Kevin Kim: You are listening to Lender Lounge with Kevin Kim, a podcast dedicated to helping those in the private lending industry grow, improve, and streamline their business. I’m Kevin Kim, Partner at Geraci LLP, the nation’s largest private lending law firm. Join me as we chat with the best and brightest in private lending, who are eager to share their years of wisdom and best practices with lenders, borrowers, brokers, investors, and more. Subscribe to Lender Lounge on your favourite podcast platform and learn more about Geraci and how we can work with you at geracilawfirm.com. Check out the episode summary for other valuable resources.
Kevin Kim: Hey guys, welcome to another episode of Lender Lounge with Kevin Kim.
Today, we are at the Geraci headquarters at 20 Pacifica in Irvine. We are shooting here in person. I can do these with folks who are local to us.
If we can do them in person, we’ll do them in person, not in the computer. Today, we’ve been trying to get this guy on the show for a little while now. Thank you for coming.
Thank you. Please introduce yourself to our audience and we’ll get started.
Charlie Woo:
Yeah, well, one huge honor to be on this show and listen to it and watch it. I guess a quick background, I’m president of Fidelity Bridge Holdings or Fidelity Bridge Loans. This is sort of my first foray on the principal side.
My background in this space, I was kind of dedicated to it when I was at Wells Fargo in the investment banking group where I was for the last 13 years, spent 25 years in investment banking and came over, joined up with two great partners, David Frosh and Adam Mickelson, who were actually clients in my old days. And when I left, they asked me to join and off we are.
Kevin Kim:
Yeah, it’s interesting for us, Fidelity has kind of been one of our older relationships. I mean, when I joined Geraci, it was already on the client roster. There’s a couple of Fidelities out there, but this is Fidelity Bridge Loans, not to be confused with the other Fidelities.
You guys are here in Orange County. Give the audience a little bit more about who you guys are, what you guys do.
Charlie Woo:
Sure, yeah. What we really focus on are bridge loans for small balance commercial. And by small balance commercial, most of our portfolio, about half our portfolio is in multifamily as well as single family residential for investor.
So rental, et cetera. But we’ll also do industrial, retail, and other small balance commercial. Small balance, our average deal size is less than 10 million, but we can do up to 20 million.
And we kind of step in where the traditional sources, whether that’s agency or a bank, for whatever reason, can’t provide that loan. We’re focused on kind of light construction and rehab or other special situations where there’s a need, but there’s a very clear path to either take out and occasionally a sale of the property. But in my old days in the investment banking world, I was really focused around M&A and selling a lot of the residential bridge lenders.
And residential really meant single family residential. So most of the ones that are in private equity hands now, my old group handled that sale or were part of the capital raising.
Kevin Kim:
And that’s why everyone knows Charlie, actually. And when you joined Fidelity, we were like, wait, wait, wait, he’s doing the sponsor side. That was very cool, by the way.
It was very interesting to see. We never see that entry directly. Now, Fidelio’s been around for a long time.
30 years?
Charlie Woo:
Yeah, 30 years. Most of it as a mortgage brokerage side of the business, which we still have. And so we’re placing a lot of permanent loans or have off balance sheet solutions for that.
About five, six years ago, we really developed the first fund. And I credit my partners, David Frosh and Adam Mickelson, for starting that fund. As you know, we’re pioneers in the residential fix and flip lending through Center Street Loans, which still is doing great.
But we transitioned into this because we felt like there was a scarcity of bridge capital and for whatever reason, for multifamily and other small balance commercial.
Kevin Kim:
Right, and that’s the interesting, I remember before you joined, Fidelity was kind of doing a little bit of commercial, doing a little bit of resi, doing a little bit of construction. It seems that now, well, I guess the wins of the market, you guys have very much doubled down, right now at least, multifamily and residential for the business purpose stuff.
Charlie Woo:
It’s about 70% of our portfolio, but we’re always opportunistic. I would say, don’t count us out for industrial and retail, et cetera. But as it happens, we’re just getting more demand on the residential side and that’s where we see the kind of bread and butter.
Well, everyone would echo the sentiment.
Kevin Kim:
I mean, I just got back from a commercial show and it’s just all multifamily.
Charlie Woo:
That was all anyone could talk about.
Kevin Kim:
I mean, it was weird because a year ago, office was the four letter word. This time around, industrial was also on that list. Industrial is facing a lot of stress right now.
Charlie Woo:
Yeah, we actually just wrote that in our investor letter. I think in industrial, what we’re seeing is that there is sort of a bifurcation between the big box and the small box kind of industrial operators. But especially with what’s going on in the political environment.
Kevin Kim:
Tariffs.
Charlie Woo:
Yeah, tariffs, especially in Southern California where we’re based and a lot of our current loans are, we’re watching it really carefully. But at the same time, when there’s uncertainty, that it also creates some opportunity. Now, geographic focus, Fidelity is nationwide?
We lend nationwide, but I would say our focus is on the Western US.
Kevin Kim:
Right, right. That’s always been the case for a lot of our California guys, is that you’re local here, it’s easier to do deals kind of West of Texas. Right.
So I wanna touch on you for a second. Okay. Okay, so this is a very rare instance.
We’ve only seen this a handful of times in our industry when a person comes from Wall Street as an investment banker and now steps into the shoes of a direct lender. There are companies that are like aggregators and I guess you can call them like large institutional wholesale outfits where you have similar profiles, but you don’t see it at the direct to borrower on the street shop. Now, from your perspective, like your background at Wells, you were dealing, you were on the ground for all the major transactions that we probably have covered on our show, the MFA transaction, the Predium transaction, all these big high profile acquisitions in our industry.
Yep, yep. You could have had your pick. I mean, I’m sure you had your pick of the industry, where to go.
Charlie Woo:
Yeah, well, I appreciate that. Yeah, so basically the trajectory was that one, this would not be possible as I’m saying now, when you see how the sausage is really made, you realize that a Wall Street background is not frankly sufficient without the right partners or the right infrastructure in place. So when I stepped in, it was great that one, we had the benefit of a track record as well as a platform and then David and Adam, somebody who’s been doing this for 15 years.
Kevin Kim:
They’ve been around for a long time.
Charlie Woo:
Yeah, and seeing the residential side, SFR, multifamily, et cetera. So that’s one. But two, as I kind of knew my limits, I think my expertise was in kind of knowing the universe and then being able to kind of pick off the ones, frankly, that would hire me to sell or acquire a platform like this.
I think what we’re doing that’s a little bit different and I saw in the trend is a lot of these private lenders, as you know, grow through private retail investors, family office money, et cetera. And then when a big private equity firm, thanks to the investment bankers like me that are saying, hey, they’ll buy you out, they flush out the private investors. What we want to do and it was very important for me to do in leaving that side of the business is to build something for the future that is sort of permanent.
And so we really want to continue growing that retail investor base. We have some great investors that has taken 15 years to cultivate a lot through wealth management firms, a lot through kind of family offices. We grow that, but alongside that, have some institutional partners eventually as well and to grow that way.
