Capital, Customers and Core Team Drives Success
CV3 is a young private lending company that emerged from the ashes of CIVIC in 2023. After CIVIC was forced to close its doors as part of a broader wind-down of its parent company, Pacific Western Bank, and several hundred loyal employees were left without jobs, Bill Tessar got to work. Tessar is the President and CEO of CV3 Financial Services. He is a visionary leader with a proven track record, which has shown through the start-up and rapid rise of CV3.
But before we talk about the birth of CV3 (short for Core team Version 3), and its incredible success in just under a year, let’s rewind to the beginning.
With 30 years of conventional mortgage experience, Tessar joined CIVIC as president in 2017 with a talented team hoping to contribute scalability and conventional discipline to the recently established private lending business. And they did just that. “We had unprecedented growth in loan volume, geographic expansion, personnel, and profitability. We grew from $20 million a month to over $3 billion annually and 500 valued employees,” said Tessar.
From CIVIC to CV3
CIVIC thrived for years under Tessar’s leadership. In February of 2021, Pacific Western Bank (PacWest) acquired CIVIC from Wedgewood for top dollar because of the large and consistent volume of high-performing loans they were originating. The growth continued in 2021 and 2022 as the group funded just shy of $5 billion over those 22 months. Despite all that success, and unbeknownst to Tessar and his team, trouble was brewing behind the scenes on the bank’s side. “The bank found itself caught up in the regional banking crisis that impacted several banks, where balance sheet issues and a significant drop in deposits sent them into a spiral,” Tessar explains.
Tessar and PacWest had been in negotiations to spin off CIVIC, having signed an agreement with a target close of March 31, 2023. As the pressures of the regional banking crisis increased, those pressures forced the bank to change their positions on key elements of the agreement. “Our group tried in earnest to work through these changes and when we could not reach an agreement, PacWest pulled out of the agreement and my position was terminated,” said Tessar.
Shortly thereafter, they halted new originations, began negotiating out of contracts, and issued a RIF (reduction in force) to over 200 CIVIC employees. These actions continued over the next four months until the end of May 2023 when the remainder of the positions were eliminated, and the offices were closed. “It was never a restructure, but an unwind from the day I left,” Tessar reports with a broken heart.
CIVIC’s closure was one of many business lines that PacWest closed and ultimately the bank was saved through an acquisition by Banc of California, which stepped in later that year and closed the deal a few months ago.
CV3 Opens on August 31, 2023
Shortly after the CIVIC closure, Tessar got to work. Working out of his industrial space, Tessar and the core team began meeting with a vision in mind and a structure that the group knew well and could execute in short order. These meetings and beginning stages of work were done without pay or fanfare, but the team was determined and focused on building CV3 from the ground up. With August 31, 2023, as the target launch date, there was no other option but to work around the clock to drive the CV3 dream into a reality.
Tessar and the team began with a simple pitch deck and their proven track record of closing over $10 billion and 21,000 business purpose loans to raise capital. Once initial capital was secured, the infrastructure was built, a loan origination system (LOS) was chosen, and operational processes and systems began coming together, including sales and marketing platforms, vendor agreements, financial, HR, and benefits systems, along with warehouse lines, loan buyers, and the like.
“It’s August 31, literally day one. Of the 154 employees, 153 were from our old company. Many employees had been recruited by our most reputable competitors and many of them offered lucrative signing bonuses and guarantees to join those companies,” said Tessar. “Our team stuck together with the focus of making the CV3 vision a reality. That day finally arrived, and the business was officially open. We celebrated the launch and gathered in gratitude, all the while thinking of the 350 others from our old company who couldn’t join us yet.”
“We intentionally simplified our launch with offerings and states we would serve.” Tessar explains. “Our thoughts were to take the channels where we did the most business in the past and start with wholesale and retail. We also started with the products we did the most business with, which were Bridge and DSCR. We limited originations to our states with the highest volume. As the days grew to weeks, then months, we have added products, enhancements, doubled our states to 33, and laid the groundwork for all the additional offerings we will roll out in the remainder of 2024 and early 2025.”
Exponential Growth from the Start
By the end of September, the first fully functioning month in business, the wheels were in motion and the company funded $51 million. Fast forward to today, they are funding more than $100 million a month, with more than $300 million in the pipeline. “We will pass the $1 billion mark in Q3 2024. We’re now in 33 states with seven more coming soon. We’ve added new products including ground-up construction, which we were very patient with because we wanted to get it right,” Tessar reports. “We believed we were the heavyweight champions of the business purpose lending space at the time PacWest ran into its problems. I believe that industry-leading title to be true when you think about the loan quality, quantity, and consistency measurement. So, we want to—and we will—get that belt back. We have a lot of wood to chop, which we are doing, but we will get that belt back.”
