Private Lenders’ Insight into the Marketplace – Part 2

Kevin Kim:

All right. Good morning everyone, or good afternoon to you, wherever you are. My name is Kevin Kim. Welcome to another episode of the Joint Webinar series with our friends over in Armanino. My name is Kevin Kim with Geraci LLP. I'm a partner on the corporate in securities team. With us today is our very special guest, Steven Fischler. RMWC Steven, please introduce yourself.

Steven Fischler:

Hey everybody. Nice to meet you. Want me to do a little background about myself?

Kevin Kim:

Sure. Yeah.

Steven Fischler:

Perfect. So I was at Lehman Brothers in the real estate group from '04 through 2011, pre and post bankruptcy, post-bankruptcy time, a lot of workouts, asset management mostly in the residential condo space, doing workouts and selling out projects, left at the end of 11. Started my own shop in 2012 doing consulting advisory work, asset management work, morphed into private real estate lending in 2015. Grew that over the next few years and earlier this year sold to RMWC and I'm now a partner and CIO of RMWC, which is a nationwide real estate, commercial real estate lender with about 325 million of committed capital lending nationwide.

Kevin Kim:

All right, thank you for that. All right. And of course with us is our co-host Dean from Armanino. Say hi to the audience. Dean.

Dean Quiambao:

Hello everyone. Thank you so much for joining us for episode two. Really excited to share the insights from Steven and RMWC today.

Kevin Kim:

All right guys, so before we get started and jump right into it, before we do that, all that fun stuff, little housekeeping. So there's going to be a couple different things here. There's a q and a button below. If you've got questions, please use the chat. And I believe we are recording this, so it should be available to you later, but please be engaged. Ask as many questions as you like. We'll try to get to all of them. If we can't, we'll try to get them by email after the webinar. So let's just jump right into it Dean. You want to open up with some questions for Steven or you want me to get started?

Dean Quiambao:

No, go for it. And then we'll just make this as conversational and have as much fun as we can. Let's do this.

Kevin Kim:

Well, Steven, you gave us your background and I'd love to hear, I'd love to hear where, give us a little more description of what's going on with RMWC, what are you guys focusing on, you're a commercial lender, but you are in how many states now?

Steven Fischler:

We are probably in 12 plus states,

Kevin Kim:

12 plus states, major market, metro and fill type states.

Steven Fischler:

Yeah, major market, top 30 MSAs, specialty markets, drive to markets. We're small, we're lean, we're totally private. We like a deal, we do it. We don't like a deal, we don't do it really straightforward.

Kevin Kim:

And the major food groups on the commercial, on the asset classes, are we talking about just general commercial real estate, all of it or all the above or focused in certain types of food groups?

Steven Fischler:

So pre covid, it was all of the above and it was mortgage, mes, pref, all property types from pre-development to construction to traditional bridge to heavy value add. The changes through covid have been a little bit from a geographic perspective, although we haven't ruled out any specific location. It's all deal by deal a little bit on a property type, much more selective in retail office and hospitality. Most of what we've done, but not all, has been somewhere in the residential world and looking to be more senior in the capital stack in most circumstances.

Kevin Kim:

So when you say more senior, so when you would normally entertain a mes deal and when you normally entertain a retail or an office building, now it's focusing more multi-family condo.

Steven Fischler:

So we've done, I'll run through some of the stuff we've done. We've done a traditional multi-family quick close bridge loan. We've done a condo inventory loan, we've done cost overrun financing for a multi-family project. We've done mes on an office building that we liked for a variety of reasons. Traditional bridge on multifamily in South Florida, ground up multifamily in New York, and we're doing ground up condominium as well right now. So it's pretty broad. I mean we've been in Detroit, New York, Fort Lauderdale, Boca Raton, Baltimore, Annapolis, Tallahassee, Newport Beach. It's a pretty broad mix of what we're looking to do.

