Roc360, a financial service platform for residential real estate investors, knows a thing or two about the intricacies of the often cantankerous housing market. The group’s vision is simple, yet incredibly complex: to be the most innovative, trusted, and disciplined financial services platform in the space.
At the core of Roc360, which has offices that overlook New York City’s Central Park, is a group of professionals who have been working together for over 20 years. The group’s co-founder and the chief credit officer, Eric Abramovich, sat down with Originate Report to discuss the company’s rebranding, the ins and outs of navigating the financial crises, and the impact the 2019 Novel Coronavirus has had on lending.
Abramovich, who studied finance and actuarial science at the NYU Stern School of Business, said that he has always been a “quantitatively inclined kind of person.” While in school, Eric had the opportunity to work part-time with Deutsche Bank, which served as an introduction to the “fascinating world” of finance.
“I was a finance major so it’s not like [the opportunity to work at Deutsche Bank] came completely by chance, but it felt like it,” he said. “At that time, it certainly felt that way. I got into one of the most successful groups within Deutsche Bank, an equity prop trading group. They were managing the bank’s money and they were buying and selling stocks – the strategy was quantitative equity long/short strategy.”
This strategy, he explained, involved buying one stock and selling a similar, corresponding stock and selling a similar, corresponding stock to hedge. This in turn, created a market-neutral position. All of this was transpiring while Eric was still in school, which he said often felt bizarre (being a teenager that is, surrounded by billions in capital in Midtown Manhattan.)
“I learned on the ground, at that time, the importance of bringing a data-driven mindset to the work I was doing. I was helping traders with their portfolios, doing operational work, and I learned to program as well,” he said. “I learned how to build models and program up all sorts of processes and strategies and once I graduated, that led to a full-time position with Deutsche Bank. The cool thing was that I was a young kid who was quickly trusted with hundreds of millions of dollars in capital. When I look back on that now I say to myself ‘Wow, I was just a kid, what were they thinking?’ But it was an invaluable experience for which I will forever grateful.”
Deutsche Bank was also where he met the co-founder of Roc360, Arvind Raghunathan, CEO and Maksin Stavinsky, COO. Raghunathan, who has a PhD in computer science from UC Berkeley, was Abramovich’s manager at Deutsche Bank he added that the quantitative, data-driven environment in his group was fueled by the ‘incredibly bright people working alongside him. Within a few years of working with the group, Eric had established a Tokyo office for his division and was working back and forth between Japan and London.
Although the team was doing very well at Deutsche Bank, the oft-forgot ‘quant crisis of 2007,’ paired with the housing crash led to the next chapter in the foundation of Roc Capital.
“Not even two years after quant quake came the housing crash,” he said. “Essentially, what happened was the banks were no longer allowed to take massive risks and what spun out of that was Roc Capital, or what I like to call Roc 1.0. In 2009, when we first launched, we were the world’s largest hedge fund launch of that year, raising $1.3 billion in an acutely challenging fund-raising environment. We were able to do that while the world was going to hell, and partly due to our track-record of risk-control and preservation of investor capital.”
Initially, Abramovich said Roc 1.0 had tremendous success and raised large amounts of capital, but in the post-crash quantitative easing fueled environment Roc was growing up in, it was difficult for most quantitative strategies to maintain returns. This led the partners to return investor capital with most investors exiting with flattish or positive returns and subsequently to a period of self-reflection and transformation within the core group, which materialized into what Abramovich proudly refers as Roc 2.0.’
“While we were working on Roc 1.0, Maksim and I started making investments in fix-and—flip properties. We came into understand how our borrowers go about their business today,” he said. “We were investing with our own money – buying distressed properties and flipping them – we were doing that on the side, and that was making a lot of money while returns of the equity trading strategies were diminishing. At some point, I think you realize that if something is not working, it must be time to move on. We then formed Roc Capital 2.0, and although it retained a similar name to the original company, we were doing completely different things and it was actually an entirely new company.”