Kevin Kim:
Yeah, it’s always been an interesting debate. Yeah. Is it good for your business to basically have a PE overlord step in and wipe out all the existing discretionary capital and now turn you into basically, are you gonna go along the story of Genesis and Anchor and Predium and Lima?
On the flip side, the debate has been, well, the guys that have rejected those offers are scaling and succeeding. And both in multifamily and in residential, we’re seeing those guys now doing their own securitizations, doing their volumes have tripled, partnering with institutions on their own. And so it’s like, it seems to me that this quote unquote idea of an exit may not be fruitful for a private lender.
Right? We’re not software companies.
Charlie Woo:
Yeah, yeah, exactly. And it’s interesting, because even in my transition from my old world to this, I talked to a lot of those groups, like I was responsible for the sale of Genesis, Anchor, et cetera. And talking to those founders, look, it really worked out for them.
And most of them would say they don’t regret a thing.
Kevin Kim:
They’re back to the table.
Charlie Woo:
Yeah, yeah, but now they’re back to the table. And I think for us, it’s more about the business itself. We don’t want to be subject to the whims of like, for example, the securitization market, or to a group that’s kind of in and out.
But at the same time, we want to, we’re kind of lenders and investors kind of at the same time. And we want to do deals that are prudent. Right, well, that goes to the permanence, right?
Yeah, and that requires sort of a permanent capital base.
Kevin Kim:
Right, because that’s the funny thing is a lot of people commonly think that an institutional investor buying you makes it more permanent. But reality is that that investor needs to retrade it and get off his books. Exactly, exactly, yeah.
Our industry hasn’t been around long enough to have seen those rotations. Yeah. I think we just saw it with Genesis.
Yep, yep. But the Genesis had gotten so big, had kind of become so detached from the industry that it kind of lost touch with what we’re seeing in the marketplace. But when it comes to a lot of the other shops, a lot of our audience doesn’t understand that.
Yeah, yeah. That company’s gonna have to trade hands pretty soon.
Charlie Woo:
Exactly, yeah, yeah. So that’s not necessarily great for the business. Correct, correct, yeah.
And I think the thing that has morphed, at least that we’re seeing, now that I’m on this side of the table, is that there’s two types of capital. One is those types of transactions where private equity is in, and then the moment they’re in, in three to five years, they need to figure out an exit point. Right.
And therefore, if you’re the platform itself, you kind of have a ticking time bomb. Yeah. But what is starting to happen that didn’t exist, call it 10 years ago, are creative deals.
Because really, these private equity firms and the sources of capital want an engine that can originate under right risk. And so if you say, and in fact, one of our prerequisites is that, we want to be doing this in 30 years.
Kevin Kim:
Right.
Charlie Woo:
Or 50 years, right? And so that capital can come in, and if it’s not your sole source of that, then I think you can continue to build, and you can also provide either recap or other opportunities for them to either stay in, or if it pulls out, it doesn’t matter, because there’s other capital to replace it.
Kevin Kim:
So let me try to distill this. So what I’m hearing from you is that there’s this shift in philosophy, even at the institutional levels. Yeah.
Instead of becoming a buyer of companies, instead of owning these guys, perhaps it’s more creative for us to just fill the portfolio with good loans. Exactly, yeah. And do what we will with that.
Right. So we don’t have any sponsor risk, we don’t have any personnel issues to replace. That’s what I’ve noticed, I deal with people most of my days, and it’s always the question, you always see, that guy left that shop, how has he left that shop?
He was doing so well. Yeah, yeah. That doesn’t make any sense.
Right. And PE has their reasons for doing things, but if you’re a loan buyer instead, and that’s better for the sponsor. Right.
Because now they can retain their independence. Right, right. Now, for a long time, Fidelity was just direct.
Charlie Woo:
Just direct.
Kevin Kim:
No institutional partnerships. Correct. No loan selling.
Correct. I’ve known the partners and the former founders, the founders for a long time, just kind of traditional California hard money. Correct.
Right, yeah. And so the transition to now bringing that institutional flavor to the business. Yeah.
Talk about that real quick, yeah.
Charlie Woo:
Sure, yeah. It was something we explored as a result of getting a lot of outreach from those institutions.
Kevin Kim:
You’re in California.
Charlie Woo:
Yeah, you’re in California. You know, private credit, et cetera, is a hot commodity right now. And so they need to find the platforms, again, that have a track record.
And something to study. We were always very clear that our number one priority are the individual investors that have kind of grown with us. And really making sure that the portfolio is solid on that ground.
But the institutions, as they were coming in, we didn’t think that there was necessarily like kind of a structure that would make sense and be allowed under the terms that we would want. So we still are exclusively kind of retail investor money, but I think in the pretty near future, we’ll also bring on some institutional investors that almost have a flavor of being like another LP, as opposed to running the show.
Kevin Kim:
I mean, that’s been the golden ticket, it seems. And very few have been able to acquire the common structure that we see as a JV relationship. They don’t wanna commingle with retail investors.
Right, right. But I mean, we’ve seen it once, but that’s almost an impossibility. But like they take an LP position in a JV, a lot more discretion, you’re given a lot more freedom to run and operate and they have their mandate.
That seems to have been proven by many shops here in Southern California and other parts of the country in residential. Now the question mark is in multifamily and commercial, I have yet to see that story been played out, especially in small balanced commercial. I don’t know if I know anyone that’s really entered into those kinds of relationships.
Charlie Woo:
Yeah, it’s interesting, because we’re not large by any means. We do about 200, 300 million a year. But there’s just as a, in general is not a lot of institutional capital, not a lot of platforms that are doing bridge lending on small balance.
There’s a lot of smaller groups that are syndicating loans, et cetera, and trying to crack that space, but not a lot of scale.
Kevin Kim:
For a little while, there were these like these life co-backed funds that came in for a little while. Yes, that’s right. Kind of not been around, I haven’t seen them as often these days.
Charlie Woo:
And it’s interesting, because those are the kinds of groups that reached out and we’re talking to. They need origination volume. They need origination volume.
And what happens is that they’re so large that to have kind of this one desk, from what I hear, it’s not that those loans went bad, but the resources that they kind of had to dedicate to it to move the needle, it didn’t happen. And so frankly, I think that is one of the sources that are gonna be very interesting.
Kevin Kim:
Yeah, I’ve always wondered why, in small balance commercial especially, why they couldn’t learn from our friends in hard money, in residential. Guys, why isn’t there a market to buy these loans? Why isn’t there a market to JV?
Yeah, yeah. There were attempts at correspondence. There were attempts at loan buying.
I think like I saw the Veris program come out. A few life codes were buying paper. But a lot of them ended up becoming direct lenders themselves.
Yes, yeah. And so, and that’s a lot of resource work. Yeah.
A lot of resource work. So it sounds like to me what you’re saying is that now they’re learning their lessons. Yeah.
And they’re realizing, wait a minute, maybe the guys in multifamily are doing it right.
Charlie Woo:
Yeah, exactly. I mean, I think it’s the age old question. If you’re an endowment, do you try to do it yourself?
