With a black belt in karate and experience running a toner and inkjet cartridge business, Rich Katz, the president of Rodeo Lending, knows a thing or two about the discipline required to thrive in the private money space.

Rodeo, which was founded by business entrepreneurs with extensive experience in the conventional residential and commercial loan space, is one of the nation’s leading private money lenders. Katz, who has served as the company’s president since its inception, said Rodeo’s approach to private money lending is designed to maximize investment returns on real estate loans, and his strategy combines industry expertise with the interests of investors and borrowers. Katz sat down with Originate Report to talk about his beginnings in the private money space, as well as the challenges associated with growing his company in the aftermath of the 2008 financial crisis.

Originate Report (OR): How did you become acclimated with the hard money and real estate space?

Rich Katz (RK): I was living in New York, and I sold a business that manufactured toner and inkjet cartridges, and I moved to California and was looking for new business ventures. I was always intimately involved with moving business, and as my company grew in New York I realized I loved the real estate process. When I came [to California,] I really didn’t know what to do – I was looking for a business to buy, and my wife suggested that I look into real estate because it interested me. I received my California real estate license, but I knew that I didn’t want to sell homes – but with that said, I was always very good with the finance side, so I started doing mortgages for a company called United Pacific Mortgage. I was very persistent, and one of the leads I got was from a high-ranking officer at Vandenburg Air Force base. This was back in 2003, and when I had a successful experience with him, he recommended me to everyone in his unit – so I did around 40 mortgages at the Air Force base, including a hard money loan. I realized I liked that process a lot – not having to deal with the banks, and creating more personal relationships with borrowers. This process spurred me to do more of those types of loans.

I posted an ad in the Wall Street Journal, and all it said was “hard money, soft terms,” and had my name and phone number. One of the loans I got from that little ad was a $28.6 million loan in Utah, so I brokered that loan and started loving hard money even more – I started building my investor base, and I kept building those assets, and eventually I met up with my business partner Gregg Bernstein. We worked on deals together sporadically, but then in 2011 we formally established Rodeo Lending, and haven’t looked back ever since.

OR: During this time, what were some of the challenges – and triumphs – of starting Rodeo with Gregg Bernstein?

RK: When we started working together, it was 2007-2008, so the world was coming to an end at that point. The real estate market was not doing well, and there were several challenges associated with that. We were fairly conservative when we were underwriting our loans, and we really didn’t have any loans where people lost money during that period. With that said, though, it was a challenging time, and none of us knew if the market was going to go down further, so we had to be very conservative in our underwriting. But we still plowed ahead, and this is when I believe the private money business gained even more traction because the banks were not servicing the loans that our borrowers needed.

OR: Well I hate to interrupt, but I was very curious about that – did you find that as the banks did not have the ability or wherewithal to service those loans, that the private money sector grew quickly?

RK: For sure, and there was substantial interest from our investors because they could get bank-quality loans that the banks just couldn’t do at that time. So during that time, even though it was challenging, it opened up the private lending industry even more and we gained credibility because we were doing things that the banks could have normally done, but just weren’t during that time; and to a large extent, we have never come back to the point where the banks are comfortable executing those loans. It’s interesting to me that they don’t want those loans.

OR: I can imagine that gaining credibility in the private money space during this time was difficult – how did Rodeo overcome that obstacle?

RK: I think one of the key aspects of our business is we truly do what we say we are going to do. Today, we don’t rely on individual investors, we have a fund called the Westridge lending fund, and through that fund, we have money that we can deploy. I think in our industry, people take on loan projects and then have to go out and raise the money. We always have the money, and then go out and do the loan. As our business grew, we started to gain a reputation around the country as reliable, credible lenders. Often in our industry, unfortunately, so-called professionals quote one thing and then they “bait-and-switch.” We don’t do that, and we make sure that we are by our borrowers side until a loan’s conclusion.

OR: Did you find that your previous business ventures, including the toner and inkjet company, helped you in your pursuit of growing Rodeo Lending?

RK: I have always carried an entrepreneurial mindset. I went to Babson College, a small business school in Massachusetts, and I was a triple major in entrepreneurship, marketing, and economics. Even in school I had a business, I sold t-shirts to 50 different colleges around the country, and later on I had a summer job at a bullet-proof vest manufacturing company, and I started a business that made shirts that made the bullet-proof vests more comfortable. So I had these businesses in college, and I have always carried an entrepreneurial mindset, and having the toner business as well taught me so much. I was fairly young when I grew that business along with a friend of mine from college, and throughout that journey I learned so much about systems and processes because we really had to have our systems down to a science – if we didn’t build a cartridge correctly it might leak, and you have to keep in mind that during this time, paper played a crucial role in many businesses. If we screwed up, then their work product was screwed up as well; and to a certain extent, I think it’s the same here with Rodeo. We have implemented processes that bring an element of speed into the private money space, and that is one of the reasons many of our clients choose us. In order to have speed, you have to do things right – you don’t want to have to do a bad loan, so we have to underwrite those loans quickly and accurately. We have implemented processes so we can do that, and that sort of thought process is definitely reminiscent of my “toner cartridge days,” and Gregg and I have worked diligently to make sure our business runs smoothly, as cliché as that sounds.

