If you ever attend networking events in the private money lending space, then you may have met Bobby Montagne, founder and CEO of Walnut Street Finance (WSF) and a prominent player in the industry. Very few lenders understand property development the way he does—he literally lives and breathes real estate. Bobby has a storied career that originated with a real estate investment trust company and is now in its prime with Walnut Street Finance, a hard money private lending firm that mentors its borrowers to achieve success with every project.

This Virginia-based company has a unique advantage—for 20 years it was a builder, not a funder. Bobby admits he is more comfortable in blue jeans and boots because he was the one on job sites overseeing residential and commercial property development. Walnut Street Finance has a ground-up understanding of construction, land, entitlement, processing, architecture, and building. Having dirtied their own boots, they approach each loan as a partnership. They not only want their borrowers to prosper, they have a commitment to their fund investors as well. Walnut Street Finance is built on knowledge and a deep focus on quality—from investments to projects to employees. This trifecta is the key to their success.

Montagne sat down with Originate Report to discuss what it took to get Walnut Street where it is today, all while managing a volatile market and a healthy work-life balance.

Originate Report (OR): Let’s start at the beginning—how did you get into real estate?

Bobby Montagne (BM): I grew up in northern Virginia, where real estate development was occurring very rapidly. Farms were being plowed under, roads widened, and housing developments going up all over the place. I would ride my dirt bike on construction sites, and was just always around them. This initial exposure may have inspired my draw to real estate development.

After college, my job choices were in a suit or construction boots. I chose the latter, with the first one on a real estate development site called Ashburn Village. The plan was to build 5,000 houses over 10 years. They hired me as the finance proforma guy, where I digitized the firm’s finances using what was then a new software program called Lotus 123 (it was the late ‘80s and computers were just getting introduced in the workforce). I was there for four years.

OR: So, then how did you get into the hard money space?

BM: For the first 10 years of my career, I worked for other real estate related companies, soaking up as much knowledge as I could. In the late ’90s, I decided to branch off, and started Walnut Street building single family detached houses and townhouses, as well as commercial projects, in and around Washington, DC. This is where our firm developed its appreciation for our future borrowers. We did everything from acquiring and zoning to materials sourcing and construction. During this big growth period of a little under 10 years, we went from $1 million in revenue to around $250 million in revenue.

And then we noticed a change in the market, when sales began to slow. Around 2008, we unloaded the last of our real estate, turned it into cash, and started looking for opportunities to buy. The first projects were 100-year-old row houses in Washington, DC, which we wanted to fix and flip. And it worked! This went on for about four years, and eventually we had excess capital. Our skills were now honed across almost all aspects of real estate, and since we had the money to do it, we could grant loans to our former competition. The first eight loans were made on a yellow pad and a good closing lawyer.

OR: As an entrepreneur, what was it like getting a company off the ground and what challenges did you face in the process?

BM: I’ve learned that you go through very clear stages when building a company. The first stage is about juggling revenue generation with finding the right markets and sourcing quality projects that will be viable. Eight out of ten young businesses fail at this point. So, if you make it through, by definition you’re already in the top 20%.

The next stage is a big focus on the sell. At Walnut Street, this happened a little over two years ago when our operation was not big or complex, so we were very hands-on with every aspect of the business. We truly benefitted from being really close to our clients. We were learning the business together, essentially. Their success was our success. No matter if they were first-time flippers or experienced renovators, we knew that by helping them with every aspect of their projects, they’d be able to make a better sale. That means they could become repeat clients. Win-win for us, them, and our investors, in the long-run. And what a boon this was for us all—WSF grew 250% during this stage.

The third stage is where things become a little more complicated. This is where we are now. WSF has a bigger team, all of whom are super dedicated but much more specialized. Every team member cannot wear multiple hats all of the time, otherwise quality will falter. We are making adjustments and putting processes and systems into place so we can better serve clients and fund investors. We have slowed our origination growth rate a bit and, when optimally positioned, will scale even larger. The next three years are going to be an exciting time for WSF.

OR: What lies ahead for Walnut Street Finance?

BM: As we’ve grown, we’ve definitely put together departments that are solid—marketing is getting the word out in more of our target markets, sales is generating some quality loans, and finance and accounting have developed excellent systems for processing loans and returns for our investors. We take underwriting really seriously at WSF to be sure that we are not taking unnecessary risks. I think you might see that the recurring theme here is quality. We care about our team, our borrowers and our investors and that can only be supported with quality service and quality projects. So, what lies ahead for us? Smart growth in more tertiary markets where we can deliver top-tier service for great projects that will guarantee ROI.

OR: Tell us a little more about the people who make up Walnut Street Finance?[SP1] 

BM: WSF has a really stellar staff. Our first hire with the transition from construction to finance was Katia Potapov, VP of Operations. I’d have to say that we have built this company together. As the firm’s right hand, she covers customer loan onboarding and customer success and is instrumental in raising private capital. Since she has been here through all of our stages, she can seamlessly move across all departments, which keeps us on track and pointed on the road to being even better.