Or do you try to find a fund or platform that can do that? It is not easy to originate. But it makes a lot of sense for life insurance companies or asset managers on the back end of it that really understand the space.
I mean, who’s the biggest lender outside of banks?
Kevin Kim:
Life insurance.
Charlie Woo:
It’s life insurance companies. They understand apartment buildings. They like the cash flows.
Kevin Kim:
But not life insurance. Both the long term and the short term product would not be available.
Charlie Woo:
Yeah. I think the nuance is that for it to fit in the life insurance bucket and to be short duration loans, takes a little bit of skill and nuance that it just takes resources to be able to do. And then to find that nugget, it’s not every loan.
It’s one out of maybe 10 though that could fit. And so that’s what we’re there for. Did you join Fidelity with that specific mission in mind for the company?
Not necessarily. I think we have been very fluid and opportunistic throughout. But yes, we knew that ultimately we were going to draw from a larger or broader base of investors.
And that we were going to grow prudently that way.
Kevin Kim:
As kind of a newly joined president, you have two partners behind the scenes. The company is now taking on new verticals to expand its footprint. The question is now, the way the market is playing out for you guys.
Yeah. It must be challenging for a group that’s been known to kind of, especially here in Orange County and some in California. Yeah, yeah.
You guys have a reputation for being opportunistic, being open-minded to a lot of types of deals. Yeah, yeah. But the way the market is shifting, it’s almost as if, really it’s just, you do multifamily and resi.
Yeah. Or you do commercial.
Charlie Woo:
There’s no people, not many shops that do both. Correct, yeah, yeah. Yeah, it’s a rarity, but actually that’s what we’re really seeking is, because ultimately we want to, whether it’s even an off-balance sheet solution, we want to have a relationship with the brokers as well as the end borrowers.
Because if you think about the end investors, many who own multifamily also own a shopping center, right? And so we want to kind of find a full-stop solution for that but it’s a delicate balance because we never, I don’t think we’ve ever sort of, once we’ve committed and issued a term sheet, changed our minds. Right, right.
And so you have to be very selective and you have to be out there doing what you’re saying you’re doing. Right.
Kevin Kim:
And as a firm that works in both arenas, I see this phenomenon, and I actually don’t agree with it either. I’m like, well, good loans are good loans. And they’re all short-term.
But the challenging issue seems to be that it’s more of a, especially with those with investors, there’s a lot of naysayers in commercial real estate right now. It’s funny because I think they’re going through a truncated version of the woes that residential went through and OA. I mean, they’re really struggling out there.
And that begs the question for you guys is like, finding good deals in that world, are there good deals to be done? It’s really a question mark.
Charlie Woo:
Yeah, I mean, we’ve been fortunate to be able to find it but there are times where you have to be very careful.
Kevin Kim:
Very careful, yeah.
Charlie Woo:
And one thing people say, well, what’s your crystal ball on where interest rates are going or where tariffs are going? And we say, we never know. When it comes to the answer.
Yeah, nobody has that answer. But what we’re careful about is not stepping into huge headwinds and we’re okay, actually kind of staying on the sidelines for a specific sector for a while. But also when you’re in a certain geography and have an expertise, for example, an office, which we don’t do a lot of, but we do have some office in the portfolio.
And they’re great. Why? Because they’re all owner-occupied office versus non, very different.
Kevin Kim:
Owner-operator is different.
Charlie Woo:
Very different, as you know, right? And then both in terms of what qualifies for a permanent takeout or the SBA world, et cetera. So when you go in with that mindset, never of like taking back property, but what’s the worst case and what’s the situation likely to play out in?
Kevin Kim:
And it’s always one of those things where sponsors follow trend. They kind of fall into that. So on that aspect, being more opportunity-minded, what are you doing specifically on the underwriting side to make sure that you’re mitigating that risk?
You mentioned it, owner-operator. If it’s office, we only wanna do the small stuff. Owner-operator, I’m guessing a lot of medical stuff.
Office condo, that kind of stuff. But are there other, you mentioned SBA. So what are the kind of the underwriting criteria that you’re using to keep yourself out of hot water in that CRE space?
Because a lot of our listeners are interested in doing CRE. A lot of folks did CRE for a long time. We’re seeing a little bit more energy in that market.
New shops opening up. So give me your thoughts on how are you mitigating a lot of your risks? Because it’s hard to underwrite these deals.
Charlie Woo:
Absolutely, yeah. And you definitely need, and by the way, when I say this, I credit my team. This is not my world.
Real estate, actually, in general, was relatively new to me. I’m a capital markets, investment banking guy. I know how to raise money, but not necessarily that side of it.
But one, every day, every morning, we meet, the full team meets in daily loan committee to look at deals. So it’s not just the three principles. It’s the full team with different backgrounds.
We’re focused on two main things. One is asset coverage and strength of borrower. And again, you can make good money not focused on those variables, but as an example, if you are very comfortable that what the worst case scenario on an asset value is, not just what appraisers say, or not what you get when they submit a loan request, but what you know, which is why we kind of stay focused in markets that we understand, that’s significant kind of margin of safety.
The second is on borrower strength. So there are some lenders out there that are saying, oh, you know what, low FICO, we don’t care. Asset-based, right, right.
And they’re exclusive. And again, you can do okay that way. We’re trying to avoid trouble, not work out trouble.
So it sounds almost like a bank-lite type product. It’s a bank-lite product. But for example, a strong borrower, and even on a light rehab project or something where things go sideways and over budget or something like that, and they need to put in a little bit more equity to now qualify for a permanent loan, a strong borrower can do that.
Somebody who’s stretched is not necessarily gonna be able to do that. So there’s a number of kind of backup plans, but those are the two.
Kevin Kim:
Actually, so we mentioned BankLite, right? So that’s actually been a topic of late, and this kind of bridges into your capital markets background as well. The role of banks in both, let’s put residential to the side, one to four to the side for a second.
Multifamily and commercial real estate, even small-balance stuff. I worked at a Korean bank. I was a loan officer.
My job was to find and underwrite small-balance commercial construction loans. They don’t seem to be lending at all. It is completely no longer, we will not originate anymore.
Charlie Woo:
Well, the stat is that, I think regional banks in particular, but if you included all the banks, they accounted for between 50 to 70% of all these bridge-type loans. Not that long ago, three, four years ago, pre-Silicon Valley, and then it just got devastated.
Kevin Kim:
And it was all dwindling.
Charlie Woo:
Yeah, and alternative lenders like us accounted for maybe 15% of the market. Now, alternative lenders like us account for 35 to 40%. I would argue higher if you factor in multifamily.
Kevin Kim:
Sure, yeah.
Charlie Woo:
Yeah, it’s probably understated, but now, and the regional banks and others have gone from, call it, almost 70% down to 30%.
Kevin Kim:
And probably- It’s more than I thought.
Charlie Woo:
Yeah.
Kevin Kim:
30% is still pretty high.
