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 to sit down with key figures in the private lending industry to talk about their business and their personal lives.
Kevin Kim:
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:
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:
Before we move on, 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.
Kevin Kim:
We handle everything from licensing, to new entity formation, fund formation, loan documents, national compliance, litigation, bankruptcy, foreclosure, and so much more. We pride ourselves on giving our clients the ultimate peace of mind.
Kevin Kim:
Check us out at GeraciLawFirm.com. In addition, our internal conference line gives opportunities to you to network, learn from industry leaders, pitch to capital sources, and make new connections. Visit GeraciCon.com for more information about our upcoming events. That’s G-E-R-A-C-I-C-O-N dot com.
Kevin Kim:
All right, guys. Welcome to another episode of Lender Lounge with yours truly, Kevin Kim. Today, I have the unique pleasure of interviewing my partner, Dennis Baranowski of Geraci fame. Thank you very much for joining us today, Dennis.
Dennis Baranowski:
Yeah. Thanks for having me on, Kevin. I really appreciate it.
Kevin Kim:
We’re both wearing the Geraci shirts.
Dennis Baranowski:
It’s the uniform.
Kevin Kim:
Yeah. Actually, it is. Actually, half the firm is wearing their polo today. First of all, before we even get started, introduce yourself to the audience and let them know like who you are, what you do for the firm, that kind of stuff. And we’ll go from there.
Dennis Baranowski:
All right. My name is Dennis Baranowski. I’ve been a partner and I work in the transactional or banking and finance group. I do a little bit of everything. I work on loan transactions, work with clients, advise them on compliance. Whether here in California with respect to licensing or 50 state, whether or not they need a license in the other states.
Kevin Kim:
Pretty much it.
Dennis Baranowski:
Yeah. Pretty much it. I train the team. I assist them and guide everyone with respect to more complex transactions, how to navigate through.
Kevin Kim:
But you’re also on both sides of the industry, if you will. You’re not just on the resi side. You’re doing resi, commercial. You’re doing all of it, right?
Dennis Baranowski:
Correct. Yeah.
Kevin Kim:
And what’s interesting though, I know of this, but for our audiences sake. You joined Geraci not to do loan documents and compliance and transactional support. It wasn’t closing docs at all. When you first joined us back in, when was it again? It was ’13, ’12.
Dennis Baranowski:
2012. Yeah. It was nine years [crosstalk 00:03:00]-
Kevin Kim:
Nine years now. Holy. Back at the Main Street office. Or was it? No. Was it Main Street office?
Dennis Baranowski:
No, it was on-
Kevin Kim:
We were in the building next to the airport, and we had that-
Dennis Baranowski:
Yeah. Martin. Martin.
Kevin Kim:
Martin. And we had that pit of cubicles. It was awful. I remember sitting across from you and then Nema had his own office. I was so angry about that.
Dennis Baranowski:
Yeah. It just wasn’t right.
Kevin Kim:
But back then, when you first joined us back in ’12, it was bankruptcy, right?
Dennis Baranowski:
No. Actually, I did join-
Kevin Kim:
Litigation?
Dennis Baranowski:
Well, I started. I did join to join the banking and finance group. The intent was transactional. But funny enough, a lot of it was residential compliance a little bit as well. And so I’d written some articles and did some work with respect to Dodd-Frank had just… It was at the inception when all that happened.
Kevin Kim:
We were all [crosstalk 00:03:52]-
Dennis Baranowski:
Yeah. But then kind of shifted more towards commercial and just fix and flip, that type of thing. It just happened to be I had a background with bankruptcy and litigation.
Dennis Baranowski:
Funny enough, one of the first things probably within the first month of me at the firm, I did a trial with Christina Geraci. And that wasn’t out of me having mad litigation skills, it was more a matter of we needed a live body to actually handle and assist with the trial, and I was game.
Kevin Kim:
Well, we were a different law firm back then. I think it was five attorneys back then when you first started. Four attorneys.
Dennis Baranowski:
Yeah. It was Nema, Amy, myself, the Geracis who even at that point… We can edit this out. Whether or not they were practicing at that point, we’ll leave that for debate. And then we had Sabina, who was kind of-
Kevin Kim:
Right, Sabina.
Dennis Baranowski:
… more part-time. Yeah. We were a really small firm at that point in time.
Kevin Kim:
Right. And we were kind of doing a little bit of everything. And I remember when I joined two years after you joined, it was still very, very small. But we started to see, the industry started taking shape.
Kevin Kim:
And so I want to talk about before. Let’s talk about before Geraci, before we get into actual ’14, ’15, ’16 when, when the market started really taking shape. I want to talk to you about before, because you’ve been practicing law for how many years now?
Dennis Baranowski:
Oh, God. Do I have to say?
Kevin Kim:
You have to say it.
Dennis Baranowski:
22. Or actually 23. [crosstalk 00:05:24]-
Kevin Kim:
We call him the beard for a reason. We call him the wise one for a reason. But you’ve been here now with us nine years. Before that, what were you doing before you came to Geraci?
Dennis Baranowski:
Before that, primarily most of the time I had my own shop. I had my own practice for, I would say probably seven years or so. And then actually, I’d gone in house for a mortgage lender, and that’s funny enough how I met Anthony when he was just a young baby lawyer.
Kevin Kim:
Pre crash?
Dennis Baranowski:
Pre crash. Yeah. Actually, it was right before the crash, and he was still working at his prior employment. But he was the fund’s securities attorney. Whenever we needed any type of advice or had any amendments that we needed to the fund or anything, I just wouldn’t touch it. I would give Anthony a call and [crosstalk 00:06:17]-
Kevin Kim:
That’s proof that Anthony Geraci actually used to practice law. That’s a joke we have in the office. He’s now running our litigation team, but he can do a little bit of everything.
Kevin Kim:
But he taught me everything I know about funds, so shout to Anthony. You were running your own show. How was that like? It was just you and you have your own office somewhere. Orange county?
Dennis Baranowski:
No, actually I was in the IE. Inland Empire.
Kevin Kim:
Inland Empire. Was it mostly still kind of in the mortgage space, or was it kind of a little bit of everything? Because a lot of solo… I had my own office for a couple years and it’s just you do whatever pays the rent.
Dennis Baranowski:
Yeah. When I first started out, it was whatever came in the door. I did a little bit of this and a little bit of that. That area, for those of you are not familiar with the Inland Empire here in Southern California.
Dennis Baranowski:
During the real estate boom, that area just went in nuts. Because they had wide open spaces to build, so there were all brand new homes coming up. Equity in even the older homes was just shooting up at just unbelievable pace. And everybody is kind of looking at it going, “How long is this really going to last?”
Dennis Baranowski:
But funny enough, everyone just kept on taking money out of their properties, buying RVs, boats, all kinds of crazy stuff. But as a result, there was just a booming market there in the Inland Empire.
Dennis Baranowski:
And so when that started, I went to high school in that area. I went to Upland High School and I knew a lot of people. That was my hood. A lot of people I knew were in real estate related industries. I had broker clients, I had lender clients, I had realtor clients, contractors, carpet stores.
Kevin Kim:
You’re all over the place. You’re dealing with the lenders, the builders, the vendors. But it still sounds like it’s kind of tied to real estate though, because it was part of the boom, right?
Dennis Baranowski:
Yeah, absolutely. Yeah, absolutely.
Kevin Kim:
Translate that experience, and then you went in house at a mortgage shop. And so having that more broader base, you were general counsel?
Dennis Baranowski:
Yes.
Kevin Kim:
They had you do a little bit of everything I’m guessing, right?
Dennis Baranowski:
Yeah.
Kevin Kim:
They had to deal with a foreclosure, you’re dealing with it. They had to deal with a vendor’s dispute, mechanic’s lean, anything. You’re dealing with it.
Dennis Baranowski:
Bankruptcy.
Kevin Kim:
Bankruptcy.
Dennis Baranowski:
Yeah. Employment issues. You name it. TCPA lawsuits.
Kevin Kim:
Wow. Let me ask you this. When you’re doing that, and now, because what we do as a law firm, where we have set departments and your role and your area of expertise is so specialized now. Do you miss it, having a little bit of broader kind of scope?