OR: While implementing these processes at Rodeo, do you ever find it challenging to strike a balance between servicing loans quickly and accurately?

RK: I think we strike that balance by following the same steps for every loan – even though every loan is slightly different and there are some nuances there, we do background checks on our borrowers and we see every property we lend on. The bottom line is the value of the property is of the utmost importance to us because even though we don’t want to take back a property, that is our final recourse in the event that a loan goes bad. We want to make sure that in the unlikely case we’re taking back a property, the value attached to that property is accurate; we painstakingly but quickly go through that process. My partner or I go and see every property, and we make sure that we have a feel not only for the property and the appraisal, but also the neighborhood and surrounding area, and any factors that may impact the future value of any given structure. When we finally put a value on a property, we truly feel as though we have the best understanding of what its value is, and obviously we’re not 100 percent accurate – anyone who says they are is fooling themselves and their clients – but we are incredibly accurate, and I think that is so important in our field. We also trust our in-house people; they know what they’re doing, and they follow guidelines of what should be expected for a loan. We’ve done this so many times now, and we know exactly what to look for.

OR: One of the things that interested me about your background is the fact that you have a black belt in karate – can you talk about some of the similarities in the discipline required for karate and the discipline required in the hard money space?

RK: That’s an interesting question, and I have never been asked that. I started doing karate as a kid and I was seven years old. I was one of those kids who bounced off the walls, and I certainly wasn’t disciplined, but karate taught me discipline and how the only way to succeed is through hard work. Succeeding in karate, when you’re in a tournament or a fight, requires so much concentration – a concentration that I didn’t always have; but once I did, I became hyper-vigilant and took that discipline to other areas in my life. I think the hard work and learning never to give up taught me to fight for what I need. Even though I don’t think “fight” is necessarily the right word to describe business, it is competitive, and you have to learn how to be strong, and fight for what you need and what you want – and of course, what will make your company profitable.

To translate and compare how my karate experience has deepened my business experience, there are parallels there. If I didn’t take karate as a kid, I don’t think I would have received the discipline that I have today. How do you grow a business? With persistence. When I first started, I told you I was buying leads – but buying leads isn’t enough; you can buy leads all day long but you actually have to call them, follow-through, and you have to build relationships with clients and they want to give you repeat business. We’ve invocated that mindset with our staff, so they know that they need to follow up and create those in-depth relationships with clients.

OR: How do you see Rodeo growing in the future? What are some of the external factors that will bolster this growth?

RK: We talk about the future of our company all the time – after all, our world is changing very fast. When you’re in it doing business every day you may not see all of the changes, but when you go up to the 1,000 foot level, you say “oh my God, in college I had a Mac computer that didn’t even have a hard drive, and I didn’t even have e-mail.” And now you look at the world, how much it has changed, and how we have access to so much information at our fingertips. Life is changing fast, and my point is that our industry is changing quickly as well – from just looking at real estate and how technology is changing our field, you can draw parallels between all of the businesses that have disappeared like Blockbuster and big-block retailers, and what we have to do as real estate professionals is adapt, otherwise we will become obsolete.

In the case of big-box retailers, we’ve done a lot of business where people purchase empty stores and transform them into something new, and we lend them the money to do that. This is part of what I love about real estate; the creative people in our field are really changing the face of how we view the space. We have one client, for example, who takes these abandoned storefronts and splits them up into multi-tenant retail and creates value from an empty, non-productive space and within a year makes it a productive building that thrives as a retail environment. You look at transformations like that and think to yourself, “wow, that is why I’m in this business. We are helping create solutions for our clients who need sophisticated thought about lending.” Banks may look at the thought of transforming an empty building into multi-tenant retail and label the idea as foolish, but sometimes the best ideas come from outside the box thinking.

On the one hand there is the application of those creative solutions, but then like any other field there is the application of technology and how its evolution changes the way we do business, and we’re investing a lot in technology to make the borrower and investor experience with us an up-to-date, easy experience that makes their life better. We’re also looking at how this business has become much more sophisticated, not only because of technology but also the type of money that flows into the private sphere as well. We’re looking at what our competitors are doing and updating our offerings accordingly to be congruent with the market, and even though it’s challenging that is what business is all about. I believe that if you stay stagnant or complacent, you die – so we’re always looking towards the future.