Charlie Woo:
Yeah, they’re still out there. I mean, that’s who we frankly face, and some say, well, who’s your competition? It’s not necessarily others focused, because there’s so many niches of bridge lending, but it’s really a bank, sometimes doing what they should, right, is stepping in for a very strong borrower.
Kevin Kim:
What you’re telling me is, those are the loans that I used to do, right? We used to underwrite the borrower more. We spent six months underwriting the borrower.
Exactly, yeah. Now, that same analysis, and let’s look at residential really quick, because what’s fascinating with the banks is that they’re still actively involved in a weird way. I had a brief discussion with our friends over at CB3, and they were telling me, the banks are still active.
They’re just active in different ways. Yeah, yeah, yeah.
Charlie Woo:
So banks are, they’re not lending on fix and flip and construction anymore. Correct, yeah. I think it depends, because we’re in the market every day dealing with banks, right, because they’re our takeout.
Kevin Kim:
Yeah, you need them.
Charlie Woo:
Right, and so it really depends on how you see them. Like, they’re filling that, so a loan that’s 12 months for us, nine months later, a bank kind of steps in and does that takeout. It’s still pretty formulaic, 1.2 or 1.25 DSCR, et cetera, so it’s a little bit more check the box. Okay, but they’re focusing on term loans.
Kevin Kim:
I think it’s still primarily term loans, and then the- Yeah, 1.2 DSCR is a very conservative DSCR product that a bank can and should do. Exactly, yeah. But they’re not touching the bridge anymore.
Charlie Woo:
Yeah, I think that’s right, yeah. It’s rare, rare that a bank is providing loans.
Kevin Kim:
What’s funny also is that, for instance, in our industry on the residential side, I went to Forward Fix and Flip Construction, and they were telling us that the banks are actively buying these loans, and that was a shocker. I went to a couple of different capital markets, and I was like, wait a minute, you’re telling me that Barclays City and these big banks are buying these loans? I didn’t even think that they were buying these loans.
That was shocking. I knew that all the buyers existed, and they’re upstream of them. I didn’t know that those banks would buy these kinds of loans.
Charlie Woo:
Yeah, I didn’t know that, but just in general, yeah, there are some asset managers that are saying that because the RTL space has now been a little bit more, I guess, codified. It’s sexy now. Yeah, it’s sexy now.
There’s probably some loan desks from big banks that are looking at that and saying, hey, we’re comfortable with that, yeah.
Kevin Kim:
Yeah, because it seems to me that if you’re trying to sell paper, and you have access, and you have the ability to tell those stories at that level, that might be more creative than dealing with your local aggregator. Correct, correct, yeah. That’s kind of, I want to ask about the capital markets perspectives right now, because what, I mean, it’s really, really frustrating, but as a guy that’s been doing bridge loans his entire life, like any other bank, right?
It’s construction loans, I didn’t touch term loans. Came over here, all my clients are RTL and bridge loans. Term lending, on the private side, has just exploded.
We were talking before we started, like the advent of the DSCR product, and not in that one to four, that’s been around for a long time, in multifamily.
Charlie Woo:
Yes, yes.
Kevin Kim:
So are you guys actively doing that?
Charlie Woo:
So we are actively doing that too. That’s a new product for us, and probably the new, you know, best new product that we’ve introduced. And these are DSCR loans exactly like you’re talking about.
So it’s not necessarily SFR one to four, it could be multi, there are certain limits. Right now, most of our focus is on kind of two and a half million dollar loans, and below on that, yeah, exactly.
Kevin Kim:
So small, like sub 10 unit. Exactly, yeah, yeah.
Charlie Woo:
Now we can do larger ones as well, but in terms of the most competitive rates and where we’re seeing the most activity, yeah, and we’re competing and beating banks. So yeah, that’s an exciting new development.
Kevin Kim:
And that’s all, and I’ve always had trouble with DSCR because pricing never made, it’s all correlated to tenure.
Charlie Woo:
Yeah, it is, it is very driven by treasuries because that market looks at a spread to the treasuries.
Kevin Kim:
Now my question is more on the multifamily side, with rates being what they are and the treasuries, but multifamily now coming back, it’s not back, it seems, and I think it’s thanks to this DSCR product. Yeah, yeah, yeah. Because for a long time, everyone was like agency, agency, agency.
Correct, yeah. Now we have an alternative agency, SBA or agency, SBA is dead too. With DSCR being now available at the private level, is it only really the small stuff or is it also like, you can do it up to the big stuff?
Charlie Woo:
One of the biggest areas that we’re exploring is the larger stuff. The hundred dollar unit. Exactly, more the hundred unit, which are actually, those are the ones that we’re looking at the bridge loan opportunities for in general.
Right. But offering a DSCR product to that, I think there’s a huge vacuum. But is it offered at the institutional level?
I don’t see it ubiquitous yet. Yeah, it’s still tough. It’s still primarily, at that point, it does go to agencies or banks.
Right, it has to go to agency.
Kevin Kim:
But that, interesting why they haven’t created that yet. Yeah, we scratch our heads as well. What do you think it’ll take for the capital markets to figure that out?
Because ultimately, it’s just a securitization product.
Charlie Woo:
Yeah, I think honestly, it’s gonna be different pockets. For example, life insurance companies, figuring out and saying, because right now, they’re dipping their toes into it. This is my theory, is that they’re dipping their toes into it.
And if you were gonna allocate 500 million to test the market, you’d rather have a very diversified pool than a couple $25 million DSCR loans. Yeah, if you’ve got 500 million to play with, you don’t want giant loans. But it’s the natural evolution of that market, however you define it.
Yeah, there’s still a lot of, I call that still small balance.
Kevin Kim:
It’s not like the massive, or I agree, but those things are all privately owned. Syndicators, developers, and funds all own those things. Correct, yeah.
I mean, on the real estate side, the hardest challenge for getting those deals on is takeout.
Charlie Woo:
So a private product makes sense for that. They can sell it at home.
Kevin Kim:
100% agree, yeah. That’s interesting.
Charlie Woo:
Yeah, and that is one of the things that I think is the benefit for us of including institutional investors in that mix that can kind of accordion into a new product like that. So they haven’t telegraphed any reasons why they’re not doing it, just to kind of? You know what, when we chat with them, they all say, yeah, yeah, yeah.
It makes a lot of sense, right?
Kevin Kim:
Probably one of those things that you’re like, who’s gonna run into the room first?
Charlie Woo:
Yeah, exactly.
Kevin Kim:
No institution ever wants to be the first one out the door.
Charlie Woo:
Exactly, yeah, yeah.
Kevin Kim:
They wanna see someone else do it first.
Charlie Woo:
Yeah, yeah. But you know, you’re absolutely right. I mean, we used to call it kind of internally, you know, a mini-perm type of product.
It is. But we agree with you.
Kevin Kim:
Yeah.
Charlie Woo:
And it’s actually, you know, telling that somebody, like you have a traffic in this industry.
Kevin Kim:
I was like, why isn’t there a DSCR product for the, you know, the 10, 15, $20 million deal?
Charlie Woo:
Yeah, we’ve been talking about this for, yeah, five years now, yeah.