Dennis Baranowski:
Yeah. In the sense if I had unlimited amounts of time, I absolutely miss it. There was a real challenge [crosstalk 00:09:03]-
Kevin Kim:
That’s a good way to put it. If I had as much time as possible.
Dennis Baranowski:
I enjoyed the challenge. I loved looking at and figuring out new areas of law or new types of agreements. Back when I was on my own, I learned, I kind of trained myself on how to write contracts using Google. And FindLaw. I don’t know if you remember FindLaw.
Kevin Kim:
I love FindLaw. Who needs Westlaw Next when you got Google? For solo practitioners, Westlaw costs a fortune. I remember basically, Google, FindLaw, Onecle, those were the resource. You got to do what you got to do.
Dennis Baranowski:
Yeah. Kind of going back, circling back to how it impacts being back here. I enjoy. There’s a little bit less stress because when you’re in charge of your own destiny, and I really didn’t have a ton of people that I could bounce certain things off of.
Dennis Baranowski:
I had mentors on the litigation side and in bankruptcy, but not so much on the transactional and real estate side. I was really figuring everything out on the fly on my own.
Kevin Kim:
Did you have transactional experience before that? You got out of law school, you worked at a law firm I’m guessing in between. Were you doing litigation there?
Dennis Baranowski:
Actually, no.
Kevin Kim:
Transactional.
Dennis Baranowski:
Yeah. I was the real estate litigation group, but we also did, it was real estate and business, I suppose is probably [crosstalk 00:10:30]-
Kevin Kim:
You’ve been doing national your whole career. Okay. You had your own shop, you go in house, and then you come over here. But the transition to Geraci, it’s kind of funny.
Kevin Kim:
A lot of us early Geraci, if you can call it, have really, really funny stories of joining the firm. I joined via, I literally saw an ad on Craigslist for a contract attorney, and I was running my own shop. I needed the work and I got a job here. How are you? How did that end up? How did you join the firm?
Dennis Baranowski:
Well, as I mentioned, I knew Anthony from way back when. And then actually, my wife, [Camio 00:11:08], one of her really close friends at the time was sorority sisters with Christina.
Dennis Baranowski:
And so I would see Christina and Anthony at just different and get togethers and parties. And Camio ended up just…. My wife is quite personable and makes friends with everybody, so she ended up at the time talking quite a bit with Christina.
Dennis Baranowski:
And they just were like, “Yeah. He should consider coming over and working with us.” And at the time, my practice was doing well. And I was like, “I like being able to work on my own.” I was being able to set my own hours and doing everything.
Kevin Kim:
This is post crash, too, right? You’re doing okay.
Dennis Baranowski:
Yeah. It kind of started off right at the beginning post crash, I should say.
Kevin Kim:
’09?
Dennis Baranowski:
Yeah. And at the time, things were going great. And unfortunately, I should have I guess hindsight looking at it, and I’ve never experienced anything like this with the business. And having the crash and the ups and downs. But my business actually transitioned quite a bit to bankruptcy. And so a lot of my clients, I was helping them get out, keep their-
Kevin Kim:
That’s how you became the bankruptcy guy, because you had that practical experience based on need.
Dennis Baranowski:
Yeah, absolutely. Got to hustle, put the food on the table for your family.
Kevin Kim:
Figure it out. Figure it out. Right. And I want to come back to that in a bit about your role today, about training and how you use that. But before we get there, I still want to kind of…
Kevin Kim:
You joined the firm at a very interesting time, because we were basically a tiny little shop. A small, small law firm. And you’ve been with us to help us grow this place to what we are today, and we’ve doubled and doubled it again over the past few years. Not without any growing pains, mind you.
Kevin Kim:
But let’s talk about that. You joined the firm and you’re doing all kinds of stuff. You’re doing litigation work with Christina, you’re doing some transactional work with Nema and Sabina and Anthony. When did the whole idea of your current kind of direction where you are today, when did that cement for you?
Dennis Baranowski:
I would say it really cemented probably when we moved into the 90 Discovery, our building here.
Kevin Kim:
Here. We moved here in ’14 or ’15. ’15? I think ’15.
Dennis Baranowski:
’15.
Kevin Kim:
I think so.
Dennis Baranowski:
Yeah. Before that, I think just by the nature of our firm and our size, it was kind of when I was needed somewhere, I would just-
Kevin Kim:
Figure it out.
Dennis Baranowski:
Yeah. Because we didn’t always have coverage everywhere we needed it.
Kevin Kim:
No, we didn’t. Yeah. I remember preparing an ad for a magazine. I’m an attorney guy.
Dennis Baranowski:
There was all kinds of stuff back in those days.
Kevin Kim:
I also remember having to move boxes and water bottles and assemble chairs. I remember.
Dennis Baranowski:
Yeah. Kevin was the go-to handyman for years.
Kevin Kim:
I had the toolbox under my desk for a while. Okay. When we moved to 90 here in Irvine, we moved here in our own building here about six, seven years ago now. That was when you guys really cemented to say, “Okay. Dennis is going to specifically only do this stuff.”
Dennis Baranowski:
Yeah. I think that’s really where it kind of set in.
Kevin Kim:
That was the year from a market standpoint when the private lending industry really started to cement. We started to start seeing some significant growth in our clients, but also the firm.
Kevin Kim:
The year after, in ’16 we doubled in size. Talk about how that played a role and how busy we were, because it was crazy, remember? We started doing all the conferences, all of a sudden we started talking to clients from all over the country. Talk about that really quick.
Dennis Baranowski:
Yeah. I think it at that time when we moved here, we all were looking at it and trying to figure out where the firm was going to go. And the industry was growing.
Dennis Baranowski:
And then there were just some opportunities, as far as figuring out what we wanted as a firm and what our goals were. And I think that was really for us, a big turn for us, was when we started going, “Okay. This is how we want to manage the firm.” And really setting the goals and how we wanted to grow.
Kevin Kim:
I remember before that, we were trying bank clients and all kinds of random. It was a different time.
Dennis Baranowski:
We were all over the place. And I think we figured out, “Okay. Well, we do this well. What we do, we do well, and nobody else can do it like we do.” And as a result, finally I think it dawned on us or however you want to put it. And we started focusing on that and growing from that place.
Dennis Baranowski:
And I think that was really when we were able to establish what our identity was. And then I think even in the firm and the team that we had at that time, it was figuring out what everybody’s identity was.
Dennis Baranowski:
And so a lot of what would happen is we have a much higher volume of the complex and crazy transactional stuff. But back then, I was really the only one that was doing that.
Kevin Kim:
Back then, every deal was kind of weird. Kind of hairy, kind of custom. You started to see some standardization on some of the terms. Back then, you had to be able to [inaudible 00:16:19] they threw at you.
Dennis Baranowski:
Yeah, exactly. And I think the industry, as we became more aware of what our identity was, it made it much easier for us to convey that to other people and to the industry.
Dennis Baranowski:
And when the industry saw, “Okay. Well, Geraci knows who they are and what they do, and I know how I want to use them. I know how I can identify with them.” And I think that was a really big change and shift for us.
Dennis Baranowski:
And instead of looking at it going, “Okay. Well, we’re just a service provider within the industry.” I also think we looked at ourselves as more being a partner and a participant in the industry. And I think that was another big shift for us and it really helped us grow, and then it just happened to be at a great time of when the industry was expanding.
Kevin Kim:
When I interviewed Nema and Anthony for the show, Nema had this recollection of when it really sank in. When we crystallized was when him and I were on stage at APL on a panel or something like that.
Kevin Kim:
And I have my own view on it, but I want to hear your view on it. When do you feel like things crystallized for Geraci, and we really became kind of a market leader or industry leader when it comes to a role in the private lining space?
Dennis Baranowski:
I’m trying to think of what year it was. But there was one month where I feel like every single phone call I was getting, and new clients and existing clients were all like, “Hey, you guys are everywhere. You guys are incredible.”
Dennis Baranowski:
And it was just, “Yeah. We like this content you put out. We loved the article.” There was so much feedback, and it was positive feedback because we were focused on adding value. And I can’t remember what year that was, but it was pretty early on.