The way the opportunity for Roc 2.0 was presented to Abramovich and his partners came by the way of reviewing portfolios of non-performing loans. In 2012, in the direct aftermath of the housing bubble, Abramovich said that there was still a considerable amount of distressed inventory; this exploration led them to what is referred to as the private lending industry today but was then called hard money lending and was often viewed through a negative lens at the time.
“When I first started calling these professionals, I had no idea of the scale of hard money lending, but I was soon acquainted with some lenders that were originating over $100 million in loans per year and yet these groups were still relatively unsophisticated on the capital raise,” he said. “The investors were using borrowed funds and buying all of the inventory that was stuck in the aftermath of the crash. They bought the properties to fix them up and resell them. What I thought at the time was ‘how big could this opportunity be if I could aggregate 100 of these lenders?’
Since this is initial aggregation, Abramovich said that the platform has since expanded to over 400 private lenders in the Roc family. An important ingredient in this continued expansion, he added, was Roc’s status as an early adaptor to the post-crash finance world.
“At that time, no one else was really getting involved in lending against repurposing of distressed property in an institutional way,” he reiterated. “Many people still viewed the loans as risky and there was a negative connotation attached to ‘fix-nflip.’ The housing market was viewed as risky as well, and when I started going to conferences there was hardly any competition at all.”
Even though Roc was one of the only players in the space at that time, Abramovich added that the initial mindset – that of perseverance, due-diligence, risk mitigation, and providing value for customers – is something that continues to this day. He also said that some groups tend to get caught up in their status as a ‘first mover’ in any given space, and that initial confidence creates an atmosphere of cockiness that reduces long-term brand value. At Roc, Eric said the group continues to offer the best product at the most competitive rates.
At the core of Roc’s values, he said, lies a data-driven and risk-minded cognizance. In addition to the early adoption of market trends, he added that a quantitative background has bolstered Roc360’s bottom line. The entire Roc team takes great pride in managing risk and making sure that leverage stays low.
It comes as no surprise that 2020 has been difficult for business owners of every stripe; after all, the 2019 Novel Coronavirus has left millions unemployed. Though Roc360 had to go through an initial adjustment period, Abramovich said that he is proud of his team’s ability to adapt to a less-than-desirable atmosphere.
“The coronavirus is unique in terms of a financial crisis,” he said. “Every crisis has its own unique features, and we knew that some sort of crisis was coming. Did we predict a pandemic would spread across the world? No, not at all. That being said, we did predict that a crisis would happen, absolutely. We were able to keep the lights on, we had a disaster recovery plan, and everyone was able to work from home. We are a capital provider to private lenders, and the most important thing is to actually provide your clients with the liquidity to keep lending, not to shut down lending. That’s what differentiated us from our competitors during the crisis.”
Although Eric said the business has not been impacted operationally, he added that some precautionary measures, such as installing plexiglass barriers at the office, are attributes of management he never thought he would have to think about.
“We’ve adjusted and I think we’ll certainly be coming back to our office with a renewed thankfulness for working in an office! All kidding aside, I think we were able to quickly adjust and get in the rhythm of things,” he said. “And we are helping people rebuild their businesses today – a lot of our clients, their lending volumes went down to almost zero. In March, even the fact that you could provide capital did not mean that clients were actually transacting. The way our business is coming back now, though, is truly remarkable.”
What is also remarkable, Abramovich said, is Roc’s ability to manage a rebrand during a historic pandemic. Seeking to do more than just provide capital to the space, Roc rebranded as Roc360 in January of 2020. The new name communicates the firm’s offerings as a full life cycle platform for real estate investors and accompanies the broadening of Roc360’s suite of products and services. Today there are several subsidiaries under the Roc360 umbrella which collectively seek to simplify a day in the life of a real estate investor. There is the flagship Roc Capital, capital provider to private lenders, which has successfully lent close to $3 billion to real estate investors and developers. There is also Elmsure, an insurance subsidiary which has bound close to $1 billion in builder’s risk and other real estate related coverages. Roc’s newly formed title insurance agency is called Wimba Title. Roc has also created a lead generation and matching platform called Haus Lending.
