
A lot of firefighting.

Justin Ehrlich:
A ton of firefighting, ton of new strategies, thinking about new strategies, really just keeping my ear to the ground and hearing what other people are doing and trying to bring that and those ideas into Churchill.

Kevin Kim:
Very cool.

Justin Ehrlich:
Sorabh really focuses, I would say also on business development also pretty much gets his hands into everything as well as accounting and focuses on the large loans. He’s really focused on managing the large loans, some of our funds, structuring the funds. He’s really a structuring credit guy who is brilliant.

Kevin Kim:
Very cool.

Justin Ehrlich:
Derrick really focuses on the lender finance business, as well as different relationships that we have and the funds. Also, creating new structures, figuring out ways to generate returns for our investors and really focusing on the CLO, and the bond markets. Travis is an incredible manager and he really leads the technology aspect of Churchill.

Justin Ehrlich:
Really focusing on credit. How to improve our technology, creating new types of technology ways to do business with other businesses. He’s really a visionary in that aspect and just aggregating data and understanding the market. He’s really helped us grow.

Kevin Kim:
That’s cool. Everyone’s got their own what they call it superpower, I should call it, which is really cool to hear. Very rarely we get to hear more about four of you guys and we know what the business does, we have a lot of clients, we share a lot of clients. Getting to know more and more about backend. This technology stuff you’re talking about beyond data aggregations, you guys sit on a lot of borrower data and lender data.

Kevin Kim:
Is it also an interface with your loan originators and your borrowers, or lender finance side? [inaudible 00:35:13]

Justin Ehrlich:
Yeah, absolutely.

Kevin Kim:
That’s cool. One of the other I want to bring up, we have people a lot in and businesses and office culture and that kind of stuff, but you guys also have offices in New York. You also have an office in-

Justin Ehrlich:
Charlotte, Los Angeles, and Tokyo.

Kevin Kim:
When did you guys open an LA office?

Justin Ehrlich:
Probably about two years ago.

Kevin Kim:
I didn’t know you guys had an LA office and here I am in LA, I don’t know you guys have an LA office.

Justin Ehrlich:
We do some large loans out of-

Kevin Kim:
Is that where you guys do the multifamily stuff?

Justin Ehrlich:
Correct.

Kevin Kim:
That’s very cool and I don’t know that. Having four offices all across the country and in Japan, it must take a lot. How do you guys manage all that as executives I mean?

Justin Ehrlich:
It’s a great question. 8:00 AM every morning we have a partner’s call where we get on and talk about the day before and what events might be coming in the current day. That 8:00 AM call is really important. Then we have a [inaudible 00:36:29]

Kevin Kim:
That’s all four offices?

Justin Ehrlich:
Actually, not Japan. Japan, we actually have a call at seven or eight o’clock at night, basically three times a week and all the partners get on that call. We just discuss new strategies, new pitches. What our counterparties are looking for.

Kevin Kim:
You’re huddling at the executive level amongst the five of you or four of you?

Justin Ehrlich:
Yeah, it’ll be five including Sarper.

Kevin Kim:
To see you guys, that’s every day [inaudible 00:37:09]

Justin Ehrlich:
Every single day, the five of us are on the call at 8:00 AM and three days a week on a call with Japan in the evening. Throughout the day, like you said, what do you guys focus on? All of us are really focused on just talking to all different levels of management and really understanding what the issues are, what the goals are, and just pushing the ball forward.

Kevin Kim:
Very cool. Basically, like a huddle, right? Your own team is the executive team is having a huddle on a daily basis. That’s oftentimes you hear about in business books and these different guru classes, but it’s so important and it’s really cool. With Japan though, that must be very challenging. You have your principles over there, your partners over there. The time difference is logically one of the biggest obstacles, but there’s also a big cultural difference.

Kevin Kim:
How do you guys manage that? I grew up in the Korean American community and we have very similar office cultures as they do in Japan. You can’t really speak up. It’s very counter to an American business culture, especially in real estate where we’re all very opinionated and we all make sure we’re working hard, and that kind of stuff. How do you guys navigate those cultural barriers?

Justin Ehrlich:
I guess we were lucky once again, because Travis and Derrick had experience at Man Group managing capital on behalf of Japanese investors.

Kevin Kim:
He already had done those bridge that gap.

Justin Ehrlich:
Correct. Prior to us going to Japan, we really were say educated on just how to act. We knew exactly the way to talk to them and what they were looking for. It was very eye-opening for Sorabh and myself, but for Travis and Derrick, it was obviously something that they were very familiar with.