Kevin Kim:
And they all say, oh, it’s just go to the, you know, the agency product. Well, the agency product, it’s too hard to qualify for, and it’s too expensive.
Charlie Woo:
Well, I think that’s also what’s creating the need, because before, it used to be pretty easy to just get the agencies, but now it’s become really difficult.
Kevin Kim:
Very challenging. And so there’s a need, yeah, totally. Until they solve that problem, which I don’t think will happen anytime soon.
I agree, yeah. I’d like to ask a little bit more about you. Okay, yeah.
Because you have a very interesting background. Yeah. So did you go to Wells like right out of college, or like were you always at Wells?
Charlie Woo:
No, no, no, so right out of college, I actually was an analyst at Morgan Stanley. Okay, so you’ve been in that world. In that world, yeah.
And I was at Morgan Stanley for about six years. I’ve also been in private equity as well. So I kind of hopped around a little bit, but for the most part, you know, it was Morgan Stanley, Citigroup, and then Wells.
And all kind of in the iBanking.
Kevin Kim:
All in the iBanking. So were you always kind of touching this market, or was it?
Charlie Woo:
I was never touching this market, frankly, until I went over to Wells. So I started off as a media telecom M&A banker. Okay.
Very different. Very different, yeah. And then it eventually morphed into kind of consumer companies.
And then when I went to Wells, it was actually right when, Wells was never in the investment banking world until they acquired Wachovia during the Great Recession. And that’s when I was hired on to try to build it. So it was almost like a startup within this massive bank.
And we were chasing opportunities where the Wells Commercial Bank had relationships.
Kevin Kim:
Didn’t matter.
Charlie Woo:
Which makes sense. Which makes sense. And that’s when I was actually introduced to this cottage industry.
And I was scratching my, how are these groups making 11%? When was this? This was 2011.
So the very first deal. So you were seeing it had been the bad old days when you had 12 and four. Yes, yes.
Kevin Kim:
Hard money lending, yeah.
Charlie Woo:
But in where mortgage rates were whatever, 4%. I was like, how is this delta possible? And then it made a lot of sense.
The only national shot was like Genesis. Well, Genesis was my first deal. So Genesis, when I met them, they were doing 60 million a year.
And then. Fascinating. And then we, and I was so fascinated when we made a call and it was a lucky rifle shot to Oak Tree, who was in my backyard and I also covered.
And it was probably the one group.
Kevin Kim:
Was Oak Tree doing actively involved in real estate?
Charlie Woo:
They were actually trying to do this themselves at first, which is why they were, and they realized they needed a platform. So they didn’t care what size, but credit to the Genesis team, et cetera, that, and once that marriage happened, then the other lenders, Anchor was my second deal. And so they came out of the woodworks looking for that same deal.
Kevin Kim:
It didn’t feel that way. Cause we were on the ground. I remember I was at APL when the Genesis deal penciled and it got announced and I was like, wait a minute.
Cause the Oak Tree deal never got publicized. It was the Goldman deal. And I was like, Goldman bought Genesis?
That doesn’t make any sense. The market was so small.
Charlie Woo:
Well, what happened was we handled that sale as well. And what happened was the Oak Tree moved so quickly on this first deal, cause they did not want me to shop it. And they wanted it and they wanted the platform and it was a structured investment that we had negotiated, but they had warrants in the company.
And so it went so exceedingly well, they scaled from 60 million a year to 1.2 billion in two years. That’s about right. And at that point, the warrants were so much, they hired us to then sell it.
And Goldman, and that was a competitive auction. And Goldman had, I think kind of like a mixed results. And they tried to acquire it, as you may recall, like through their quote commercial bank and with lower cost of capital.
But a commercial bank then is subject to the regulations of a commercial bank. And that’s why they had to expedite a sale. And then there was a third transaction.
Kevin Kim:
And that was the fascinating, everyone talks about like, we were talking about M&A in our industry, so aggressively and so actively. It’s fascinating cause you’re on the ground floor. And we met other folks that had their hands involved in all these different trades, but they were all happening at the same organization.
All the high profile ones. So let me ask you about the Anchor transaction. Okay, so M&A in our industry, I’ve never been a huge believer in it.
And then I had to change my tune because like, whoa, Anchor just, I mean, Steve Pollack. He’s a legend, right? Dr. Pollack’s a legend in our industry. And he’s in California. So I was privy to his story early on as a junior associate here. Like everyone was like, they’re it, right?
And then when they brought on Wafra, they were like, oh, now they’re really it. And then when they sold to Pretium, that was just like, holy crap. Our industry has arrived.
Yeah, yeah. But at the same time, I’ve always like, it’s like Anchor also like, they morphed over the years. So it’s been a challenging question on my side.
I’ve never known that M&A is that really, that beneficial for our market.
Charlie Woo:
It’s funny you say that because Steve Pollack is who I called recently just to check in and say, hey, great. He’s doing great. He’s actually doing some deals on his own and he’s retired in Florida, but yeah, yeah.
Kevin Kim:
I think he’d be in Hawaii for some reason.
Charlie Woo:
One or the other. But yeah, I asked him, do you have any regrets in selling out? And he said, absolutely not.
But he said he gets it, like in terms of, and we were kind of comparing notes because we ultimately like what our focus is in really kind of growing and keeping the platform forever.
Kevin Kim:
You’re taking what a lot of folks are independently saying, we don’t want an institutional partner.
Charlie Woo:
Yep. We don’t want one. Yep, exactly.
And Steve said that they debated this internally. And that’s when I did that Wafra deal. I think ultimately it benefited in the sense that.
I think the Wafra deal benefited them immensely. Yeah, it benefited them, but I think the industry as well because it’s that that led to the intro of RTL and to the securitization market, et cetera. You do need a little bit of the institutional and Wall Street money to be able to figure stuff out creatively.
Where I think it has hurt is the capital is still subject to the whims of the market. And there are times where securitization sees up for. It’s gonna have to.
Yeah, and it will, right? And so what happens? What’s the trickle down to the originators, the borrowers, et cetera, in that time?
Kevin Kim:
And that’s the thing is I’ve been preaching to my clients. They get offers on guys. Sometimes it’s smart to stay independent.
You remember how well you were doing during COVID? Yeah, yeah. That’s a sign.
Yeah. Because the reason why your competition was suffering was because they were 100% reliant on capital markets and they took a dump. They couldn’t do anything.
Not their fault.
Charlie Woo:
Right, right.
Kevin Kim:
Their money’s fickle.
Charlie Woo:
Right, exactly.
Kevin Kim:
Your investor money’s not.
Charlie Woo:
Yeah, it’s smaller.
Kevin Kim:
Yeah, yeah. It’s not $5 billion, but it’s meaningful. Yeah, yeah.
And it’ll last and it’ll stick by you. You’ll live to find another day. Is where I always had this challenging issue is the market has grown.
I mean, I remember when someone told me they were doing $100 million a year in origination, I was like, oh my God, so much volume. And then today, you look at the top 10 lenders in the country, they’re all doing a billion a year or close to it. And it’s just like.