Kevin Kim:
’16 or ’17. Because I remember it was essentially when we brought on, I think it was when Ruby joined. We really doubled down on marketing. And this is really good feedback for our listeners, the importance of marketing.
Kevin Kim:
We were a very talented organization. We were very nimble and we were very able to do a lot of things for our clients. But also from a customer service standpoint, I felt like this organization really had a lot of value. But the problem was no one knew it.
Kevin Kim:
And all of a sudden, Anthony comes back from some kind of educational retreat and doubles down on marketing. And we hire Ruby, and all of a sudden we start really tripling down on content marketing, articles, webinars. I remember we were doing a webinar. We were having meetings and having all types of content.
Kevin Kim:
Because at the time, we hadn’t put out any content. We just had a laundry list and that was an amazing time. It was an exciting time because it was literally, “Hey, we need you to go in there and do a webinar real quick.” “How do you do a webinar? What tools are we using?”
Kevin Kim:
It was the craziest thing. But I agree with you. I went to a conference at the end of that year. It was APL. And everyone was saying, “Hey, you guys are everywhere now. What’s going on? Are you guys growing?” We had to say we were growing, but we really didn’t grow.
Dennis Baranowski:
It was all the same people at that point.
Kevin Kim:
Exactly the same people. But then we started growing. We had Melissa join that year and we had a few other people join us going forward. But that was kind of the crystallizing moment.
Kevin Kim:
I agree. We started really getting a lot of exposure and attention, and not just locally here in California, but nationally. And I felt that when I went to APL, because it’s a national show. Guys in Texas, guys in Florida were saying, “Hey, guys. I’ve heard of you guys. I’ve been seeing your stuff.” And that was crazy.
Dennis Baranowski:
Yeah. And I think that kind of goes back to what I was saying, as far as us figuring out our identity.
Kevin Kim:
Who we are.
Dennis Baranowski:
And who we are. And then being able to find the right people to fit and help convey that.
Kevin Kim:
Well, let’s talk about that for you though. And just like any other interview we do with any internal Geraci member, I always make sure to contact clients and team members for questions. Because while my questions may be good, their questions are almost always better. This comes from Kyle on your team.
Dennis Baranowski:
I’m scared.
Kevin Kim:
And it’s the same kind of question though. Tell us about your career path as an attorney, from starting out to ending up here as a partner at Geraci. And that goes to kind of the identity.
Kevin Kim:
You’ve had different roles, you’ve taken on different responsibilities here. Talk about that, how you kind of built your career and came here. And then also went through all the iterations that we’ve gone through as an organization, but you’ve gone through as well.
Dennis Baranowski:
Okay. Absolutely. Yeah. I’ll try and do a little bit of an abridged version. 23 years is a long time. This going to be the longest podcast yet. When I started practicing, actually the very first firm I worked at was, I was doing PI.
Kevin Kim:
We have that in common because my first job was doing PI as well.
Dennis Baranowski:
That was actually the job I had when I was waiting for bar results. I was there probably for a month or two. Actually, it was kind of funny. I left there because the partner promised me a salary when I had gotten hired as a law clerk. And they said, “Okay. When you get hired on, we’re going to give you the salary.”
Dennis Baranowski:
And then the day after I got the bar results, I sat down with one of the partners. And he said, “Okay, here’s what we’re offering you.” And it was $5,000 less, and at that time it still wasn’t a lot of money.
Dennis Baranowski:
And the day before it, dude just rolled up in a 7 Series BMW that he paid cash for. And I’m going, “What do you mean you don’t have money? My salary, it’s less than what it costs to service your car.”
Kevin Kim:
That’s the MO for PI attorneys, man. Yeah.
Dennis Baranowski:
Yeah. Fortunately, I got an offer with a bigger firm. They’re actually a pretty well known national firm. They focused on insurance defense, which is where I got a lot of my litigation experience.
Dennis Baranowski:
But the group that I worked with was actually a business and real estate litigation team, and we did some transactional as well. But most of what we were doing, we were working for title companies and loans servicers. Midland Loan Servicing was one of them.
Kevin Kim:
Nice. You started out right away doing this stuff.
Dennis Baranowski:
Yeah. Right out the door. And we were actually getting on commercial properties, we were placing receivers on the property. And so I got a lot of early experience going to court, filing receivership actions, understanding what the whole process was at the time.
Dennis Baranowski:
And then it was just kind of the contracts would come in, and the partner I was working with ended up training me on how to draft contracts. And so I actually really enjoyed that side of it.
Dennis Baranowski:
And I enjoyed the litigation side of it, but it was really because I understood and knew what the rules were. You had that confine and that box you were working in. And a lot of it, even though arguments were different, the process and the structure of it all was kind of rinse, wash, and repeat.
Dennis Baranowski:
The partner that I was working for ended up leaving and went out on his own, and so it kind of left me as a man without a country. And in a large firm like that, there really wasn’t any group that could really absorb me at the time.
Dennis Baranowski:
And so I was kind of a journeyman, and I was working with pretty much every different… I was doing construction defect litigation, public entity defense. I was doing some police officer defense.
Kevin Kim:
When you do insurance defense, all kinds of cases, man. It’s crazy.
Dennis Baranowski:
Yeah. Because I wasn’t able to meet the billables because the work just wasn’t there, I ended up getting… I got laid off at one point, and then that’s when I opened up my own shop.
Dennis Baranowski:
And at that point, I was doing a little bit of everything. I was making appearances for attorneys I was sharing an office with. Doing just small, basic little agreements. I was handling collection actions, defense.
Kevin Kim:
Everything you can to pay some rent.
Dennis Baranowski:
It was pretty much like, “Yeah. You know how to do this?” “Sure.”
Kevin Kim:
But let me ask you this. How did that play into your role here? Because essentially, when we moved here and we started really growing, you had already been in a senior role doing a lot of the more complicated transactions. You were helping shepherd a lot of our commercial clients through a lot of their growing years.
Kevin Kim:
But talk about that. And how did that really shape your career here at Geraci? Because that generalist approach, you kind of have a feel. You get a better feel for things.
Dennis Baranowski:
Yeah. I think the background of what I did leading up to being here at Geraci, is kind of really what allows me to see the big picture and understand what the firm is doing. Not just for our clients, but even internally and how we’re operating as a firm.
Dennis Baranowski:
Because I touched upon everything, man. It was everything our firm did, with the exception of securities. I will never claim to be a securities attorney.
Kevin Kim:
Don’t. It’s not worth it.
Dennis Baranowski:
But I did do corporate work.
Kevin Kim:
I remember. I remember.
Dennis Baranowski:
Yeah. I think really, I feel like I’m a little bit of a Swiss army knife. I’m able to adapt into a lot of different situations, and I think that really helped me within the firm.
Dennis Baranowski:
Because as we were growing and as new things were coming up, I was able to transition and pivot into things really quickly. I really didn’t need a lot of time to get up to speed. When we had a need, I was able to fill it, like when I ran bankruptcy for a little while.
Dennis Baranowski:
On that end of it, it’s kind of interesting. For a long time though, I was trying to figure out my identity. Even as a solo practitioner, because my identity was everything. It was kind of a jack of all trades.
Dennis Baranowski:
And even when I went in house, it was Jack of all trades. And then coming here, interestingly, when I started focusing on just the transactional side of it, I started kind of understanding a little bit more of, “Okay. What is it that I do? And where can I best contribute to the team and to the firm as a whole?”
Dennis Baranowski:
But it took me a while, because for a while I was going to conferences. And look, I feel like I’m a friendly guy and I can talk to anybody, but I’m not the conference guy. Kevin is much more likable and energetic than I am.
Kevin Kim:
I just drink a lot more than you do. That’s all it is. I’m just a raging alcoholic.
Dennis Baranowski:
But really, trying to figure out, and I think it’s for everybody, is trying to figure out where your strengths really lie. And where you’re going to be able to provide the greatest value for the firm.
Dennis Baranowski:
And so it was understanding, “Okay. Well, this is who I am and this is what I do.” My adaptability provides a lot of value for the firm, because there really is isn’t much… If we had an emergency and something were to come up, I could plug in without a problem.