Kevin Kim:

Very, very different metros there. I mean Tallahassee, Newport Beach is a very, very diverse

Steven Fischler:

And one of our philosophies over the last few years has been pro-growth states, right to work states where migration is moving. So Class B multifamily in Tallahassee fits that very, very well. At the same time condo inventory in Boca Raton gets the same benefit of that. And in addition to that, you're getting not only the North Easterners that are migrating down, but you're getting Canadians. So we're getting

Kevin Kim:

snowbirds coming down to Florida

Steven Fischler:

As well too.

Dean Quiambao:

Steven I got to ask just real quick, I'm hearing some things and I got to interject. So when you're talking about Tallahassee and Boca Raton, was that a strategy pre covid or is that all just changing post covid? Trying to get some insight here on some of the trends that you're seeing and capitalizing on.

Steven Fischler:

We were doing it pre covid. We were pre covid in some of these smaller markets at the same time we were very active in major gateway cities. Now we're still active in the major gateway cities, but we're looking to put less capital into them. We're looking to do it with more structure in the loans at a lower leverage point. Call it the de blassio fear factor, if you would. And just trying to look at where we think the world is moving over the next few years.

Dean Quiambao:

And so what does that look like? Is that just continuing? What are the trends that you guys see?

Steven Fischler:

So we think there's a continued trend away from the urban infill locations like New York City like San Fran. And it's not just covid, there's been political shifts. There's been an increase in crime, there's an increase in young families feeling unsafe in their cities. I live on the Upper East side, they have posters hanging from the N Y P D. Take your wallet out of your back pocket and put it in your front pocket. Be safe. I've been in the city for 16 plus years. I've never seen that. It, it's just shifted and I don't think that's something that we got vaccinated and everybody comes running back. I think there's a pretty decent shift that's been caused because of that.

Dean Quiambao:

Okay. So you guys are pivoting you're looking at all of that. Let's see here. Is there, and are you seeing that as a positive? I mean, is there enough opportunity there for you and everyone else who plays in this space?

Steven Fischler:

Yeah, look, there's a lot of opportunity. There's a lot of different strategies. We are continuing to stick to our same strategy as we were doing pre covid we're, we didn't raise opportunity capital. We're not looking to do equity deals to take upside. We're continuing to do the same type of transactions, slightly different structure to them just to cover ourselves for the current environment. But we're doing the same playbook over and over and over and it's been working well.

Dean Quiambao:

Great. And your customers are driving it I assume? Or are you having to go find new customers?

Steven Fischler:

So we are, since August we're 60% repeat borrower lot of repeat brokers and it's lot of demand. And we've seen 450 deals in the last five months, which is a lot more than I expected. I expected the second half of this year to be pretty quiet as people were trying to figure out where things are going. People are still building projects, people are still looking to acquire existing properties. People are still looking to execute refis. There's been a lot more capital market activity than I expected.

Dean Quiambao:

And what asset class, those 450 deals you're talking about, as Kevin said earlier, the food groups. Is there any concentration in that 450 deals? I mean are we seeing, you said some keywords earlier that I think we can spend some time on: retail, office. Yeah, right. Let's talk about that a little bit.

Steven Fischler:

Yeah, so let's go asset class by asset class. Sure. Hospitality, we were pre covid doing it in gateway cities and also doing it in drive to markets. We came up with a theory a handful of years ago that if there was an economic dip, we wanted to have hotel exposure. We like the yield that comes with it, but we wanted to protect ourselves. So we came up with drive to markets, lake Tahoe, Palm Springs, Palm Desert, Napa Valley has locations that maybe somebody won't get on a plane and go to Hawaii for a week, but they'll go up to Napa Valley for a four day weekend and enjoy themselves. So when we look at our portfolio, those transactions, if they present themselves today, we would still take interest in and look to see what we could do. A generic Hampton Inn on the side of I 95, a generic hotel in midtown Manhattan, that's where we've lost appetite for the moment.