“This rebranding is a relatively new endeavor, but you know, Roc Capital is a capital provider to private lenders, but we wanted to be more than just capital for the real estate industry,” he said. “We have much bigger and grander plans, and we things residential real estate related. To that end, we started an insurance company called ElmSure and a customized product to serve residential real estate investors offered through the Berkshire Hathaway Group. When you buy a property you need to imyou’re safe against all the events that can occur like floods, hurricanes, and things like that. To a certain extent, we’re very neurotic and risk-minded.”
This neuroticism, he said, does not come from a place of unnecessary anxiety. When working on a property, a seemingly small pitfall could have massive implications on developments. An important aspect of being a full-service partner, he added, is keeping this inherent risk in mind.
“Roc360 is the platform around which we are building all of these divisions,” he said. “Our visions, of course, go much deeper than insurance – right now we’re starting a collaborative venture with Home Depot, where Roc borrowers will have access to subsidized material pricing as a result of the pooled buying potential of Roc’s clients …we’re excited about this growth, and we’re excited about what this means for our clients.”
Before any opportunity is pursued, however, Eric said copious amounts of research is conducted. “Once we [assess] an opportunity from the top down, we go to the ground level. I think that’s how any opportunity should be looked at – you have the total size of the market and you have to figure out ‘how do I get this done in terms of boots onthe ground?’ I’ve done it many times over my career so far, like with starting a trading business in Tokyo, and the house flipping, and we’ve done it at Roc360 too with our strategic partnership with Home Depot,” he said. “We find a problem and look for a solution.”
One such problem-turned-solution began in 2016-2017 when Wall Street began realizing the opportunity of private lending, Eric said. As more players began pumping institutional capital into residential real estate investments, Eric added that it was more important than ever to differentiate Roc from the rest of the pack. Although some of these competitors enjoyed early success, their business strategy did not partner well with the coronavirus pandemic.
“Some of our competitors have been severely dislocated by COVID-19,” Eric said. “When you look at Wall Street, and some of the groups who have come into the space in the last few years, the mistake there is that the capital starts chasing the opportunity, and then the opportunity zone becomes tighter and tighter. Ultimately leverage is what fuels these binges, but when a crisis comes seemingly out of nowhere, leverage really bites. Margin calls have left many levered plays unable to continue lending and severely constrained on a forward-looking basis.”
While some lenders are feeling the heat of a disjointed marketplace, Eric said the Roc360 team has used the pandemic as an opportunity to sharpen their pencils, raise even more committed capital, and start additional strategies and business lines. More important than this, however, is Roc’s commitment to maintaining the lion’s share of the team when many have had drastic headcount reductions.
“We really tried very hard to maintain full employment even as lending volumes plummeted in March,” he said. “Now as things recover, we’re very thankful that we were able to do so. Indeed, we decided to not let a crisis go to waste and are now back in hiring mode. You have to re-intensify your focus and obviously see if the things you were doing make sense in a post-COVID world. From my standpoint, I think the things we are doing now still make sense. Even though we are intensifying our focus, that doesn’t mean that we’ve had to dramatically shift our course of action in any of the sectors we’re involved in.”
Eric said he fully understands that many people on Main Street are feeling the strain of the coronavirus right now, but eventually the housing market, the country, and the world will return to a state of normalcy. Even though his day-to-day activities as a co-founder of Roc360 have not changed during the pandemic, he said that the work-from-home time has allowed him to revisit a regret he has from childhood: not practicing the piano enough.
“I didn’t practice as much as I should when I was a kid, and I’m telling my kids that now,” he said. “I have been re-learning some pieces and picking up where I left off. And certainly, I’m not focused on classical music anymore! With so many apps out there now, it’s so much easier to learn.”
Moving forward, Eric said he is lookfice, catching up with colleagues in the ‘post-COVID’ world. As for Roc360? Eric said he is confident in the group’s ability to continually innovate and change the private lending space and the world of real estate investing.
“I think, looking back over my career so far, I am incredibly proud of the work we have done at Roc360,” he said. “I’ve been working with the synergy there that you’ll have a hard time finding at other outfits. I can’t wait to see what we do as Roc360 continues to act as an innovator for residential real estate investors.”
To learn more about the products and services offered by Roc360, visit roc360.com.