Kevin Kim:
I like to kind of share about that a little bit though, because we never really talk a lot. We never really get to talk a lot about offshore experiences and working with other investors from different countries on this show. A lot of it’s so focused on the industry at large, but this is an opportunity I don’t really foresee ever getting again.

Kevin Kim:
I like that you expand on that a little bit because what are some of the big challenges, eye-opening moments for you? As an Asian American myself, I struggle with this on a daily basis.

Justin Ehrlich:
I would say we manage capital from investors all over the world, not just Japan.

Kevin Kim:
It’s all about that. What other country are you guys transacting in?

Justin Ehrlich:
We do a lot of business in Israel, the Middle East, Europe, and all over Asia. Pretty much we tap almost all the continents, including Australia. I think just managing the capital is really, it’s basically all comes down to transparency and communication. If you are able to create the right reports and the right transparency and communicate properly you’ll have a very healthy business.

Justin Ehrlich:
I think all investors are really looking for the same thing, which is just give them transparency, communicate as much as possible and give them the data that they’re looking for, and if you can’t execute on that and don’t take on the business.

Kevin Kim:
Fair enough. You’re creating a universal language data and transparency, which is actually makes a lot of sense. Data and numbers doesn’t matter what culture you’re from data speaks for itself. You can’t interpret that any different way based on where country you’re from.

Justin Ehrlich:
Investor relations is so important and like you said it comes down to the people. Our office in Japan really does an incredible job in investor relations. Mike Pizzitola, who works here really does an incredible job at investor relations as well. It’s one of the most important aspects of our job.

Kevin Kim:
The real question is has it been that philosophy on data and transparency that’s allowed you to expand? Had there been other people on the team that have had those type of really strategic relationships with these institutions? How did you guys expand from you guys had the mandate from Japan to start with in 2020, and now we’ve got global access to different investor groups?

Justin Ehrlich:
I would say the thing that makes us stand out the most is the amount of data that we have. We’re able to make credit decisions that are much more based on historicals than most of our competitors. Travis has created the technology to extrapolate this data and actually allow us to utilize it in our credit decisions.

Justin Ehrlich:
Our investors really know that we are the best at what we do. We show them that with our track record and that really allows us to get a good reputation and continue to scale our business. It all comes down to just your reputation. We try and do the best we possibly can.

Kevin Kim:
I like that. I like to talk about the optionality that Churchill offers nowadays. Lender finance and then that expanded and expanded. When you guys were adding those components, what process do you guys go through adding those? I’m sure you have to allocate different asset, different capital sources for the different verticals that you guys have.

Kevin Kim:
Over the years, you guys added more and provided more. Describe the process in adding those different strategies for I guess, private lending industry?

Justin Ehrlich:
On the lender finance side, it was really investing in once again, our people. We had to hire people that knew exactly how to manage the warehouse facilities and that took a while to actually craft. From there, it’s also integration of the technology. What’s so great about our business is the lender finance is really financing the same loans that we are aggregating.

Justin Ehrlich:
From there, we just continue to hire people that were able to understand and help us make our business more efficient. It takes a lot of time.

Kevin Kim:
Well, let’s say for example, when you guys added table funding because that was a very big move for you guys. You guys added table funding to the business and I was really impressed how fast you guys scaled that. From my perspective, the amount of deliberation that had to have been done and set up that had to have been done to get that set up is usually very significant.

Kevin Kim:
You guys did it pretty quickly from my perspective. How did you guys plan through that product offering? As you guys evolve too, what’s your guys’ process in adding these type of [inaudible 00:45:40]

Justin Ehrlich:
What we saw in the table funding business was we were able to just generate more yield. In the table funding side, you take more of the upfront points and more of the ongoing yield. As yields were compressed in 2021 and going into 2022 in order to generate higher yields, we got into the table funding business.

Justin Ehrlich:
That was really the impetus as well as we were able to get some warehouse lines and credit facilities that allowed us to really take advantage of that.

Kevin Kim:
The set was it mostly making intentional hires to service the business after you guys have decide, “This is the move we’re going to make. Let’s build out the platform.” Is that how it went?

Justin Ehrlich:
Absolutely.

Kevin Kim:
Very cool. You’re not trying to figure it out. In this space, a lot of times you’re trying to figure it out and thumb their way through it, or go out and find the people that do this the best and recruit them.

Justin Ehrlich:
That’s it.