Kevin Kim:
Right. We’ve had that. We see it. During COVID, we had multiple crises with various people leaving and various other crises happening. Bankruptcy was one thing. But a few other things. We needed some support and someone more senior needed to kind of oversee it, and you jumped in.
Dennis Baranowski:
Accounting.
Kevin Kim:
Accounting. Oh, my gosh. Yeah. And that’s the biggest challenge in running and operating a business, is we’ve had a lot of ups and downs when it comes to personnel.
Kevin Kim:
Because this is Kyle asking this, and I know for a fact that you’ve personally trained Kyle and you taught him a lot of things. Not only about your guys’ area of practice, but also just general skills. How much of that kind of generalist or broad understanding of the law and business translates into your training?
Dennis Baranowski:
I think it’s a huge part of it. Because once you can start seeing kind of the big picture of everything and looking at it holistically, there really isn’t a whole lot you can’t figure out.
Dennis Baranowski:
And so fortunately, Kyle is a super smart guy. Just really smart and he’s able to understand, “Okay. Well, let me see the big picture.” And you start seeing patterns and connections between things, that normally you’d look at and go, “Really, what do these things have to do… ”
Dennis Baranowski:
Dean and Lou at a leasehold mortgage or something like that. You’re going, “What do they have to do with each other?” But there’s certain common interests and concerns of the lender and of the parties that are involved in the transaction, that translate over between the different types of transactions.
Dennis Baranowski:
And so when you can start understanding and seeing that big picture, then everything gets a lot easier. And then you also just need to have a broad general knowledge of what the rest of the firm does.
Dennis Baranowski:
You need to understand litigation. You need to understand what the process is. For instance, on our team, Kyle needed to know, “Okay. Well, if our borrower defaults, what happens?” How do the provisions on our loan documents impact litigation, and what does that actually do?
Kevin Kim:
How does it actually end up getting enforced? What will a judge say? And then long term, how will it affect our client? And that’s the stuff that a lot of times in transactions, you forget. You’re kind of focused on getting the deal done.
Kevin Kim:
And while we’re on this, we’ve got a lot of great questions from various team members. And also, some clients that you work closely with and have worked with you for years now.
Kevin Kim:
A lot of these are industry related. I actually want to touch on some internal questions first. Usually, we just get questions, but I have a long, long kind of preface.
Kevin Kim:
And this comes from Melissa Martorella, our partner who I also interviewed for the show last season. I’m going to read it. These are Melissa’s words, not mine. I’m not as well spoken as she is.
Kevin Kim:
“Dennis is a strong leader in support for our team, the banking and finance team. He has experience and knowledge no one else has, and is willing to convey that information to others on the team.
Kevin Kim:
“He’s also one of the most caring people I’ve had the pleasure of working with, as he truly enjoys his practice and the people he works with. As the primary trainer on the team, he’s also able to push the same feelings great parents use when they’re teaching their children. But also has the uncanny ability to make you feel ashamed that you let him down.
Kevin Kim:
“As a result, he’s able to continuously grow our team’s knowledge base and nurture our young attorneys to become great assets. My question for Dennis would be… ” And once again, this is Melissa’s question for you. “How do you determine how others learn best, to hold them each individually accountable for their personal growth?”
Kevin Kim:
That’s a good question. A lot of our people have to train people. And a lot of our listeners are entrepreneurs and executives and principals, and they got to deal with training. And training is the hardest thing. I am terrible at it, and it drives me nuts because you have to customize. You can’t just bark orders.
Dennis Baranowski:
I think it’s a combination of two things. One, honestly is just patience and understanding that just because I’m pushing and trying to train them on something. And something that worked training Lindsay for instance, may not have worked when I was training Kyle. And vice versa.
Dennis Baranowski:
And so having the patience to go, “Okay.” And figuring out, going, “It’s not them per se that there’s some type of defect. It’s I’m not figuring out what they need.”
Kevin Kim:
When does that click for you?
Dennis Baranowski:
It’s trial and error, man. It really is, because usually-
Kevin Kim:
Are you open about that with the counterparty? As you say, you’re training Lindsay and there’s kind of some friction. Do you say, “Hey, I did this before but it’s clearly not working. Let’s [inaudible 00:32:05] something else?”
Dennis Baranowski:
I’m absolutely open to it, and sometimes I’m slow to ask, and sometimes it’s communication. It’s a little bit of a two-way street as far as understanding. Because if people don’t communicate that they need something from me, I may not know.
Dennis Baranowski:
And so even though the product is coming out and it still looks good. But maybe actually after I work with them, there’s something they don’t understand, and they’re going to talk to another one of their team members.
Kevin Kim:
And how do you resolve that? That’s a big question I’ve always had, and everyone has this challenge. When you’re training somebody, cards are not all on the table when you’re talking and training with them.
Kevin Kim:
And you’re trying to learn, trying to teach them something and they’re trying to learn. And it becomes kind of an uphill climb, because, “Well, if you had asked me, we would’ve gone through this problem together.” And so from a trainer’s standpoint, from a manager’s standpoint, that can be a very challenging issue to overcome. What do you do in that standpoint?
Dennis Baranowski:
Yeah. Sometimes I beg and plead.
Kevin Kim:
I like it. I like it. Patience. Patience. Willingness to beg and plead. I like it. I like it.
Dennis Baranowski:
And usually, unfortunately it comes up where if I’m working on a project with somebody, and I just see a mistake. And I’m like, “What happened here?” I’m like, “I thought we talked about this. We went over it. You didn’t have any questions. What happened here?”
Dennis Baranowski:
And then we got to open the dialogue of, “Okay. Well, what could I have done differently for you so you could have understood this? Moving forward, so we can avoid these types of things from happening again, what is it that you need?”
Dennis Baranowski:
And then I adapt myself and my training of them to what they’re going to be most responsive to. And then at that point, then if they’re not responsive, then it’s their fault.
Kevin Kim:
Well, there’s always a limit. You can’t bend over backwards. Literally, it’s hard to keep going, keep giving that patience if they keep making the same mistake. There has to be a level of accountability, and a level of shame as Melissa puts it. Have to instill some shame.
Dennis Baranowski:
That’s the Catholic.
Kevin Kim:
But the interesting part about that is adapting. I think we still do. We did a lot of DiSC profiles here, and that kind of gives you some semblance of an idea. And then you have to build out that rapport with the person to figure it out.
Kevin Kim:
But the key kind of condition precedent for all that is there has to be two-way communication. And I sometimes find myself in a situation where it’s like I’m talking to a brick wall. “I get it. I get it. I get it.” And then they screw it up.
Kevin Kim:
Or, “I get it. I get it. I get it.” And they don’t ask any questions. “We could have resolved this if you had asked a question.” And so is that resolved through shame by Dennis, or how do you go about that?
Dennis Baranowski:
I think it’s more guilt than shame.
Kevin Kim:
Guilt. All right. Catholic guilt. Catholic shame.
Dennis Baranowski:
I think that’s more of the impetus, the problem solver. I don’t know about you. When I was growing up, I was always like, “I don’t want to disappoint my parents.” I’d rather been beat 10 times than have my mom tell me she was disappointed.
Kevin Kim:
And usually the reason. A lot of times, people who are being trained, they worry that you’re going to get mad at them. They worry it’s a dumb question. And so I try my best to establish that there’s literally no such thing as dumb questions right now, and I don’t really have that approach. But still, sometimes it doesn’t come across and it’s tough.
Dennis Baranowski:
Yeah. It’s really tough, and it’s almost reminding people. When things come up where that happens, they’re going, “Look.” I don’t know. I don’t feel like I’m an intimidating guy. I don’t feel like I’m a scary guy, but maybe to a young associate or law clerk or whatever, maybe it is.
Kevin Kim:
It’s a product of law school, too, because law schools teach them in the wrong way. They don’t teach them well. And I don’t care if you’re from Harvard or from UCLA. I don’t care. They teach them the wrong way. They tell them, “You don’t talk to the partner. You don’t bug them.” And it’s the opposite. You can’t succeed.