Let's move to retail. We've never been big retail players. Our portfolio pre covid was about 5% retail and even within that it was mostly triple net credit deals. Either helping somebody for a quick bridge through acquisition or helping somebody build a single tenant triple net deal. Then they throw it out on the 1031 market, sell it, and move on. But we'd go way up the stack into the nineties on a loan to cost basis. We'll still do that. Somebody comes to us with a 711 a Chick-fil-A HSBC, and they've got a good 15 year corporate credit, no cut lease, and they need 90 plus percent of the capital to get that thing built. We're still there to do that, but we're not

Kevin Kim:

In the same markets. Is there a difference for that?

Steven Fischler:

We're doing them in Nevada. We recorded one in Yonkers, New York. Okay. We'll do them just, we're really looking at credit more than we are real estate market and sizing to a debt yield that we think there's a bank to take us out or a CMBS lender to take us out once the tenant is in paying rent. So market in that instance is much less important. But we're not doing strip malls, we're not doing power centers, we're not doing malls we weren't doing 'em before covid. And it's not something we expect to do in the near future.

Office is also a space that we haven't had a lot of exposure to. We're about five, 6% in office across our portfolio. The office deal we did we got a lot of recourse from a very deep pocket. We had two recently signed GSA leases 15 years, 10 year, no cut, put a tremendous amount of stable cash flow through the property. That combination made it compelling to us. But your typical value add office deal in a major market is something we'll look at, but we're not going to be as aggressive on moving into what's left. Self storage industrial put more effort into it, done well through covid, good opportunities working on one in Maryland right now. Looking at another one in California right now. Looking for strong experienced sponsors. Track record of building them, track record of running them or good third party management, but an asset class that we continue to be positive on and view favorably moving into the residential world we'll split it into two.

There's the four sale product which inserted markets. We like South Florida, Boca Raton market, we think net winner from all this selling condos there should go well. And then you have the rental market where you're looking at class ab, maybe B minus product, whether it's Tallahassee, Baltimore, Maryland. That's sort of the bread and butter of what we do. If we could fill our portfolio substantially with that and then do the other stuff around the edges, that's I think any lender's desire. And from that perspective, other than New York rent collections are there you haven't seen big vacancy dips, you haven't seen big credit hits. Again, that's pretty focused on a couple of particular markets, otherwise it stood up pretty well across the country.

Dean Quiambao:

And with regards, we had a question come in what is your minimum loan amount and shortest or longest length term?

Steven Fischler:

So like to say 2 million and up loan term, we'd probably do six months if we felt comfortable with it. Just need to make sure there's enough in the loan for us to get something out of it. Maximum we go is three years, we will add on an extension option or two that'll be tied to performance. So on the short term six months, the maximum on the outside is five years.

Kevin Kim:

Steven, I'd like to ask you about you and your history a little bit. You gave us an intro earlier. You came from Lehman, you opened your own shop, you were doing pretty well, I think it was SRF and New Gables. You were doing pretty well and you were originating a significant amount of product. And then you joined RM W C this past year. Tell us about more about your kind of story and joining RM wc.

Steven Fischler:

Sure. So as I mentioned, I was at Lehman pre and post bankruptcy. When I left Lehman, I took the view, no kids, no college debt, no auto payments. It was the chance to do something entrepreneurial. I if can hear the chaos behind me, but that's long in my past. The initial component of it was let's help people source deals, underwrite deals, asset managed deals, help them place some capital, whether that's debt or equity. That was 20 12, 13, 14. And we did a pretty good job at that. It started to morph as the market was really recovering. The types of deals I was working on were diminishing and started to say I want to do some private lending. There seems to be a void in the smaller space. First loan I did was 2.1 million called the client said, Hey, I think this is a good opportunity. I can put this much in.