Kevin Kim:
One of the other questions areas I like to inquire about is, today is for our audience, we recorded this in advance. Today is July 27th, 2022. We got the announcement from the fed that they’re raising rates up by another 75 basis points. 2022, it’s been one hell of a ride.

Justin Ehrlich:
Nasty.

Kevin Kim:
We entered it with so much excitement and we were all nervous. I was very nervous because I tend to be the little bit more of the doom guy among the team. I worked at a bank during the recession. When you have a volatile year, how are you guys situating, yourselves and preparing for whatever’s coming and how have you guys reacted over the past six months-ish?

Kevin Kim:
Then, let’s look forward after that. How have you guys reacted in the past six months with all these crazy times going on, especially the past three months?

Justin Ehrlich:
That’s a great question, Kevin. I’d say just like you early on when the market started to really gap out, we were really nervous and trying to understand really what was going on. It was a really interesting time for us because one side of our business was doing incredible and the other side of our business was really slowing down. Our lender finance business really skyrocketed due to the volatility, because a lot of the rates and funds.

Justin Ehrlich:
They had their lines either called or put into amortization or couldn’t do a CLO, so they had to find a place to really warehouse it. That really escalated our business on the lender finance side. I would say over the last six months, our lender finance business has done extremely well. On the flip side, on the aggregation side, our volumes have been down tremendously. We’ve really increased rates, got much better FICOs experience, all the things that-

Kevin Kim:
Tighten credit, makes sense.

Justin Ehrlich:
We tighten credit and are really holding these on balance sheet through separately managed accounts or funds that we have and are really trying to take advantage of just really good quality credit and good yields. It’s definitely not like the heydays of 2020, 2021 with the bond market just eating as much as possible.

Justin Ehrlich:
These are very uncertain times, but our lender finance side of the business, don’t forget, we provide leverage to lenders that are crossed. We feel that our collateral is extremely safe, so we love that side of our business. Our investors are continuing to fund and really dig deeper into it. On the origination side of the business, I think we’re going to see a really amazing time to just aggregate just unbelievable paper just due to the limited nature of the competition in the market.

Kevin Kim:
That takes me back a few months and once again, we’re right now, it’s July, we’re going back a few months and you guys were very cut-and-dry about it, “Listen, markets sucks. Rates are coming up, we don’t know what’s going to happen, so we have to take a step back real quick.” I hadn’t heard from a single one of my clients that we share that you guys hit the ball from them or any of that. A lot of credit goes to Sarper for just being blunt with his counterparts.

Justin Ehrlich:
That was so, so important to us. We saw the blow back from early COVID with a few of the lenders really stiffing their borrowers and really not managing expectations. We really wanted to get ahead out in front ahead and really just notify our counterparties that we were buying from what we were thinking.

Justin Ehrlich:
Just let them know that we’re pausing or this is our new box and really constant communication with them. We did not leave anybody hanging [inaudible 00:52:22]

Kevin Kim:
You also provided optionality because the very first thing that came out was here are our products on the lender finance side. Here’s what we can do for you here. There’s optionality to some degree. I guess that begs the question from on the aggregation and loan purchase side is right now, it sounded like you guys have tightened credit you increased your requirements, but are you guys back in the market now? Are you guys still waiting to see how things play out?

Justin Ehrlich:
No, we never stopped. Obviously, we were doing well over $600 million a month of aggregations and we’re down significantly.

Kevin Kim:
You have different parameters basically.

Justin Ehrlich:
Yes, that’s correct. We currently love the credit that’s out there and are continuing to buy it.

Kevin Kim:
With the primers that you’ve said, which you feel the right thing to do for your investor.

Justin Ehrlich:
Yes.

Kevin Kim:
Makes sense. With rates going up again today, on your perspective what do you think it’ll take for our industry to get back to some level of, I guess, I’m not going to say status quo because status quo it doesn’t really exist in our space. Some semblance of stability and where the secondary does come back in a much more consistent, I’m not going to say robust is the wrong way to put it, consistent manner because it’s a little bit still uncertain.

Kevin Kim:
A lot of people are worried about this new rate hike is going to be like, “Well, is it going to cause more chaos or is it going to give us certainty on rate? What’s going to happen?” What do you think is going to take for our industry to get back to some semblance of stability?

Justin Ehrlich:
My opinion is it’s going to take a while. I think throughout this year and into early next year, we’re going to see a lot of uncertainty. Unfortunately, we’re going to see a slowdown in the sale of housing.

