Brock VandenBerg founded TaliMar Financial in 2008 after recognizing a unique opportunity to provide much-needed capital to real estate investors purchasing distressed single family and multi-family properties. Their ability quickly fund hard money loans in the Southern California market set TaliMar Financial apart and garnered the lender a reputation as a go-to source for hard money financing.
TaliMar Financials’ rise did not happen overnight. It is the product of VandenBerg’s decades of experience in the real estate and finance industry, which included roles with KeyBank’s Private Equity Group and the Federal Deposit Insurance Corporation (FDIC).
While at the FDIC, VandenBerg identified common mistakes that plagued financial institutions leading up to and during the financial crisis. This helped him develop the strategies he employs today in underwriting and servicing his loan portfolio. According to VandenBerg, “The FDIC gave me incredible insight into the troubled loan portfolios many local and regional banks had at the time of the financial crisis. The time spent managing the workouts on these loans allowed me to better understand the mistakes that were made when the loans were approved and then serviced.”
Originate Report had the distinct privilege of sitting down with VandenBerg to discuss the launch of their mortgage fund, TaliMar Income Fund I (“TIF I”), and their strategy in today’s volatile market.
The Genesis of TaliMar Financial
TaliMar Financial is a hard money lender headquartered in San Diego, CA. Since its founding in 2008, TaliMar Financial has successfully funded more than 800 loans totaling over $345 million. TaliMar Financial currently services an active loan portfolio of more than $55 million secured on single family, multi-family, and commercial properties in the Southern California market.
Since its inception, TaliMar Financial has focused on developing and refining technology to allow borrowers to quickly obtain funding for their fix and flip, fix and hold, bridge, and new construction loan requests. According to VandenBerg, “We understand the loan approval process can be stressful, so we have focused on developing a seamless process from loan submittal through funding. I think our Borrowers have grown to appreciate the ease of working with TaliMar.”
The growth of TaliMar’s origination platform and need to identify a more efficient process to fund and service their growing portfolio was one of the driving factors behind VandenBerg’s decision to launch TaliMar Income Fund I. VandenBerg notes, “By early 2018, we were funding 12 to 15 loans per month and matching each loan with a single or multiple investors was becoming very cumbersome. Our portfolio had grown to over 100 loans with over 350 individual investors. It was becoming too complex even with the proprietary software we had developed. I was starting to get concerned that we couldn’t maintain the level of service our investors and borrowers had grown to expect from TaliMar.”
A Novel Solution to Increasing Demand
Initially, TaliMar Financial launched an industry leading online lender portal that allowed investors to view and subscribe to individual trust deeds. The portal solved a huge bottleneck which was the back-and-forth e-mails of loan summaries, underwriting material, disclosures, etc.
Soon the portal became extremely popular, as it streamlined the process of investing in trust deeds. But as the portal improved, the number of users grew and the ability to match trust deeds with loans again became too cumbersome. “Trust deeds would get funded in minutes and I was spending more time explaining to investors why they missed out on an investment than actually originating new trust deed opportunities. It really started to affect the efficiency of the business,” VandenBerg explained.
Enter TaliMar Income Fund I (TIF I)—a verifiable game-changer for both the investor and borrower that TaliMar Financial serviced. TIF I mirrored the same underwriting and servicing guidelines that VandenBerg and his team developed over the prior 12 years but provided investors a much more consistent approach to investing in trust deeds. It also gave borrowers and the brokers that brought loans to TaliMar Financial, more assurance their loans would be funded in a timely manner.
Mr. VandenBerg explains, “We were able to reduce the time to underwrite and fund a loan from an average of 7 days to less than 5 days by eliminating the entire investor matchmaking process. Additionally, we reduced the cost of funding a loan by over 50% by eliminating the investor back and forth communication, disclosure requirements, and other costs associated with working with individual investors on each loan. At the end of the day, it allowed us to focus on what we did best which was to originate good loans.”
The fund provides investors a consistent and reliable source of monthly income secured on real estate—all while offering the numerous tax benefits of a Real Estate Investment Trust (REIT). “TIF I essentially pools investor capital into a single fund versus matching investors to each loan,” explains VandenBerg. “This allows them to earn monthly distributions, but they can also invest at any time—providing an unprecedented level of flexibility when it comes to investing.”
One of the biggest concerns that VandenBerg had when he launched the fund was its adoption by the investor base he had cultivated for over a decade. VandenBerg explained, “The biggest concern that I had when I launched the fund was that investors were not going to transition over to the fund. I mean, why change something that was working.” But his concerns were quickly calmed as over 60% of his investor capital moved over to the mortgage fund, with much of the remaining investors expected to transition over as their current investments pay off.
The biggest advantage for trust deed investors is that they don’t miss out on investment opportunities when invested in the fund. “I think the biggest draw to the mortgage fund was that it eliminated the uncertainty when a trust deed paid off; investors aren’t having to scramble for another investment and risk losing income while their capital sits idle. Also, investors were getting tired of tracking a portfolio of individual trust deeds,” VandenBerg maintains.
TIF I brought a number of other benefits to investors. “With the guidance of Kevin Kim at Geraci LLP, we decided to structure the fund as a Real Estate Investment Trust which made our investors eligible for the Qualified Business Income (QBI) tax deduction. That means only 80% of income is taxable—the other 20% is not taxed, which has a very positive impact on investor returns.”
The benefits don’t end there. TIF I mitigates risk by diversifying investor capital over a portfolio of loans. That means if one trust deed is late or pays off, it doesn’t heavily impact the overall monthly income of the investor. The fund also offers a lower investment minimum when compared with a trust deed investment and isn’t subject to unrelated debt financed income (UDFI) for investors using their retirement funds.
All in all, TaliMar Income Fund I is proving to be a major success for TaliMar Financial and its borrowers and investors. TIF I will allow VandenBerg and his team to scale without the costly overhead required when managing a portfolio of trust deed investments. And with a seasoned industry professional like VandenBerg at the controls, the future is looking bright for TaliMar Financial as the private lending environment continues to evolve.