Why don't you put in the rest? Did a second one for 6 million and it just started to build and build into something larger that grew by the end of 19 to about 180 million of capital. The majority of our capital in our last fund that we had raised was from R RM W C. They were our anchor investor. They had a seat on our credit committee and we got in to know them very, very well. Started discussions with their founder and C E o, Coleman Andrews and came to terms in March of this year on selling and me and the entire team moving over to RMWC, which happened in the third week of March this year.

Kevin Kim:

And that must have and making that jump and then this happening must have been a big shock to the system.

Steven Fischler:

Yes, I mean the timing was good and bad all in one. The chaos of learning and existing portfolio of loans that I didn't know as you didn't know which bar was going to call you when asking for help was interesting. Also did it while running away from the city, renting a house on Long Island just to escape, not realizing the house was in the middle of the woods with no cell phone service, barely any wifi and walking around and what happened to be a very, very cold mech in April in New York trying to get cell phone service to take phone calls. So the first few weeks were really interesting and really miserable at the same time. But then it smoothed out and we reor our portfolio. We waited to see where the market was, we looked at our portfolio again, and then we made the decision going into August that there was a box that we were willing to play in where we would restart lending and putting capital out into the market.

Dean Quiambao:

Awesome. And how's it gone since then? Steven? Obviously you had a little bit of a freeze period, you said it was really cold, literally and figuratively and then August happened. So tell us about August to now and what does the future hold? What are you guys looking at for 2021?

Steven Fischler:

So we're really looking for the same stuff we've been doing for the last few months. Our general thought has been if we're going to do short term bridge deals, we got to be really comfortable. They can withstand the second wave of covid that they can take another punch. I think we're seeing that now in New York threatening to shut down restaurants again, California essentially shutting the entire state down the Midwest, just getting slaughtered with this but resisting the shutdowns a little bit. And if you just look at air travel, you look at Google analytics, people are moving around less. And we've been very cognizant of that. Part of the reason why some of the deals I ran off earlier are more construction in nature. If we're looking at something that's being built that's going to be completed two years from now, we're almost looking past the near term impact on rent, the near term impact on near term impact on vacancy and looking to the other end of it, picking where we think rents will be at that point, making sure we have some cushion and we're good to go. So I think that will continue in 21. Hopefully we're all getting vaccinated sooner than later. Hopefully people are moving around a little bit more and more and that will open up the box wider and wider for what we're willing to get to be comfortable with.

Dean Quiambao:

Great, great. And how is your correspondence with your stakeholders, your investors, just the folks there, how often are you guys communicating now? Give some insight into that right now in terms of running the business that way.

Steven Fischler:

Sure. So we communicate with our investor base quarterly. We take phone calls whenever they want to have phone calls. We have LP committees. Everybody's been great. Everybody's been happy with the performance. We've had a 98 and a half percent collection rate on existing investments through covid. Have to think that's one of the better rates that are out there and it's been a really good mutually beneficial relationship that we've had.

Dean Quiambao:

That's great. 98 and 5%. Is there anything that you can attribute that to Steven?

Steven Fischler:

There's a few things that I think have worked. Some were clearly not planned cause of covid, nothing really was. But hotels in Calistoga, hotels in Lake Tahoe, hotels in Palm Desert just have had a better chance of withstanding this than a hotel in urban San Francisco, a hotel in midtown Manhattan where we have had non-national exposure, whether that's land or construction, we make sure all the borrower equity is in first. We make sure all the deals are capitalized, interest, taxes, insurance, day one. So if we have a year and a half land loan that we made towards the end of last year, it's fully capitalized. We can see it through the borrower, can see some hope now on the other end. And that combination has really worked well.

Dean Quiambao:

Love it, love it. It's great to see organizations and we've seen many that have rallied and kind of taken this year of 2020 and Covid kind of turned it into some really strong points, right Kevin? We've seen that all over the place. People rallying and working together as they're calling it right now. This is the great re-imagination, right? And we're all kind of getting to see, okay, well now we get to figure out where are we really going? And we've talked about sectors. It doesn't have to be sectors, but is there, if you were to wave your look at anything, is there any areas of opportunity that you might not be in today but you are keeping your eye on because you think that that might be an area of opportunity in the future?