Yeah. So our industry certainly benefits from all of your efforts and all of the institutional investors’ attention. But it begs an interesting question, like from a capital market standpoint, right now, securitization is all anyone can talk about.
Two or three years ago, M&A was all everyone could talk about. It makes me wonder what’s the next thing, right?
Charlie Woo:
Yeah, I don’t know what the next thing is. I think it’ll probably start to stabilize a little bit into different sources. Insurance money in our industry is somewhat new and it’s a nuance because it’s also securitization, but it’s its own.
Kevin Kim:
These are the only really like the term stuff right now. I don’t see a lot of allocation from LifeCo into RPO.
Charlie Woo:
Yeah, and I think, I mean, without getting into like all the nitty gritty, sort of like securitizations, LifeCo money has to fit into a kind of ratings bucket and you can do that. It has to be investment grade. Yeah, it has to be effectively, but it has to be manufactured investment grade, right?
And so those are the things that frankly, we’re learning, I’m learning. Well, yeah, it’s coming around now. And it is, yeah, and it’s developed a lot, I think, in the last couple of years.
So I think, you know, it is just a matter of time.
Kevin Kim:
Interesting, because like, I just don’t know. LifeCo has tried to break in and that was the big hangup. They couldn’t figure out how to do it, the solve on the institutional grade.
But then when the ratings happened, they still didn’t jump in. So my question was, well, is it because the ratings are high enough or is it because the company’s not rated? What’s the issue?
What’s the issue on LifeCo’s side? Because they’ve only gone in on the DSCR. Yeah, yeah.
Charlie Woo:
I mean, again, I think insurance money is very focused on cash flow, right?
Kevin Kim:
And debt coverage.
Charlie Woo:
And so hence, let’s say ground up construction, by definition, it’s zero cash flow and negative, in fact, negative cash flow. So how do you do that? And the answer is there are ways now to be able to do that.
And so that’s where things are, I think, evolving. I hope so.
Kevin Kim:
I mean, that might be a much more, because the nice thing about LifeCo is it’s much less fickle in the context of once it’s locked in, it’s locked in. Once they figure out how to crack that nut, typically stick around for a while. We’ve noticed that on commercial.
They haven’t really gone anywhere on commercial. They’re just having efficiency woes, right? They’re just trying to figure out how to make that widget better, but they’re in.
They like it, they’re in, they figured it out. I didn’t know that they were trying to figure it out That’s good news. Now, for Fidelity, right?
Because your mission is to stay independent and integrate some partners. Tell me more about your guys’ vision for the future when it comes to your partnership with institutions. Because right now, the appetite seems to be, they’re all looking at residential.
They’re all just paying attention to residential. Commercial’s kind of not popular. Multifamily, I don’t know what their sentiments are like.
You mentioned earlier that they like the DSCR, multifamily. Are you guys pushing into, I would call it, I guess you can call them JVs, or just more like buckets of capital at your discretion to access?
Charlie Woo:
Yeah, I mean, I think what we’re exploring are partners that, even if they’re institutions or have a long-term vision, and there are groups like that. So we’re very selective about who.
Kevin Kim:
They wanna commit with you for a while.
Charlie Woo:
They wanna commit for a while. I think actually the ones that really appreciate us stepping out of the market, we stepped out of the market for a couple months during the rapid interest rate increase, which actually benefited us. But not this, hey, you gotta put dollars to work type of mentality.
And actually those that offer a little bit more flexibility in terms of us not changing our game plan or business plan, which is there are some commercial deals that make sense, and there are some residentials that make sense. And what that does is it brands you uniquely as a platform that provides solutions for borrowers, strong borrowers. And because, again, if you’re a real estate investors, many have a mix of that portfolio.
Kevin Kim:
The goal is to bring on the most flexible. Flexible is the right word, yeah. And also much more committed.
Committed, too, yeah. That’s, I think that’s what we’ll say. That’s for both multi-commercial, resi, all three, and then also short-term, long-term.
Charlie Woo:
Correct, yeah. We don’t wanna change our plan. And then, again, I think the institutional strategy could also help us expand into adjacent markets like the mini-perm, et cetera.
Kevin Kim:
Well, mini-perm is, I mean, if you guys can crack that nut, I think the market will benefit from that greatly. I would like to see that happen personally just because we’ve been boxed out of the agency world as a law firm.
Charlie Woo:
We need it. We definitely need it, yeah, yeah.
Kevin Kim:
For a near, no, actually more than a decade now, I have been trying to get the law firm approved as an agency law firm. Yeah.
Charlie Woo:
Approved law firm.
Kevin Kim:
It’s a fascinating world. It’s like a monopoly of law firms approved to do those documents.
Charlie Woo:
And it doesn’t make any sense to me.
Kevin Kim:
That’s so un-American.
Charlie Woo:
Yeah, well, same with lenders. You need to, you know, they’re only a handful that are given the license to do it, so. Right.
Yeah.
Kevin Kim:
That doesn’t make any sense.
Charlie Woo:
Yeah, yeah.
Kevin Kim:
Now, as a former M&A guy, or I guess you could call it a reformed M&A guy, that must kind of be in the back of your mind constantly.
Charlie Woo:
Well, we get asked, and a lot of people kind of presume that that’s, that was my goal as well.
Kevin Kim:
Yeah, well, you did your career before. Yeah, yeah.
Charlie Woo:
And look, it’s always kind of a, you know, partner’s conversation.
Kevin Kim:
Right.
Charlie Woo:
The good thing is that Dave and Adam and I are always kind of, we kind of run by consensus. You know, if one person doesn’t share in that vision, then we, you know, choose to go with what does. Right.
But I think honestly, even for all the great, greatest success stories, anchor, et cetera, you ask them, you know, if you could have done it independently and had that same kind of end result, would you have kept it independent? They say, of course. They just don’t think that that would be possible.
And so for us, it just means kind of growing in a more, you know, prudent manner. But at the same time, we agree, there’s a window of opportunity. You were saying earlier, like, you know, why wouldn’t you grow if you can?
You absolutely do. Well, that’s also one of the interesting questions.
Kevin Kim:
We’ve had clients tell us, like, I could be 10 times my size, but if I did, I would also have 10 times more problems. Yes, yeah. So you could also choose to grow in a way that’s great for the team, but not so that it’s bad for the business.
But the opportunity is there. So that’s kind of a challenging question. As an operator, it’s like, now you’re faced with that conundrum.
I could add the horsepower that I want and suddenly have the need to be tripling my staff. Sure, yeah. Tripling my executive team, whatever.
Are you guys juggling with that at all? We juggle with that a little bit. I mean, it’s always a balance.
Right. Because to maintain that independence means that you’re gonna have to accept the reality of, okay, we’re not gonna scale as hard and fast as, right? As you can.
As you can, right? Because if someone buys in and institution owns you, different conversation.
Charlie Woo:
Yeah, we are always kind of looking for that happy middle. And again, I think you just have to stay true to what your vision and plan is. Maybe it’s the right call, maybe it’s the wrong call.