Kevin Kim:
It already started. A bulk came out today.

Justin Ehrlich:
It’s going to come back to a normal pace, which is in my opinion, a good thing. Yes, we’ll make less money than we were in 2021, but I think it’s healthy. I personally think that we need to get inflation in order. We need to get a healthy housing market with supply and demand to be back to normal. I think once we have stability and rates and inflation under control in the low single digits, we’ll be able to have a secondary market again.

Justin Ehrlich:
I believe that the bond buyers could have incredible credit, the problem is that they don’t where prices are going to fall to.

Kevin Kim:
Once they get some sense of stability on the pricing, then they can translate that to a much more consistent secondary.

Justin Ehrlich:
Yeah, we’re starting to see it. Some of the big asset managers are saying they want to just acquire at these rates at these terms.

Kevin Kim:
They’re starting to come back with their numbers, which is good. What I was told is the disconnect, they can’t figure out what to buy yet.

Justin Ehrlich:
At some rate, there’s only so much someone could afford to pay an interest. I think at these high single digit, low double digit rates, it’s a very appealing relative to other asset classes.

Kevin Kim:
It sounds like your take on it is party’s over, but we’ll be at brunch having mimosas pretty soon, basically.

Justin Ehrlich:
I see early to mid next year, I think some stability and we’ll be back to business as normal.

Kevin Kim:
We talk about this a lot is that there’s always other means for this industry to thrive. This industry came out of the rubble of 2008. There’s always been an entrepreneurial spirit to it where they create new strategies and find new ways to get things done. The lender finance product until you guys came on the scene, there wasn’t really that many, what do you call it? Privately-run organizations, non-bank organizations offering true warehouse financing.

Kevin Kim:
That’s also changed the paradigm. Now, other groups are providing it and more people are thinking, “Well, if I can do it via a warehouse line, why don’t I create more of a balance sheet strategy and borrow instead of just originate and sell.”

Justin Ehrlich:
It’s an incredible time to get yield and if you can get the warehouse line, the yields that you can generate on a lever basis are truly unbelievable relative to other [inaudible 00:57:51]

Kevin Kim:
It begs the question can they raise the necessary capital to have the balance sheet required?

Justin Ehrlich:
Don’t forget, right now you have these huge institutions like Blackstone, they just raised $24 billion out of a $30 billion fund. They’re going to be buying homes for rent.

Kevin Kim:
I always tell sponsors the same thing like, “If the institutions are setting up a discretionary fund, you should be thinking about it too.”

Justin Ehrlich:
I think that is going to really create obviously a monster amount of demand to continue to keep supply low and prices relatively high. I see a bright future.

Kevin Kim:
I agree. The industry’s always been very nimble. We had a blip in ’16 and it solved itself. We had a blip in ’20, solved itself with your guys’ help by the way, I’m not going to lie. Even if we were at another recession, we’re not going to be facing in 2008. It’s just a matter of be nimble and have a strategy and make friends.

Justin Ehrlich:
That’s right.

Kevin Kim:
I like that. The next part of the show we like to ask is more rapid fire questions about you, more about you, Justin, get to know you. When you’re not out there dominating this private lending industry and providing all of those great services, what do you do in your personal time?

Justin Ehrlich:
Well, I have three kids. I have twin 16-year-olds boys and a seven-year-old boy. I’m very busy with the family. I love spending time with them. I love to race cars, that’s one of my hobbies.

Kevin Kim:
What kind of racing?

Justin Ehrlich:
I do gentleman’s driving where we bring our race cars and to tracks really on the East Coast and just compete in a gentleman’s way. [inaudible 01:00:09]

Kevin Kim:
Are you guys racing each other?

Justin Ehrlich:
No, it’s hardcore racing, but it’s not on a professional basis.

Kevin Kim:
Of course, what kind of cars we’re talking about here? Stock cars, import?

Justin Ehrlich:
No, these are more GT cars, Porsches, things like that. That’s a lot of fun. My kids are real into it.

Kevin Kim:
I bet, 16-year-old boys and fast cars.

Justin Ehrlich:
My twin boys love it and we do it together. My little seven-year-old, Go Karts.

Kevin Kim:
Nice. Currently, what are you driving right now? What’s your race car?

Justin Ehrlich:
I have a Porsche Cayman and my boys have also Porsche Caymans. They’re called 718 Cayman GT4 Clubsports.

Kevin Kim:
That’s not just any Cayman.

Justin Ehrlich:
Anyway, we have a lot of fun with it. It really bonds us.