Dennis Baranowski:
Yeah. Here, you have to ask questions, and we try and instill that from the time we start interviews. And especially doing the summer clerk program. It’s constantly, “Our door is open, ask questions. Door is open, ask questions. No dumb questions.”
Dennis Baranowski:
And it’s like a repeated track, and hopefully I guess brainwashing them into going, “Okay. I need to ask questions and I need to go through this.” But when people don’t do it, it’s very difficult.
Dennis Baranowski:
And then you have to find the right opportunities to bring it up and be like, “Hey, look, I thought you said you understood this. What do you propose to fix this? We need to make sure that we have an understanding here. And I have an expectation, and here are my expectations of you.”
Dennis Baranowski:
Because also, it’s unfair for me to have an expectation on them if it’s not conveyed. And I’d say, “What are your expectations for me? What can I do and what do you feel I should be doing for you?”
Dennis Baranowski:
And then I leave it pretty organic. And it’s like, “Look, I’m here for you. Whatever you need. Do you want me to sit on phone calls with you? I’ll sit on phone calls with you. What is going to be the thing that gets you to where I need you to be?”
Kevin Kim:
And so there’s that level of accommodation. You’re asking them to communicate, but you’re also going to accommodate their needs in being trained.
Dennis Baranowski:
Yeah. Within reason.
Kevin Kim:
Of course. You’re not picking up their laundry. Cool. All right. Let’s get into some of these questions from our clients now, because these are some really… And they’re technical, which is very good. This first question comes from Warren Silverberg at SDC capital. Shout out to Warren.
Dennis Baranowski:
Hey, Warren.
Kevin Kim:
Thank you very much for the question, Warren. “What is the most serious error lenders have made in documenting their transactions?” And it can be based on real world experience or just theoretically.
Dennis Baranowski:
The most serious error.
Kevin Kim:
For me, it’s not using Geraci.
Dennis Baranowski:
Oddly enough, it’s not getting proper representation and not understanding the documents that they’re using, especially if they aren’t using somebody that-
Kevin Kim:
Fannie Freddie docs just don’t cut it.
Dennis Baranowski:
Well, there’s some that are worse out there. But I’ve seen situations where the clients come, and it doesn’t identify when payments are due, or the note doesn’t show the rate. I’m going [crosstalk 00:38:30]-
Kevin Kim:
This load is for free.
Dennis Baranowski:
Pretty much, and you never have to pay it back. But I think that’s really probably the biggest mistake that clients-
Kevin Kim:
They think they can go forward with a two page California realtors version of a form promissory note, basically, right?
Dennis Baranowski:
Yeah. And some of them, sometimes it is sufficient, but they have to understand what the basics are to actually make it enforceable. Because I’ve also seen deeds of trust or mortgages that don’t give them the ability to foreclose.
Kevin Kim:
Wow. The point of the document is to allow you to foreclose on your collateral. [inaudible 00:39:18] document.
Dennis Baranowski:
There’s been some wild stuff that’s really come out.
Kevin Kim:
Let’s get into that. Okay. Real life examples. What was the worst one? Was it that? Is it that they literally could not foreclose?
Dennis Baranowski:
Yeah. That was probably the absolute worst one.
Kevin Kim:
You saw a deed of trust that said… It didn’t talk about foreclosure rights or it said, “You cannot foreclose?”
Dennis Baranowski:
Actually, to be more specific, it was actually a mortgage. There’s certain states where you have to give the power of sale within the mortgage. And it identified the property, it said it was being granted as a mortgage to the lender, and then nothing.
Kevin Kim:
No right of sale.
Dennis Baranowski:
No event of default, no remedies. I don’t know if you’ve seen the short form deeds of trust, where it refers to a recorded document that has all those terms in it.
Dennis Baranowski:
But still, maybe on its face you don’t see it, but it refers you somewhere else. But these ones just had nothing. I’m going, “How are you going to realize on this collateral? Is it just going to happen magically?”
Kevin Kim:
It’s cutting corners, but cutting corners in the most fundamental of ways. There are certain things you just cannot bypass. Oh, God.
Dennis Baranowski:
Absolutely. Yeah. It really comes from a lack of understanding, and it’s from a legal standpoint because people know their business. But when it comes to the legal side and enforcing what needs to be done in their business, until you’ve actually walked through it.
Dennis Baranowski:
Sometimes I think it can be a pretty intimidating and kind of mysterious thing. And to give you an example, I know Nema when he was in here and did the cast with you, he had mentioned he didn’t know what a deed of trust was. It’s kind of that idea.
Kevin Kim:
Nema should know these things.
Dennis Baranowski:
You figure you have somebody that went to law school and this is kind of what his livelihood is going to be, didn’t know. And I think a lot of people, you have a lot of trust in the things that are being given to you. But if you don’t read and understand everything that’s in it, then you may be missing something.
Dennis Baranowski:
And that’s why honestly, I love it when our clients take the time to read our 120 page doc set or whatever it might be in that instance. I love it when they read it from cover to end, because it shows that they’re taking the time to understand what’s going on.
Dennis Baranowski:
And I always give time to answer to those questions, because it’s important to me. Because I feel like how are they going to make an informed decision, and understand what their rights are and what they can do, if they don’t know what’s in the documents?
Kevin Kim:
Well, thankfully, there’s been a lot of standardization and commoditization in the space, where with Wall Street coming on board, where they’re not going to accept the garbage kind of documentation anymore. And there’s been some you standardization to that.
Kevin Kim:
But even then, I think the floor, what they’ll accept is pretty thin and that may not necessarily protect the person. Let’s go back to my point. You’re not using Geraci. Another question here from Catherine at Builders Capital. Shout out to Catherine. You’re the best.
Dennis Baranowski:
Hey, Catherine.
Kevin Kim:
She asks the question, “What state are the hardest to lend in from a private lender standpoint?”
Dennis Baranowski:
Tennessee.
Kevin Kim:
Interesting. Not commonly chosen. I know why, but not commonly chosen. But why?
Dennis Baranowski:
Because their usury laws are just ridiculous.
Kevin Kim:
It’s prime plus, right?
Dennis Baranowski:
Three or something. I think right now, I think usury is anything over 6% or 7%. And honestly, in the private lending industry, nobody does that. Maybe a bank could fit that, but those user laws aren’t really… The banks are typically exempt from them anyway.
Kevin Kim:
There is a way around that, so give Dennis a call.
Dennis Baranowski:
Yeah. We can address that. Another state that’s difficult is actually, especially from a licensing perspective of trying to go into another state without a license, is Nevada. Nevada has gone through multiple iterations of what they’ve allowed.
Kevin Kim:
Yeah. They just changed their laws.
Dennis Baranowski:
Back in the day when I started, you used to be able to just send a letter to the department of… Oh, God. In Nevada. I can’t remember.
Kevin Kim:
Financial institution. Yeah.
Dennis Baranowski:
Financial. And so you could send in a letter saying, “We don’t have an office here. We don’t solicit your borrowers.” There was three of them. And if you don’t do these three things-
Kevin Kim:
“We don’t care.”
Dennis Baranowski:
They would send you a letter saying, “You’re fine. You’re cool.” I think the last time-
Kevin Kim:
This is pre Dodd-Frank, pre crash.
Dennis Baranowski:
Pre Dodd-Frank, pre crash. I remember, I feel like I faxed it and got a fax letter back. It wasn’t some draconian process, where it’d take three months.
Kevin Kim:
They have a similar exemption, but it’s the most complicated thing you’ve ever seen in you life, and they want you to violate the interstate commerce clause, basically. I don’t understand it. But back then, it was that easy. Now?
Dennis Baranowski:
Now, it’s a nightmare. And trying to figure out, when we read the codes, they have sections that are kind of contradictory.
Kevin Kim:
Kind of? Geez, man. And what’s funny is the local operators, a lot of them don’t follow the rules and they get away with it, because they’re local operators.
Dennis Baranowski:
Right. Yeah. And the thing is, and I understand. Nevada was a state level of model of the Inland Empire. There’s this giant boom, tons of building, everybody was coming in and bringing money. But as soon as the crash happened, then property values plummeted.
Kevin Kim:
They got hit hard.