But in general, I think there’s a real opportunity to just.
Kevin Kim:
But at the same time, small transactions, not big transactions. So in SFR, we had Mike Hoffman on the show from Longhorn. He acquired Skybeam.
I just saw him a few days ago. Shout out to Mike. We also have seen these small transactions happen where it’s not necessarily M&A in the true sense.
It’s more, okay, this guy needs to get, he wants to get out. But someone needs to continue his legacy and fill them in.
Charlie Woo:
And that’s an interesting way to grow the book. That’s actually interesting you say that because we’ve been approached now by many, you know, I wouldn’t say competitors, but you know, other bridge lenders, especially from my old world. Because, you know, I.
Kevin Kim:
Because I’m saying, because you have an M&A background, they must be thinking like, they must assume like, oh, he’s gonna grow by acquisition.
Charlie Woo:
Yeah, it’s harder to do than people think. There is an opportunity, like the Oak Tree Genesis deal or the Predium Anchor deal, they can work out. But you need to have a vision of like X billions in scale for the math to work.
For that.
Kevin Kim:
But for these two, it’s interesting.
Charlie Woo:
I think what is happening, and I always say this, is like, you know, if you’re a really small operator, your value is probably, you know, zero to whatever value, you know, somebody thinks. What’s your book value, really? It’s hard to ascertain.
Kevin Kim:
Yeah, you can’t use the same metrics.
Charlie Woo:
Yes, it’s really kind of more of a talent acquisition or the platform acquisition. However, that said, I think it takes a lot of diligence to figure out whether that platform, there’s real value in that platform. You know, either underwriting guidelines, managing risk, you know, team, as opposed to replicating it or doing it yourself.
Correct.
Kevin Kim:
Well, it seems to me at the small level, it’s more like, I’m just gonna, I like their book. Yeah. I like their business.
Yeah. You know, they’ve got a good book of business. Yeah.
They’ve got a decent amount of capital. They look good from a, if we integrated them into our business, it wouldn’t be disruptive. Yeah, yeah.
More of that perspective, as opposed to like, there’s some valuation calculation, future sale methodology here. Yeah. And it’s growth through acquisition, but grow almost like, okay, well, they basically do the same thing we do.
Right.
Charlie Woo:
Let’s swallow them. And it’s also really hard, and this is always the case. It’s really hard when you’re acquiring a platform that has a loan book that pays off entirely in a year.
Kevin Kim:
Well, that’s the thing with book of business, right?
Charlie Woo:
Yeah, yeah. It’s like law firms. So you have to have a repeating.
Sure, yeah. And even like with, you know, if you do it based on book value setter, you gotta assume that that capital can be redeployed. Oh, yeah.
And that the markets- What’s the book of business? Are they LOs?
Kevin Kim:
Yeah.
Charlie Woo:
The principles? Are they gonna stay on? So it ultimately comes back to the talent.
Right.
Kevin Kim:
Talent platform.
Charlie Woo:
I agree. I agree.
Kevin Kim:
I always tell small operators like, you can’t think of yourself as some kind of big tech platform that’s gonna get that 8X multiple. You are a law firm. You are accountancy.
You are a brokerage shop. That’s kind of how you should think about yourself. Yeah.
And that seems to temper their expectations a little bit.
Charlie Woo:
Yeah, yeah.
Kevin Kim:
But I’ve actually seen some success in doing that where we had a small deal happen on the East Coast. We had a relatively small deal happen with Mike Hoffman. It was like, but it’s worked out because the seller was motivated to get out and ride off into the sunset eventually.
Charlie Woo:
There are a lot of, there’s a lot of need right now, especially even with like aging owners.
Kevin Kim:
Sponsors. And they need to retire.
Charlie Woo:
Sponsors, yeah. They need to do that. And so they’re trying to figure out.
So I think the opportunities will be there whether we pursue that path, unlikely probably.
Kevin Kim:
It’s hard to sell those companies and buy those companies if it’s a, especially if their business is in the stone age. Yeah. It’s tough.
Yeah, yeah, yeah, yeah. Now let’s kind of look into now, you guys are now doing a lot of different things. Your team is growing too, right?
So I think you guys hired one of my friends from the banking world. He was one of my favorite LOs in the lender finance world. You brought Dylan on.
Yep, yep. And you’re bringing on more talent it looks like. We are.
Charlie Woo:
That’s something we are looking to do both geographically as well as, so we’re looking for example in the Texas market, in the Pacific Northwest market. Health markets. Yeah, they’re tough.
But again, that’s where we see the opportunity potentially. And so we’re always kind of looking to add on. The beauty of our business though is that in order, especially when, I always looked at it as you, it takes the same number of people in the infrastructure to do 100 million a year as it does to do almost a billion a year.
As long as you have the right people. It’s how you originate, et cetera, that that’s where you need to kind of expand.
Kevin Kim:
The back office definitely can be done that way. I think the challenging issue is the front office where just, if you’re doing SFR, you’re dealing with the number of loans. Yes, yes.
The number of files, the processes. Significant. Exactly, yeah, yeah.
Charlie Woo:
And that’s one of the reasons we like our area, even though it’s small balance, it’s still typically much larger than a Dixon slip loan.
Kevin Kim:
You’re not doing a $80,000 bridge loan. Exactly, yeah. Now, you said Texas and the Pacific Northwest.
Opportunity-wise, I’ll have you expand there because Texas has become saturated. It’s really tough. It is.
No, Seattle, not so much, but Texas is quite saturated and so many lenders now. The joke is that once, especially in SFR, once they figured it out, everyone ran into it. And from a rate standpoint, Texas is worse than California, at least in SFR.
In RTL, I think Orange County, the average rate is like 20 basis points higher than Austin, Texas.
Charlie Woo:
Yeah, yeah.
Kevin Kim:
And so it’s like, yeah. How did we get here, folks?
Charlie Woo:
Yeah, yeah. So is it mostly not residential, stuff that you’re looking at? Yeah, it’s rarely residential, unless you include multifamily as residential.
Kevin Kim:
That’s the hard part, yeah. It’s not, well, yeah, it’s not that, yeah.
Charlie Woo:
But they’re all, like a lot of kind of nuances, for example, like the tax abatement situations in Texas. We just did a deal like that. And then other, you gotta know the local markets and then be able to assess it.
But sometimes the math is way better than it is here. I mean, you’ll have some things that right out of the box have 1.1 DSCR, but doesn’t qualify yet. And it’s under rehab.
And it’s like, okay, well, why? And no one’s really able to do that. So we’re really, but sometimes there’s a reason why.
You know? And so yeah, that’s where we’re kind of going after.
Kevin Kim:
I mean, it’s a huge need. And multifamily in Texas has grown leaps and bounds. Yeah.
There’s so many new developments. And they’re all, a lot of them are small. And a lot of them are, I just got back from the multifamily show.
Dylan was there. Yeah, yeah. The stress on the financing side was real.
Yeah. And the lenders that showed up were so happy because like, this is great.
Charlie Woo:
Yeah.