Kevin Kim:
I bet, it’s a great hobby to have. What track do you guys usually go to out there?

Justin Ehrlich:
Our home track is Lime Rock in Connecticut. We go to Monticello Motor Club, Road Atlanta, Daytona, Sebring. We really travel and it’s really a family affair.

Kevin Kim:
With the cars on the trailer and go out?

Justin Ehrlich:
Yeah, my brother-in-law does it, my father-in-law does it. My nephews are started to do it. It’s really a lot of fun.

Kevin Kim:
Well, the garage and everything, you guys have your own garage and do all that?

Justin Ehrlich:
We have a guy who takes care of a lot of people’s cars and we’re part of that.

Kevin Kim:
That’s so cool. I only know one other person in this industry that does actual racing and he’s a CPA. He’s on the show actually. Early on, he races stock cars here in California.

Justin Ehrlich:
That’s awesome.

Kevin Kim:
I only ever met anyone that gets into the racing side. People love cars, but the actual racing component. If you had to take any lessons away from race, because racing is such an intense sport and practice, does anything translate to business for you? Does anything inform you in business?

Justin Ehrlich:
Obviously, it’s beyond competitive. You always want to win. You have to be focused 100% of the time. Really, that focus that drive that discipline to not make mistakes is what I take to business as well.

Kevin Kim:
That’s very cool. Another business question for you now is going to be what is one business tool that you cannot live without? It can be anything. It can be a pen and paper. It could be your iPad or your iPhone.

Justin Ehrlich:
Microsoft Outlook.

Kevin Kim:
Outlook.

Justin Ehrlich:
Yeah.

Kevin Kim:
You’re an Outlook guy, good.

Justin Ehrlich:
Between the calendar and my emails, it really helps me be organized.

Kevin Kim:
I started studying watching these videos about how to maximize the Outlook and I was blown away what you can do with it. I realized I use one eighth of its capabilities and I’m still so bad at it.

Justin Ehrlich:
Send me the video. I probably use one of those too.

Kevin Kim:
It’s so it’s crazy. Some people can use it to run their entire day and actually all these plug-ins you can do to actually do things like produce work product, and calendar things, and task items. I live and breathe Outlook myself.

Justin Ehrlich:
Then, I would say my second thing is my phone, my cell phone.

Kevin Kim:
With Outlook on it, I’m sure.

Justin Ehrlich:
With Outlook on it, of course.

Kevin Kim:
Are you Android or you Apple?

Justin Ehrlich:
Apple.

Kevin Kim:
That’s where we don’t agree. I’m a Google guy.

Justin Ehrlich:
I used it for so long. I’m a creature of habit.

Kevin Kim:
No, I get you. I was first Samsung Galaxy fanboy when it came out and I just never left it. I always stuck with Android. Listen, one of the things that I want to ask you as we close out is when are we going to see out there at an industry show? We love for you guys to come out and hang out with us at Gerasi, but also some industry people-

Justin Ehrlich:
I’ll have to get Sarper to allow me to go.

Kevin Kim:
He won’t let you go?

Justin Ehrlich:
He hogs it.

Kevin Kim:
I’ll let him know.

Justin Ehrlich:
Thank you.

Kevin Kim:
No, because seriously we were planning about coming out and paying you guys a visit in your guys’ office, but we’d love to see you guys at an event. We’ll make sure to keep pressing and get you guys out there.

Justin Ehrlich:
I’ll be there.

Kevin Kim:
I love it. Well, you know what? It’s been a great time spending with you on this show. I rarely get to hear about companies that I look up to so much. Really, thank you for taking the time today with us.

Justin Ehrlich:
Thanks, Kevin.

Kevin Kim:
It was really fun. I love hearing about the racing thing, that’s so cool. This episode’s probably going to air later in the quarter, but for those of you who are interested in learning more about Churchill, you can find out more from Justin or you can reach out to our friend, Sarper, and learn more about what they do. You’ll see this episode come out pretty soon.

Kevin Kim:
Keep your ears open for our teasers. This was Kevin Kim from Lender Lounge. Thank you very much, Justin for joining us on the show and we’ll see you on the next one.

Justin Ehrlich:
Thanks, Kevin.

Kevin Kim:
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 Gerasi.

Kevin Kim:
Lender Lounge with Kevin Kim is available on all podcast platforms. Referrals really help us spread the word, so please send this over to someone you think might enjoy it. See you next time. This is Kevin Kim signing off.

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