Dennis Baranowski:
And so you had empty houses, you had half finished projects, tons of foreclosures. And that doesn’t work well for any economy. And so just unlike the county of San Bernardino, who can’t really enact their own laws to make it more difficult for somebody to lend in San Bernardino.
Dennis Baranowski:
The state of Nevada just had this crazy knee jerk reaction, and went from, “Yeah, go ahead and fax us a letter saying that you don’t do these three things. And we’ll send you something back right away.” To where they’re at right now of pretty much if you are any type of established lender, and you want to make loans in their state, you need to have a license.
Kevin Kim:
And they’ve gone so far. At least the way we read the code, it’s not just any… Even investors who do this as kind of a hobby, you need to be licensed there. There’s no wholesale exemption.
Kevin Kim:
But the funniest thing is, for the guys who’ve been set up there for 10 years now, I know for a fact that they don’t necessarily tell the rules. And they somehow get through all of it.
Kevin Kim:
I think the Nevada regulator likes to pick and choose who they go after. And it’s unfortunate, because the market is growing significantly and it’s very hard to lend in the state.
Dennis Baranowski:
Yeah. And there are exceptions, but it’s really, they’re very narrowly tailored and it’s definitely fact driven. And so what applies for a lender in one instance, you change one small little thing the next time and it totally doesn’t apply.
Kevin Kim:
How about the best state?
Dennis Baranowski:
The best state? Oh, gosh. There are a lot of those.
Kevin Kim:
Give me your top three. Give me your top three.
Dennis Baranowski:
Because you pretty much look at any state that really doesn’t have any… No usury limitations and no licensing requirements. And so there’s a lot that are like that. The majority. Texas.
Kevin Kim:
I like Texas. I really like Texas.
Dennis Baranowski:
Texas is good as long as you’re staying away from residential.
Kevin Kim:
Right The homestead rule.
Dennis Baranowski:
Because they have their homestead stuff there.
Kevin Kim:
But you can foreclose in 30 days. I was in Texas for these. I reported through there and they me jealous. You can go after your property in 30 days in Texas, and that’s slow. We can go faster if we want to. It’s crazy. But besides [crosstalk 00:47:10]-
Dennis Baranowski:
Illinois is good. Interesting. Oklahoma. It’s funny [crosstalk 00:47:15] Texas.
Kevin Kim:
And what’s interesting now is the market is expanding into these states. No one used to lend in these states. Illinois was basically just Chicagoland, handful of lenders who operate in Chicagoland.
Kevin Kim:
Renovo. Shout out to Kevin who did an episode with us. He was telling me they dominate most of Chicagoland, but the rest of the state isn’t a priority. They’re growing now. But these states weren’t looked at back in ’16. Now, you’re seeing deals in Oklahoma, you’re seeing deals in Illinois.
Dennis Baranowski:
Yeah, we have them. Ohio is another pretty good one. Michigan.
Kevin Kim:
But these are judicial states though, so from a foreclosure standpoint-
Dennis Baranowski:
Yeah. From a foreclosure standpoint, they’re not great. Ohio, you can actually pledge a judgment.
Kevin Kim:
Nice.
Dennis Baranowski:
You don’t get a judgment to foreclose, but you get a money judgment and you can really start turning the screws. And it does speed up the process overall if you’re able to do it.
Dennis Baranowski:
There’s specific requirements that are involved with being able to do that. But it definitely puts kind of a nice feather in the cap or a quiver in the arrow for lenders, in trying to convince borrowers that they either need to perform.
Dennis Baranowski:
Or maybe even take some type of alternative action, with respect to maybe a deed in lieu or something. Just because they don’t want to have that judgment out there.
Kevin Kim:
I wish they had that in the other judicial states, man. That makes it a lot easier. Here’s another question from Paul Carter at Cocotra Capital, our one of our oldest clients.
Kevin Kim:
And Paul actually volunteered. He said, “I got to ask these questions.” I asked Adam and Tony, and Paul was like, “No, no, no. I got to ask. I got to ask. Dennis, besides credit reports, what tools and services would you use to check on a borrower’s background?”
Dennis Baranowski:
It’s going to depend, I guess. If they’re an individual borrower, you’re kind of limited in what you’re looking at, and credit report is going to really tell you a lot of what you’re doing.
Dennis Baranowski:
But if you’re expanding and if it’s a smaller loan, I wouldn’t really go necessarily beyond that. But if you’re making something of a more substantial value, and where you’re actually really underwriting the borrower, and it’s not asset based. It’s going to be borrower based.
Dennis Baranowski:
It’s going to be where you’re looking at it, it’s an income-producing property, for instance. And you want to make sure that this guy isn’t shady. Not going to pocket your money and not pay your loan, forcing you to have to take some type of action. Background checks can be helpful, but I don’t necessarily think you have to do it in 100% of your transactions. I think it’s really-
Kevin Kim:
That can be cost prohibitive.
Dennis Baranowski:
Yeah, absolutely. I think it’s transaction appropriate. And obviously, if you’re dealing with four nationals, you have to make sure you perform your due diligence to look back at that as well.
Kevin Kim:
Are there any tools? Because he’s asking, I also asked about Westlaw, PeopleMap, or Lexis’s version. Is there any kind of tool that you recommend?
Dennis Baranowski:
From an industry standpoint, and especially if you’re looking at going to Wall Street with your loans and anything, Lexis is really what’s recognized as kind of the standard.
Kevin Kim:
Good to know.
Dennis Baranowski:
And so if you deviate from that, you tend to run into more trouble. I had done it for a client. We didn’t have Lexis at the time and I was like, “Look, here’s what we have.”
Dennis Baranowski:
And then I ended up working with the bank. They’re the rehab lender, and kind of worked with them as far as what they would find acceptable. And so I had to go through, and I had to show all the data.
Dennis Baranowski:
I put together this big declaration saying, “These are the databases that Westlaw relies on. And I swear that this is all the stuff I went through, and here’s what I found.”
Kevin Kim:
[crosstalk 00:51:05] Lexis.
Dennis Baranowski:
Absolutely. And there isn’t necessarily anything… It’s easier to read, I think.
Kevin Kim:
Yeah. It’s what they’re used to. Check the box.
Dennis Baranowski:
That’s what they’re used to. Yeah. And anyone dealing with Wall Street knows that sometimes, it’s more of a, “This is what’s always been done,” than a, “This is what actually makes the most sense.”
Kevin Kim:
From a background check standpoint and a borrower culpability or bad borrower or bad actor kind of situation. You’ve seen all types of deals, and we’ve been around.
Kevin Kim:
You’ve been with us now almost 10 years and we’ve seen the hairy deals, we’ve seen the [inaudible 00:51:41] deals. Give us kind of an episode of what was a really bad actor kind of deal for you?
Dennis Baranowski:
And actually, this is one that snuck by. And this was actually a bad actor that effectively did what he needed to.
Kevin Kim:
And he didn’t get caught.
Dennis Baranowski:
[crosstalk 00:51:57] did what he needed to. He got caught.
Kevin Kim:
He got caught.
Dennis Baranowski:
Eventually, but it took a long time. And it’s the thing that I have noticed and the thing that scares me the most when we’re reviewing things, documents for clients. And it’s looking at the entity documents. The guy hijacked an LLC.
Kevin Kim:
Give us a little more color. What happened/
Dennis Baranowski:
A client of ours was making a loan that was secured by a couple different pieces of land that were free and clear in Newport. They were zoned residential, and I think they actually had entitlements and stuff.
Dennis Baranowski:
They were ready to just start billing up. And this guy went to our client and said, “Okay. Yeah. I have these properties.” Our client lent the money as part of our typical process, we asked for entity docs.
Dennis Baranowski:
He produced the articles of organization, which you can actually get just from the secretary of state website. He produced an operating agreement and he produced a statement of information, the most recent one that was filed with the secretary of state.
Dennis Baranowski:
And we ended up lending money. And because it was free and clear, there was a cash out on this. And what ended up happening was this dude hijacked the LLC. Somehow, he was familiar with this LLC and the people that actually owned it, and owned this property that was free and clear. He went in-
Kevin Kim:
It’s almost deed fraud almost. Title fraud.