So how did CV3 scale so quickly? Were all the early deals from past connections? “The answer is yes and no,” replied Tessar. “Our entire story played in front of the industry on social media. Our past clients not only witnessed that, but our entire sales force kept in contact and provided guidance and resources for their deals, regardless of where the clients funded them. This is part of our ‘Customer for Life’ philosophy of bringing value in any way possible, aside from simply providing financing. It was that continued investment in our customer base that they did not forget. And yes, they came back when our doors opened, and the time was right. Truth be told, our phones rang off the hook out of the gate. That continued loyalty from our past customers and broker community continues today as we grow our CV3 family.”
Learning from the Past
CV3 incorporated best practices from all their past experiences. This amalgamation of business models and capital strategy has resulted in increased funding, profitable growth and success for CV3, despite the challenges in today’s real estate market with lack of inventory and challenges with conventional interest rates.
CIVIC was founded by its original parent company, Wedgewood. “When we were with Wedgewood, we operated based on a gain-on-sale model, a strategic approach that shaped their entire business process and practice. After originating and funding billions in loans, the company would sell them on the secondary market at a premium. This model is heavily dependent on the relationship established with loan buyers in the secondary market, and there are ebbs and flows based on demand, interest rates, and competing products that have a direct impact on a company’s profitability,” said Tessar.
“After being acquired by PacWest, the bank held CIVIC’s loans on its own balance sheet rather than selling them in the secondary market. The biggest driver of this decision was their ridiculously low cost of capital,” explains Tessar. “The loans originating performed extremely well and the spread they earned was substantial. This approach allowed PacWest to control the loans throughout their lifecycle, including managing interest income and potential credit risk.”
When CV3 entered the market, one thing was certain: Tessar and the team would integrate the best aspects of their past parent companies’ structures to create a diversified capital stack. This structure would allow them to capitalize on the most efficient and financially dependable outlets, including balance sheeting, securitizing, selling loans at a premium, and selling them on a pass-through basis.
Capital Diversification Is the Driving Force Behind the Success of CV3
“I feel fortunate to have had both perspectives of the Gain-On-Sale and Balance Sheet models, giving us insight and flexibility to be able to do both,” says Tessar. “CV3’s business model is to hold at least 15% of what we originate on our balance sheet. Sometimes we will choose to hold more or less, depending on the market appetite for such loans. I have seen a lot more capital on the outside of our market that wants to work its way inside and I believe that will serve us and our borrowing base extremely well.”
“Having independence in running a company is important, and we achieved that in how we raised our capital,” Tessar explains. “While we do have some small partnerships from Wall Street connections, CV3 largely built its own capital base. This continues today as we build out our capital diversification and avoid relying on any one particular model.”
Examples of Capital Diversification
Warehouse Lines
These credit facilities provide funding to originate loans before they are sold to the secondary market or contributed to a securitization. By leveraging warehouse lines, CV3 offers customers quick access to capital with more flexible financing solutions.
Selling loans into the secondary market allows the company to have access to quick capital and reinvest in new loans. The cost of warehouse lines has many different facets including, but not limited to advance rates, margin, fees of lines, exit fees, step downs, and the like. The current market conditions have seen competitive posturing from some of these firms, which has improved the overall cost of accessing such lines.
Balance Sheeting Loans
By keeping a portion of the loans on the balance sheet, categorized as HFI (Held for Investment) as opposed to HFS (Held for Sale), CV3 maintains greater control and flexibility over its loan portfolio as well as earns a great spread (the difference between CV3’s cost of capital and what the borrower pays). This also allows one to customize certain loan products tailored to a customer’s needs while still ensuring a stable and predictable return.
REITs and Funds
Partnering with Real Estate Investment Trusts (REITs) and investment funds broadens CV3’s investment base and diversifies its sources of capital. This collaboration enables CV3 to provide a wider range of financing options, including specialized real estate and commercial loans, catering to varied customer requirements.
Securitizations
Through securitizations, loans are bundled into securities and sold to investors. This process diversifies funding sources and spreads risk, allowing the company to offer lower-cost financing and innovative loan products. Customers benefit from improved access to capital at more competitive loan terms.
Insurance Companies
“We are seeing a greater number of insurance companies work their way into the business purpose lending space, specifically interested in the longer-term, predictable DSCR loans,” noted Tessar. “Working with this capital source introduces investors to a new, stable, and long-term source of funding.”
The insurance cost of capital is historically cheaper than that of other outlets, therefore you will see execution on these loan sales significantly drive down price and increase GOS (Gain on Sale) as the market continues to heat up.
Regional Banks
As we see some regional banks re-enter the business purpose lending (BPL) space, they bring additional funding and competitive pressures that can lead to more favorable terms for borrowers. Collaborating with these banks allows lenders to expand their service offerings and provide more localized and personalized financial solutions.
Capital Diversification Is Key
“I have shared this quote for as long as I have been in the lending business: ‘If you’re in the business of lending money, don’t run out of it.’ Seems fairly obvious to any set of ears listening to the quote, yet we were literally owned by a bank that had a $43 billion balance sheet and it happened,” says Tessar. “It is the greatest example I can point to that highlights the need for a diversified capital strategy. Set up a flexible capital stack of equity, have more than one warehouse facility, create many different loan buyer relationships that have particular niches of loan products, and originate a boatload of loans so you can keep them all happy.”