Byron Clark, VP of Finance, has been with us for a year and a half. He sits on the loan review committee, helping us allocate capital and approve deals. He does an outstanding job of producing company financials and being sure that our records are ship-shape, which is imperative as we grow.

Tony Zezzo, VP of Credit, manages our active portfolio and overseeing underwriting. His efforts are essential to helping clients stay on track and delivering for our fund investors.

Our most recent addition is Michele Hsu, VP of Marketing. She came to us with a tremendous amount of talent and skill in traditional and digital marketing, plus she is very talented in building a business, which means she can weigh in knowledgeably on company development and hiring decisions.

OR: What trends in the private lending industry do you think are going to play a role in the development of your company?

BM: The most prominent trend in the private loan industry right now is the size of and appetite for secondary and tertiary markets. Investing in Main and Main can be safe, but not always lucrative. By focusing much of our business on these other markets, WSF has been able to grow quite rapidly. I think as more money enters this space, underwriting discipline, credit discipline, and books and records discipline will increase and improve, which is good for the industry. Additionally, the fractured nature of these markets will begin to dissipate which is a good sign of a maturing space. For us, this means we can deliver more quality projects for clients and investors.

OR: On a more personal level, what are some of the most rewarding aspects of your position as CEO?

BM: Watching younger people grow and take accountability for their work, and really own it. I’d say that I see this with my employees and many of our clients. It doesn’t happen to everybody, but when it does and they take off with an empowered stride, it’s very rewarding. Additionally, it’s been incredible to be involved in developing a multi-decade company that is determined to be lasting. I take great pride in what our team has done together in what is actually a very short time.

OR: How does your approach to customer service differ from others in this industry?

BM: We know our customer because we are our customer. WSF never forgets where we came from. We like to think of ourselves as mentors rather than just lenders. Personally, I know what it’s like to put your last $10,000 down as a deposit on a property, praying your lender comes through for you. I’ve been in our borrowers’ shoes, as have many of our staff. And our company roots help us teach our clients on how to accomplish a great flip—how to shop around for the best deals on everything from materials to contractors, how to manage time properly on a project to maximize profits, and so much more. The difference is we really care. I’ve said it before and I’ll say it again—our clients are our partners. We want the best for them and will help them achieve their goals and dreams. Real estate is a very personal business, and we’ve built WSF on being personal.

MB: How would you describe the company culture of Walnut Street?

BM: Company culture is more important to me than company profits. I spend a lot of time thinking about how we can nurture the staff and continue our boutique enterprise feel even as we get bigger. We vet our employees carefully to be sure they’re on point and committed to their own success. Just like with our clients, if employees grow and thrive then the business grows and thrives. If they’re happy, everyone is happy. We focus on empowerment, accountability, and fun. That doesn’t mean beer taps and ping-pong tables; it means at our core we enjoy and respect one another. We want to come to work every day because we are excited to see how we can help each other be great.

OR: Being an entrepreneur can eat up a lot of time. Do you make time for yourself?

BM: Absolutely. I’ve been the principal in my own company for over 20 years, so I’ve had to manage a diligent schedule to ensure my own happiness. I have a wonderful wife and great kids, so of course I love being with them. My family is very important to me, which means I make time for them. I was the dad at all the games, coaching the games. If that meant leaving in the middle of the day for my kids and coming back on the weekend to finish a deal, I made it happen.

Sports also keep me even-keeled and it’s another thing I share with my family. I love to play golf and tennis, and recently picked up a game called pickleball. It’s like ping-pong, but you’re standing on the table. In fact, my daughter Annie and I actually competed in a mixed doubles club championship, and we killed it.

I also encourage everyone at WSF to create a good work-life balance for themselves. We try to be understanding of one another. Like I said, if they’re happy, business runs more smoothly and we are all happy.

OR: To wrap it up, let’s take a look at something that is on everyone’s mind when it comes to real estate—the inevitable economic downturn. What is WSF doing to prepare?

BM: What goes up, must come down, as they say. No one knows when the economic downturn is going to happen—not the chairman of the Federal Reserve nor the smartest economics professor at Stanford. What we do know is that we just had a good run for a long time. Before the Great Recession, the real estate market was running off the charts, fueled by easy money. The last ten years have not been on the same trajectory. Sure the market has increased, but not at the same pace.

WSF is preparing for whatever the market may bring by doing good business already. Our dedication to disciplined service demands that we underwrite respectful of our investors’ interest. Our focus on a solid portfolio in healthy markets ensures that we can protect our clients’ real estate investments. And the care we take with our clients, teaching them how to take on projects, properly manage time, and flip using smart resource allocation, can help them always turn a profit. So, as long as we keep our eye on our humble roots and the success of our partners, we’ll be just fine.