Dennis Baranowski:
Sort of.
Kevin Kim:
Corporate title fraud almost. He had manufactured that he was the owner of the LLC.
Dennis Baranowski:
Yeah. What he did is he filed a new statement of information, identifying himself as the president, CEO, manager of the LLC. And produced an operating agreement, backdated it, which I’ll tell you one thing.
Dennis Baranowski:
People, when they commit fraud, a lot of times you’ll see they’ll date it currently. And they’ll, “This is the operating agreement that’s been around all the time.” But then when you look at the articles of organization, it’s seven years ago. You go, “Why is this date? What’s the difference between seven years?”
Kevin Kim:
Happened during those seven years?
Dennis Baranowski:
Yeah. Is this the original one? And so people don’t think about that, but this guy had everything together. We performed our due diligence. The client performed their due diligence, and there was nothing that we had brought to us that would indicate that this guy was anything other than legit.
Kevin Kim:
How’d he get caught?
Dennis Baranowski:
The owners went I think to try and sell the property, or you actually bill
Kevin Kim:
And discovered the lien against it.
Dennis Baranowski:
And discovered the lien. Yeah. It was a headache for our client. Title kicked in and titled defended, but still, those are rough things. It shows that sometimes you can do and perform all you due diligence.
Kevin Kim:
You can do everything right.
Dennis Baranowski:
But there’s still an element of risk involved in anything that you do. And that’s not to try and scare anybody from doing anything, but I think it’s also with the idea of understanding, this is what you do.
Dennis Baranowski:
There’s a reward and a benefit you get out of this, but this is why also you need to make sure it’s important to cross your Ts and dot your Is. Because even in situations where you do everything perfectly, there still can be an issue.
Kevin Kim:
I’ve heard of people hacking the recording system and taking title to your home and stuff like that, or getting access to your home title. And you hear about vendors that protect that.
Kevin Kim:
But for corporations and LLCs, you can’t really stop them from doing that unless you’re watching. You got to pay attention. And thankfully, at least in California and in most states, it’s public record now. You can pull that. You search your own entity name, you can see it right there.
Kevin Kim:
But I personally have a couple corporations. I check that once every other month, just because after I heard about this or hear something like this, that’s so scary. And it’s easy. You just go online and search it.
Dennis Baranowski:
Yeah. It’s super easy.
Kevin Kim:
You can see anything that’s been filed. And I know I didn’t file that. That’s not my signature. That’s pretty easy. Another question we get a lot, and actually this is more of a question in general that I wanted to include.
Kevin Kim:
Right now, the private lending industry, both residential and commercial, is on fire. We’re seeing mass standardization, mass commoditization of capital. There’s unlimited capital right now at very, very low cost of capital.
Kevin Kim:
What do you think is the biggest challenge this industry is going to face going forward? Because we kind of had a little bit of a holy crap moment last year during COVID.
Kevin Kim:
But over the next few years, we’re about to head into… We’re well over 10 years into this cycle and we’re going into I think year 13 now. What do you think?
Dennis Baranowski:
I think that there’s a couple different things I think that kind of concern me, or that I think that we need to make sure the industry as a whole is careful of as we move forward. One concern is just you’d mentioned there’s a lot of capital available.
Dennis Baranowski:
Which is good, because it provides… There’s competition, which from an investor standpoint and if you’re running a fund, not the greatest thing in the world.
Dennis Baranowski:
But from the standpoint of consumers and really keeping an industry on the right track, that competition is healthy. And that’s what really helps to regulate where it’s going, and to make sure that we don’t make the mistakes that we did in the past.
Dennis Baranowski:
That being said, going off of that, the fear I have is let’s say there is a lot of building that occurs. Capital is still going to be easily deployed.
Dennis Baranowski:
What’s going to happen is because if things continue to all of a sudden start moving really fast, and people want to deploy money. The tendency is you start lowering your standards and what’s required.
Kevin Kim:
Raise the bottom.
Dennis Baranowski:
Yeah. And that’s what happened back in 2004, 2005.
Kevin Kim:
No doc, no income. I’m starting to see those these days. No docs, no statements, nothing. I’m starting to see it.
Dennis Baranowski:
And I worked a lot more with credit guys than necessarily the sales guys on the side, but that’s the thing that scares me. I know that everybody wants to drive sales, but from a credit standpoint it’s terrifying.
Dennis Baranowski:
I think that really, the lenders and the clients that I worked with back then, and even the clients that we have now. The ones that did really well and were able to survive through from 2005, until things really…
Dennis Baranowski:
The private lending industry rebounded a little bit earlier because their capital was needed. They really bailed out the economy. I think you guys did a great job and did a service to us. And I lost my train of thought.
Kevin Kim:
It’s okay. It’s okay.
Dennis Baranowski:
That’s what happens.
Kevin Kim:
We’re talking about race to the bottom though. You’re starting to see a little bit of that. You’re starting to see a lot more aggressive credit guidelines.
Kevin Kim:
COVID was a good kind of gut check a little bit. A lot of guys tightened up a little bit. They said, “Okay. We’re going to start asking for credit. We’re going to start reducing our credit risk. We’re going to start changing our geographies a little bit. We don’t know the MSAs. We’re going to pull out of them.”
Kevin Kim:
But now, I think that loosened up. I think things started loosening up August. Now, we’re August, again. It’s a year later. A little more than a year later. And I’m seeing the same pattern.
Dennis Baranowski:
Yeah. Ad it’s going to get-
Kevin Kim:
And the investors are okay with it. The institutions are okay with it, it seems.
Dennis Baranowski:
Yeah. That’s a little frightening because it’s all the same greed cycle of what drove it. And it’s easy to forgive things and overlook things when it doesn’t seem like anything is going wrong.
Dennis Baranowski:
Even if things went sideways, you’re like, “I have plenty of equity in this property. I’ll just foreclose. Who cares?” But then at some point in time, it only can grow like that for so long.
Kevin Kim:
And going back to the very first episode we did of the show, when Steve Pollack said he saw it twice. He said, “When values continue to climb record numbers for too many years, we got a problem.”
Dennis Baranowski:
Yeah. Absolutely.
Kevin Kim:
We’re seeing that right now.
Dennis Baranowski:
Yeah. And that’s combined with very low interest rates. They just lowered them again.
Kevin Kim:
That’s just gasoline on the fire.
Dennis Baranowski:
Yeah. And then we’re going to, and I don’t know when this has happened, but I anticipate that we’ve all these foreclosure moratoriums. Once that gets lifted and banks are able to start moving forward with foreclosures again, especially on the GSE products. When landlords are able to start evicting tenants. When all those restrictions get lifted off, we’re going to see there’s going to be a lot more inventory.
Kevin Kim:
I hope so. I hope so. My concern is that Blackstone is going to buy them all up. Gobble them all up. You got that giant mandate.
Dennis Baranowski:
It’s really going to be difficult, depending on how that goes. Because what happened, the combination of what helps drive prices up is if people start refinancing and they start going, “Hey, I have all this value in my real property.”
Dennis Baranowski:
Not realizing the value in your property, you should treat it as, “Okay. It’s what it is. If I were to sell it today, that’s really what I’m going to get out of it.” And not with the idea of, “I’m going to continue to pull out of it.”
Dennis Baranowski:
And especially to buy consumable goods. If you were going to take money out to invest it in your business or to do something like that, absolutely. Because interest rates are so low right now, your return on money is going to be awesome.
Kevin Kim:
And the consumers side, you’re starting to see significant risk being taken, because CFPB relaxed their guidelines a few years ago. The non QM market, I feel like non QM today is close to where subprime was. But they still had the ATR obligation, so it’s a little bit less risky.
Kevin Kim:
But the other day, I was streaming through LinkedIn, I saw a HELOC credit card. And I was like, “You got to be kidding me.” They’re back. They’re back. Remember the HELOCs?
Dennis Baranowski:
Yes.
Kevin Kim:
They’re back. And so that’s interesting to me. We’re starting to see similar patterns, but with a different market, with different market conditions. Because rates were not this low back then.
Dennis Baranowski:
No, not even close.