Steven Fischler:

So if I step back and I look at what I went through at Lehman, the latter part of oh 8, 9, 10, 11, and then post Lehman, what I was doing for the first few years, building a company, it was ever-evolving. The first stuff I was doing was one after another value add multifamily in the southeast, buying $25,000 unit projects. Clients ended up selling them for 70, 80, $90,000. A door did incredibly well. Everybody else started to flood into that space. A couple of years later it's gotten tighter and tighter as interest rates stayed low, that started to shift away, went into condo inventory, helped people acquire blocks of unsold units in Miami, in Las Vegas, helped them reposition them, helped them sell them that as a finite, finite amount of unsold condo units from the last cycle that started to go away, got pretty deep into hospitality specifically in the select service market, did a run on that until North Star and a couple of others really jumped in and started taking over that space.

So it's been ever evolving and I think that same thing is going to happen over the next few years. Right now we're seeing a lot of attractive opportunities in the residential space that will probably tighten up either there'll be less opportunities, there'll be more competition coming into that space and we'll look to see what's next. I do think there'll be a time to do hotel lending where you can do well. I do think there's going to be a time where you're going to have office lending where you can do well. I'm just not sure exactly when that time is and it's clearly not today.

Kevin Kim:

Yeah, absolutely. And I'll ask the follow up question about that, your experience at Lehman, Steven, because your experience at Lehman is very important to me because you were on the ground floor of the chaos of 2008 and all the chaos in residential and looking forward right now. And there's a lot of debate amongst people in the industry about what's going to happen. Some people are very doom and gloom. Some people say all the metrics are there for failure. Some people say there's no reason to be worried. I'm personally very, very optimistic. What are your thoughts on both the residential market and an sfr but also into commercial markets? Let's compare it a little bit. I personally think we're on, we're looking, I think you're looking up. I want hear what your thoughts are on that.

Steven Fischler:

So I think it's very hard to make a broad statement about the entire country. I think the country is very different in different locations and I think you can have a general sense that, I spoke earlier that there's a net, I don't know how many thousands of people a week leaving New York, and I think we know that most of them are ending up in the southeast, maybe over towards Texas. So I think if you're looking at the next few years and what do we feel good about, I think across asset classes that southeast over towards Texas feels really good. That's where people are moving. If you've got more people moving in, demand for housing's going to be there, demand for office space is going to be there you're going to need more seven elevens, you're going to need more restaurants to come back into business.

I think that looks good. If you take a look at urban environments and you look at what people are looking for, what they're trying to get out of it and what the cities are offering, that's a different story. And I think that's where we're a little more concerned. What is it going to look like in 21, 22, 23? I think Sunday night there was an article, Goldman Sachs is looking at moving their asset management arm out in New York and down to South Florida, maybe to Dallas, maybe they just floated a balloon to see what city is going to offer them the largest economic package to get up and go. But I don't think, if you look back five years from now, anybody could have thought Goldman Sachs was going to take an entire division and relocated out of New York. And that's just not a bunch of finance employees. That's luxury condos, that's luxury apartments, restaurants, movie theaters, giants tickets, Nick's tickets. I mean, there's a ripple down effect of a lot of disposable income there that's going to walk out the door and go somewhere else.

Kevin Kim:

And we're seeing the same thing with our clients as a, almost like with the great migration into southern states and suburbs. And the priorities have changed and those been doing well in those markets or continue to do well. Those have been concentrating. And for example, here in California, in San Francisco proper have really, they're no longer lending just San Francisco proper anymore. So I mean that's and Los Angeles as well, right? So I echo the same sentiment.

Dean Quiambao:

Yeah, Steven a foundational name like Goldman for New York is just HP for California and the Silicon Valley, and that migration has been seen as well. So yeah, that's very, very, very insightful. Kevin, did you have a follow up?

