Real Estate Private Debt Investing

EMS:
So Noah, to kick off the conversation, tell us a little about the firm and how you got to where you are today.

NB:
Yeah, so we actually started the company back in 2009. We had all been in some form of real estate before we started Capital Fund. We were actually buying properties at the foreclosure trustee sale auction in Phoenix, so buying residential properties, fixing them up and selling them. When we met a couple investors that were down there also buying, they needed some capital for some deals, so we made a couple loans and just decided we liked the lending side of the business more than chasing properties and chasing down contractors. So we decided to pivot and start lending money.

We had some of our own capital that we were working with, made a handful of loans and then felt like the business had legs just because back in 2009 there was a lot of properties to buy and not much capital available. So that's when we started our fund and started reaching out to friends and family to raise additional capital and really just kind of grown it from there. So now we're in four different states. We've got an office here in Scottsdale, got an office in Denver, office in Dallas, and an office in Nashville. So those are the four markets that we're lending in. We've got about 750 million in assets under management and we've been growing and the goal is to continue to grow the business.

EMS:
Very interesting journey Noah, with that being said, love for you to share your outlook for real estate private debt investing.

NB:
Yeah, absolutely. I think real estate's a broad term and there's some aspects of real estate or some asset types that are doing better than others these days. So a lot of people read the headlines, real estate's in trouble. I think if we had a lot of office assets in our portfolio, I'd be a lot more stressed out than I am today. But we focus primarily on single family residential, so about 70% of our portfolio is single family residential. We also do some commercial assets like office, industrial, retail, hospitality, and mini storage. We do a little bit of construction, a little bit of multifamily and a little bit of land. So yeah, I'd say in general for us and the fact that we're focused primarily on single family residential, I feel cautiously optimistic. Obviously there's a lot of headwinds these days with interest rates and 2024 is going to be an interesting year with the election coming up and we'll see what the Fed does if we actually go into recession, but generally I'm optimistic.

EMS:
That's great. And now more specifically, where do you see some of the greatest opportunities in your space and why? I know you touched on residential, but love to hear more.

NB:
Yeah, I think there's probably more opportunities in the asset classes that aren't performing as well right now. Obviously office is the big one, but I don't know. I think a lot of people are leery of buying right now, even if there are distressed situations, just because don't really know where the bottom is with office and if we're going to be able to get people that have been working from home or out of the office for the last two or three years actually back into the office. I think there's definitely some opportunity in the multifamily space. There's going to be a lot of developers that have built projects and had a construction loan but now need to find permanent financing and that market's really dried up. Regional banks are mostly on the sidelines. A lot of traditional lenders have really tightened up or on the sidelines as well.

So I think there's going to be some opportunity there. And just single family residential in general. Even with interest rates and the seven, seven and a half percent rate for somebody getting a mortgage there's still demand, there's still buyers in the market and like everyone's talked about and continues to talk about, there's a housing shortage throughout the country, especially in growth markets. So I think there's a lot of opportunity there for investors. So a lot of the people that borrow money from us, because if you can find a decent deal on a property that needs some value to be added to it, you can do an adequate remodel on the property and you price it right, because inventory is so low that property is going to sell.

EMS:
Noah, on the other hand, what are some of the greatest challenges you face in your investing space and why?

NB:
Yeah, I think capital in general, the way we're structured, we balance sheet most of the loans that we have in the portfolio. We'll sell some loans here and there, but for the most part, we use the equity that we've raised from investors in our fund, and then we have four different credit facilities that we use to leverage that equity. So just with interest rates going up, our costs of capital has increased and three of the four facilities we have are with regional banks. So it's been a little touch and go over the past four months, six months, I don't even remember when the banking crisis started, but I think capital in general is going to be a little bit more challenging.

And even on the equity side from investors, because a lot of times when there's uncertainty, a lot of times people don't really want to invest in anything new. But our fund is performed well. We've given our investors solid yields again this year. So we're fortunate to be able to have a good network of investors. So we've been able to raise some additional capital, but I think in general, raising equity and then debt are going to be challenging for the foreseeable future.

EMS:
Noah, we've covered a lot of great ground today and wanted to see what your future plans are. Any final thoughts you'd like to share with us?

NB:
Yeah, absolutely. We've grown every year now since 2009. As long as the real estate market and the economy cooperates, our goal and plan is to continue to grow, but grow safely. So I think we've got some other expansion markets on our radar that we'd like to expand into like most people. The Southeast is an area that we like. So like I mentioned, we have an office in Nashville, but I think once the time's right, we will look at North Carolina, South Carolina, Georgia, Alabama. So yeah, really just kind of continuing to grow what we're doing and expanding and growing safely.

EMS:
Noah, I want to thank you so much for sharing your perspective with our listeners.

NB:
Absolutely. Yeah, thank you very much again for having me. I love the opportunity to talk about something that I live and breathe every day.

EMS:
And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

^{Transcriped by Rev.com}