Kevin Kim:
There’s only four of you guys in the room. They were so happy because everyone in that room was, they’re all small balanced, middle market, operator, owner, operator, builder types. They were all stressed out.
Yeah, yeah. So they all needed better opportunity on finance, especially on the term stuff. Sure, yeah.
And I brought up DSCR, my panel, everyone’s eyes lit up. They’re like, oh, I know I can do that. Yeah, yeah.
So that’s great. Yeah. That’s great you guys are offering that in Texas.
I don’t think a lot of folks have figured out the multifamily just yet. Yeah, yeah. Now with multifamily, you guys don’t do the construction stuff though, right?
Charlie Woo:
So we’re likely also with another partner to introduce something on ground up construction. Okay. Yeah, which is, and frankly on the larger, ground up construction for multifamily.
And built to rent has always been a very popular topic. And built to rent as well. Although there are more bridge lenders kind of around that.
Kevin Kim:
More bridge lenders in that world. Yeah, yeah.
Charlie Woo:
So we are, but I would say in multifamily for our kind of bridge loan, our core product will be stuff that is very light rehab. It’s just hard to monitor construction loans and draws and things like that. And so that’s why, but there is an opportunity there.
Kevin Kim:
And on commercial, again, I’d like to find out kind of your view on when you think it’s gonna, because people are talking that it’s getting better, right? Like last year was better than the year before that. Yeah.
From a sentiment standpoint. Yeah. From a flow standpoint.
Yeah. I’m hoping by the September when we go back to CMBA, it’s gonna be a little bit better. Every year it gets a little bit better.
It’ll be exciting again. Yeah. Do you think it’s gonna come back soon?
I mean, it’s tricky. I just don’t see it.
Charlie Woo:
I don’t know if, quote, it’ll come back. Right. Because I think commercial just requires a lot more of understanding of the story and the situation.
It’s a lot more custom. Yeah, yeah. And so, and it changes.
Like, so you’re right. Like office was a four letter word, you know? And it still probably is, but it’s kind of coming out now.
There’s some great- People have found the niches. Yeah, exactly. And I’m talking more to the office equity players who are buying at a 9% cap rate.
Yeah. Right, and they’re doing it all cash. Right, right, right.
I know somebody who just closed a $70 million deal in Calabasas all cash.
Kevin Kim:
Right. But it’s yielding- The discount on the property must have been immense.
Charlie Woo:
Exactly, and it doesn’t matter that it’s 100% leased. No one cares, right? Hence, there’s probably opportunity.
But as a lender, it’s still tough to, most of the deals you’re getting on are, there’s a reason why you can’t get it. Has there been at least a moderate increase in volume for you guys since last year to this year? Yeah.
Oh yeah, in commercial in general?
Kevin Kim:
In commercial, yeah.
Charlie Woo:
Yeah, for us, there has been an increase for sure. But again, like industrial warehouses, which we really liked, and it was a great- It was the darling of the industry for a solid five years. Yeah, and that’s really been probably the new office, at least for the interim.
So you gotta tread really carefully. But those opportunities are there.
Kevin Kim:
Right. And capital is still interested?
Charlie Woo:
Yeah, capital is still interested. When we underwrite a loan, part of it is we need to be very confident in the permanent takeout too. So capital is there.
By definition for us, the capital needs to be there on the permanent takeout one way or another. On the bridge side, you’re right. I mean, we’re able to, there’s a lot more kind of flexibility in what a borrower is willing to accept.
That’s good to hear. I mean, we hope that it comes back.
Kevin Kim:
Yeah, yeah, yeah. I think it will. There’s always gonna be solutions.
A lot of our commercial bridge clients have, I mean, kind of like you said, nowadays, all they’re doing is multifamily, and now they’re doing some residential. It’s like, you know. But their investors are more like, well, where’s the commercial?
Where’s the commercial? You guys don’t want us to take that kind of risk. Yeah, yeah, that’s right.
I just hope they don’t jump back into doing prep equity all over again.
Charlie Woo:
Well, that got a lot of people into a mess. Oh, yeah, yeah. Including some bridge lenders who were allowed to, yeah.
Our bridge product is first lien only. Oh, yeah, by all means. As you know, as an investor, we only allow ourselves to do first lien.
Kevin Kim:
Yeah, prep equity, if you don’t know what you’re doing, it can be quite scary. Yeah, yeah, yeah. So it’s kind of the part of the show where we kind of talk about future plans, right?
Vision for 2025, and it’s only May. So 2025, rest of this year, going into 26, tell our audience kind of what you guys are gonna be working on, how can they work with you, or how can they find you?
Charlie Woo:
Yeah, well, I think for us, we wanna be out doing basically what we’ve said we’ve been doing. So we’re looking for loans to back strong assets, strong borrowers, generally in the Western US. And in addition, I think on the backend, working on some other capital partners, we’re likely to continue to grow that base, as well as our retail fund, which is a huge focus for us.
We have a lot of interest now, especially kind of as private credit is so in vogue, and performance has been strong. And so with this whole sentiment, actually of private market offerings being available for especially, not just ultra high net worth investors, but just regular investors.
Kevin Kim:
With inflation, the accredited investor definition has become a lot less restrictive, especially here in California.
Charlie Woo:
Right, yeah, yeah. And so we really wanna grow that base. So it’s the bookend, it’s the capital source part of it, as well as finding good borrowers to lend to.
Kevin Kim:
And our listeners, if they’re originators, so you guys take on all comers, it sounds like residential, multifamily, commercial, small balance, bridge and long-term. Bridge and long-term, yeah. That’s fantastic.
And I always love doing these commercial episodes, because it takes me back to my banking days.
Charlie Woo:
I miss talking about commercial.
Kevin Kim:
Yeah, I miss talking about commercial, because we don’t, it’s just- Not that many are doing it. I mean, we just don’t see it as often as we’d like. We miss it.
It’s, from a law firm perspective, it’s always been much more attractive from a law firm perspective, and it keeps us busier, but also keeps us nimble. Residential’s kind of formulaic. Yeah, yeah.
So, all right. Well, that’s all the time we have for this episode of Lender Lounge. Charlie, thanks for coming down.
Thank you for having me, yeah.
Charlie Woo:
This was a really fun one. It was a real privilege.
Kevin Kim:
Tell the team I said hi. I will, I will. And you guys can see Charlie up there.
What conference is next for you guys?
Charlie Woo:
The next one is probably the real estate one in June, in Laguna. Right. For family offices.
Kevin Kim:
Yeah, the family office show. Yeah, yeah, yeah, yeah, yeah, yeah. That’s a good one.
Yeah, so if you guys are attending that one, you can grab Charlie and ask him some questions. Thanks for listening, and we’ll see you on the next one. You’ve been listening to Lender Lounge with Kevin Kim, brought to you by Geraci LLP, the nation’s largest private lending law firm.
Geraci is the leading legal resource for specialty lenders, asset-based lenders, private lenders, and non-bank institutions. Learn more about the firm at geracilawfirm.com. That’s G-E-R-A-C-I lawfirm.com.
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This is Kevin Kim, signing off.