Kevin Kim:

No, no, no, no.

Dean Quiambao:

Okay. I have one. So you were talking about opportunities in residential. Can you give any specifics into is that higher end? Is that on the first time home buyer? What specifically on residential do you like?

Steven Fischler:

So again, if it's in the southeast, I would tell you it's all of the above. Somebody's going to need to rent an a thousand dollars a month, one bedroom apartment. Somebody else is going to need 1,000,005 condo in Palm Beach County. Somebody else is going to want a 700,000 square foot house in Coral Springs, Florida or Alpharetta, Georgia. I mean, I think the outflow from these areas is across the board. It's not just upper class, it's really upper class, middle class working class. People are going to where the jobs are, people are going to where they don't have to pay as much taxes. People are going to where they have like-minded people. Nobody wants to be walking down the street and have insults thrown at them. So that trend is there and I think it makes us net bullish across the space. I mean, I don't think we're going into 20, 30 million spec homes or condos, but I think we're going to do class C, multi-family B, multi-family, a multi-family. We'll do for sale residential developments, townhome developments, counter developments, anywhere from price points of two, $300,000 all the way up to call it three 4 million I think.

Dean Quiambao:

Awesome. Now very, very insightful. We have probably just have a couple more questions, Steven, as we come up against our time here. You've been very insightful, lots of good knowledge bombs being dropped all over the place. Here's a question. How would you recommend someone get into the larger deal financing versus smaller deal based on your personal experience, say going from $200,000 deals to 2 million deals as a private lender using personal funds. Any insight you can give there based on your experience?

Steven Fischler:

Sure. I think it's really build your track record doing those $200,000 deals. Show that you've done a handful of them, they've gone full cycle. You've returned your capital with profit and then start talking to people, showing them what you're doing. Show them a business plan, show them some larger opportunities and work your way up. Maybe you do a $600,000 deal, maybe you do 1,000,005 deal, but success will just start to steamroll and it'll attract more and more people to you so that the next thing you know, if you have a $4 million opportunity, it's not going to be that frightening. It's not going to be that difficult to be able to put that together and get that over the finish line.

Dean Quiambao:

Great. Great. Yeah, we are right up against it. One of the questions that we like to end with, Kevin, are you okay with Yeah, go for it. On the fun question here to end, this is Steven, we want to know what's your favorite quarantine vice? What has been getting you through the last 10 months of this? We love to share that insight.

Steven Fischler:

So actually in about one minute, I'm going to go have two Oreos with my five-year-old and spend a few minutes with her. And then I have never had as much red wine in Sangria ordered in night after night after night, never ending.

Kevin Kim:

How's that work in New York? They just bring cases of it to your house and you just <laugh>,

Steven Fischler:

Oh, I should take a picture for you. They come in, they almost look like urine bags and you rip 'em open and you pour 'em into cups. It's really weird.

Dean Quiambao:

Really great.

Kevin Kim:

Right?

Dean Quiambao:

I agree with you on that is the best part of quarantine is definitely seeing our family and friends, well not friends as much, but our immediate family and our kids so much more. I know Kevin's got the two young ones home and he's probably never been so active, never changed so many diapers, right, Kevin?

Kevin Kim:

Yeah. Yep, yep, yep, yep. All kinds. All sizes. Yep.

Dean Quiambao:

And with that, Kevin, why don't you wrap us up. This has been another great insight into the private lender marketplace.

Kevin Kim:

Yeah, I mean, first of all, thank you very much Steven for joining us today and sharing your knowledge and your experience, not just about private lending, but also where the market's headed, your insights, and your value experience. Thank you Dean and Armanino team for helping us produce this show. And once again, my name is Kevin Kim from Geraci. Look out for another one, guys for coming to you soon. It'll be a live webinar and once again, this'll be available for download and for rewatch on various platforms. So check for that and we'll look forward to seeing you guys soon on another webinar.

Dean Quiambao:

Thank you guys. Okay, thank you.