CV3’s Customer-Centric Focus Sets Them Apart
There’s a reason CV3’s phones were ringing off the hook when it opened its doors less than a year ago. Its customer-centric focus is another pillar of success worth mentioning.
“Our customer experience begins at hello, and it ends, never,” Tessar states. “If you keep that customer mindset and see it through long after the loan is paid off, you create a partnership with your customer for life. Stay in communication by informing customers about market conditions, loan opportunities, and geo advantages without trying to sell them anything. Nurture the relationship and invest in each customer’s success, and they will remember you. This is the customer-centric approach CV3 lives by.”
Monitoring Customer Metrics and Satisfaction
On top of building relationships with customers, CV3 tracks its statistics surrounding customer satisfaction. “If you ‘inspect what you expect’ and something isn’t right, that creates an opportunity to go in and fix it. It is humbling at times, and your feelings get a little hurt when a customer doesn’t have the experience you aim to deliver,” Tessar admits. However, when a customer feels truly heard and the team listens and understands their perspective, he reports that satisfaction almost always rebounds.
Tessar recalls a study from years ago, “It is 7x more expensive to get a new customer than it is to keep an existing one.” If the study is true, then investing time and energy into your current customers will only result in long-term savings. Tessar details their motivation to retain customer relationships: “Right now, we’re running slightly over 70% repeat business —and the 30% that are new customers give us an opportunity to share the CV3 difference with them, and turn them into customers for life, too.”
CV3’s Relational Approach to Customers
Tessar is adamant: “Our job doesn’t end at funding. Our job ends when that loan is paid off and that customer is satisfied with the whole experience. That’s why we’re bringing servicing in-house—so we can provide an exceptional experience throughout the entire life cycle of that loan.”
When he first entered the business back in 1985, it was all about landing a loan and making a dollar. He was focused on transaction after transaction. The most significant “aha moment” of Tessar’s career was understanding if you take better care of the customer, they’ll come to you for their next loan. Then they’ll tell their friends and family about their great experience, and soon, you’ll have loan after loan stemming from one valued customer relationship. Tessar has lived by that lesson ever since.
Reflecting on loyalty created through the customer experience, Tessar shared this story: Back when the team was with CIVIC, they had a top client who funded over 900 loans with them over a few years. When CIVIC shut down, and before CV3 opened, this customer came close to halting his property acquisitions. Instead of doing 25-30 loans per month, they decreased activity to a few loans per quarter.
Once CV3 opened its doors, this customer was first in line to submit a loan and is now approaching their previous pace. Tessar asked, “Why did you slow down when there were other companies to take on your loans?” They replied that they had lost their trusted partnership, and rumblings were that CV3 would be back better than ever. The customer waited for CV3 to open. In fact, they insisted on being the very first loan. And CV3 has this loan – their first – framed and on display.
This serves as the ultimate testament: customers are rooting for CV3. Their story reverberated through the industry. Vendors, customers, investors, and brokers cheered the restart of the team’s new venture. When they meet these valued partners at conventions, they share a bond and celebrate each other’s successes.
Tessar’s dad used to say, “Give people more than they deserve, and you’ll get back more than you deserve.” It’s a quote to live by. If you truly invest in people and nourish relationships, they won’t disappoint you when you need them. That is true for CV3 and the team that rallied around them.
Delivering Quality, Quantity, and Consistency
CV3 believes that their people are their superpower. CV3’s core values promote passion, integrity, and commitment in each of the 195 members of the company. Tessar recites them from memory: “Act with honor. Be a great partner. Communicate clearly. Create smiles. And simplify.”
Each employee owns their mistakes and desires to be better. They celebrate each other’s success. They stand by their core values and seek to deliver quality, quantity, and consistency every single day. They see each loan through to the end, regardless of which part they have in it. Quality is the focus.
Quantity drives the motivation to continue building momentum, growing originations, increasing efficiency, and processing at scale.
Lastly, it is consistency that drives both points forward. As the team strives to maintain quality and increase quantity loan after loan, they strengthen the company by innovating and ensuring quality is not compromised because quantity increases. Consistency in quality is paramount while scaling.
These words are not just an idea. Quality, quantity, and consistency are measured and reviewed every single day. There is no way to ignore the numbers, and CV3 swiftly resolves any issue reflected in the daily metrics.
CV3 Continues Full Speed Toward Future Growth
“I don’t know of any company that invests time, energy, and resources into their people like we have,” says Tessar. He highlights the sense of community within CV3, the celebration of individual and team successes, and how much they truly care about each other’s personal lives and families. You may ask, “does company culture really matter?” Tessar poses a question in rebuttal: “Who else would sit around, pass up lucrative job opportunities, and wait for something that wasn’t 100% certain to open by August 31?” The CV3 core team would and did! Their peers, loyalty, comradery, and the valued community they share, kept them together.
Past setbacks drive Tessar and the team behind CV3 to succeed. Learning from the past would not have been possible without the loss they experienced. From great challenges, emerges great strength.