Kevin Kim:
Right. It’s interesting to see where we’re going to head. Let’s talk about commercial real quick, because you do a lot of work on the commercial side. And you and I have talked about this about three or four years ago, where we see the next recession coming.
Kevin Kim:
And I thought it was going to be another ’70s Carter era kind of recession. And I don’t mean to my own horn, but gas is really expensive right now. But where do you see it? Is there risk in commercial right now? Because COVID kind of hit pretty hard, but it’s making a comeback.
Dennis Baranowski:
Commercial, depending on the sector that you’re in, there’s certain discrepancy. Pretty wide discrepancy I think in certain areas, and I think areas that are presenting a greater risk.
Kevin Kim:
Our clients who are doing bridge stuff, right?
Dennis Baranowski:
Yeah. The bridge stuff, I think if you’re not in it for a long haul, I don’t see anybody necessarily in the next one to two years. If you’re making 12 to 24 month loans especially, you’re probably going to be out of it before anything substantial really were to happen.
Dennis Baranowski:
But when you’re underwriting it, you definitely need to take into account. And again, in certain industries, don’t get super aggressive on your valuation of the properties.
Kevin Kim:
Office or some types of retail are struggling.
Dennis Baranowski:
Absolutely. Yeah. Because between the stay at home and work from home, and a lot of big companies are moving towards that direction. And people are seeing it still works.
Kevin Kim:
What are you seeing from a trend standpoint on that side? Because in resi in the private lending industry, we’re seeing a pretty consistent heading towards commoditization and the trend toward Wall Street. But on the commercial side, that’s always been available to them. The asset class, the appetite has changed, hasn’t it? Talk about that real quick.
Dennis Baranowski:
And right now, I’m still trying to figure out exactly what that… Honestly, it’s-
Kevin Kim:
A smattering you’re starting to see.
Dennis Baranowski:
Yeah. Still, I haven’t been able to fully get something going like, “Yeah. This is definitely where I see them going.” [crosstalk 01:04:10]-
Kevin Kim:
You’re our resident cannabis expert. Cannabis is still doing just fine, right?
Dennis Baranowski:
Yeah. Cannabis is fine, and it will do fine for quite some time. Where we’re going to end up seeing the big event for the cannabis industry is going to be when it becomes legal nationally.
Kevin Kim:
We’re almost there.
Dennis Baranowski:
And as soon as that happens, I think probably within the next two years.
Kevin Kim:
Right. But that drives industrial, that drives agricultural raw land.
Dennis Baranowski:
Absolutely.
Kevin Kim:
Those types of asset classes seem to be doing just fine. Industrial seems to be on fire.
Dennis Baranowski:
Absolutely. You figure industrial, between you have cannabis and then you also have just warehouses and other things, because everything is shipping.
Kevin Kim:
E-commerce.
Dennis Baranowski:
Amazon. Yeah. E-commerce is huge, so you have to have that space and so it’s just blowing up. Which like you had mentioned before, you also see on the other end of it, retail is really suffering.
Kevin Kim:
Just from what we’re seeing as an organization, we’re not seeing as much what we used to on the retail.
Dennis Baranowski:
Absolutely not. Yeah. And usually, if they are coming in, it’s kind of in well established areas that aren’t necessarily… I was seeing a lot more big box, where they had a big box store anchoring it.
Kevin Kim:
A bank loan then. [inaudible 01:05:20].
Dennis Baranowski:
Yeah. And even just with clients that owned, that were making loans just to an individual that owned a strip mall or whatever. There wasn’t necessarily a bank loan. They were private lenders.
Dennis Baranowski:
They had maybe a larger retailer that was in there. And because so many of them are closing, and because they’re not doing well, the draw of those stores now, everything else around it’s suffering.
Dennis Baranowski:
And so there’s definitely a trend away from it. I think a lot of it is they’re repurposing a lot of things, and I think probably… What I have been seeing a little bit more is going mixed use again, with residential and retail together.
Kevin Kim:
Apartments over storefronts.
Dennis Baranowski:
Yeah. Or even just within the same really close vicinity, and so it’s not true mixed use but-
Kevin Kim:
But close enough.
Dennis Baranowski:
… there’s a combined use, I suppose would be the right way to put it, where they’re really driving it, providing certain level service and products to the individuals [crosstalk 01:06:28]-
Kevin Kim:
Yeah. We have a couple developments where I live. It’s kind of part of the master plan. You got this massive master plan residential community, and as part of it you got a Whole Foods, a series of restaurants, a couple bars. It’s all part of it.
Kevin Kim:
And that seems to be the play these days, as opposed to a strip mall, as opposed to a shopping center. And it makes me wonder where that’s going to head. It hasn’t picked back up from a transactional standpoint for us. We haven’t seen as much volume as we used to.
Dennis Baranowski:
Yeah. Not surprising. And then even on the same end on that with respect to office space. But even before, and it depends on region, but especially in like Southern California. We had a glut of office space anyway.
Kevin Kim:
And they’re building more. Irvine Company is building more right here. It’s crazy.
Dennis Baranowski:
Yeah. You drive by and you see they’re putting up brand new office buildings right next to buildings that have been there, that are a little bit older. But they’re probably 30% occupied. And you’re going, “Why are you building right next to this?”
Kevin Kim:
Who knows? Who knows?
Dennis Baranowski:
They’re not even pulling in enough rent to pay their mortgage.
Kevin Kim:
And you can’t convert office to residential that easily. I was seeing a lot of hotel to residential conversions, but you can’t really convert office. Office is kind a set in place. You can’t turn into industrial. It’s a tower.
Kevin Kim:
It’s an interesting time to be when it comes to office. Well, I want to close with a fun question, because we got one fun question. Thank you very much, Shawna. I was hoping that other folks would give us some more fun questions.
Dennis Baranowski:
Thanks, Shawna.
Kevin Kim:
But we got one fun question from Shawna Phelan at SDC capital. “If Dennis could be any Marvel superhero, which one would he be?”
Dennis Baranowski:
Any Marvel superhero.
Kevin Kim:
Any Marvel in the entire Marvel universe. Not the MCU, because the MCU is very narrow.
Dennis Baranowski:
Oh, boy. Interestingly, I probably would still stick in the MCU. Gosh.
Kevin Kim:
You’re on the spot. You’re on the spot. You got to do it.
Dennis Baranowski:
What’s the time? [inaudible 01:08:24] on the spot.
Kevin Kim:
You got to pick one.
Dennis Baranowski:
And I can only pick one. Oh, gosh. I think it probably would be… I’m debating right now, going through my mind. I think it would probably be between Dr Strange, just because the whole manipulation of time and all that other stuff. I’d have a lot of fun with that.
Kevin Kim:
I need more time. Yeah. Oh, man. I could use that.
Dennis Baranowski:
I could just mess with people.
Kevin Kim:
Make them repeat themselves over and over again.
Dennis Baranowski:
They’re just moving stuff around. They’re like, “Wait, what happened here?”
Kevin Kim:
The refillable beer with Thor, that was pretty cool. I could use that.
Dennis Baranowski:
That or Captain America. I just always loved Captain America since I was a little kid.
Kevin Kim:
Always good. Always a good choice, a solid choice. New Captain America now. I was watching the [crosstalk 01:09:07]-
Dennis Baranowski:
Falcon and Winter Soldier.
Kevin Kim:
Falcon and Winter Soldier. Yeah. Now, he’s Captain America. There you go. All right. Well, you know what? I think that’s all we have today for this episode. Thank you, Dennis, for joining us.
Dennis Baranowski:
Thank you for having me, Kevin.
Kevin Kim:
And this was really good. We have fun here. And look out for more live content from us here at Lender Lounge with Kevin Kim, and look out for some swag coming your way. We’re coming out with hats. If you want one, order one. Let us know. This is Kevin Kim from Lender Lounge with Kevin Kim signing off. Thank you very much.
Kevin Kim:
Thanks for listening to Lender Lounge with Kevin Kim. I hope you enjoyed this episode as much as I did. If you did enjoy, please leave us a five star review on your podcast platform, and be sure to follow our show to be notified of new episodes.
Kevin Kim:
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