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The Alternatives Mason: Building Alts Knowledge Brick by Brick | Episode 16 | New Opportunities in Commercial Real Estate Featuring Cory Johnson
10 Plays4 months ago
Welcome to The Alternatives Mason: Building Alts Knowledge Brick by Brick. Banrion Capital Management uses technology to help independent advisors scale and educate themselves on alternative investments. Since education is such a big piece of the Banrion mission and business, we are excited to kick off this series to dive into the nits and grits of the alternatives space. Episode 16 "New Opportunities in Commercial Real Estate" features Cory Johnson, Co-Founder & CEO of Pender Capital.
Cory Johnson serves as Chief Executive Officer of Pender Capital and brings over 20 years of experience in real estate acquisition, development, finance, and asset management. Mr. Johnson co-founded Pender Capital Management in 2015 and is responsible for the firm’s strategic vision and financial success. The firm is an SEC-registered investment advisor, specialized in U.S. based real estate credit opportunities. Since inception, the firm has funded over $676,900,000 in loans, secured by commercial real property collateral valued in excess of $1,060,676,301*. Prior to Pender Capital, Mr. Johnson founded several opportunistic real estate funds, which deployed value-add strategies through asset repositioning, while maintaining attractive risk-adjusted returns for investors. In 2012, Mr. Johnson co-founded Latitude Properties, LLC, a vertically integrated real estate investment firm focused on the acquisition, stabilization, and disposition of distressed single-family residences throughout Central and Southern California. In 2008, Mr. Johnson served as Managing Partner and Co-Founder of Paladar Capital Investments, L.P., and Montero Capital, LLC, with each fund specializing in the acquisition and repositioning of distressed single-family residential assets. From 2006 to 2008, Mr. Johnson served as land acquisition manager for M.D.C. Holdings, Inc., the nation’s 9th largest homebuilder at the time, where he was responsible for acquiring prospective development sites based on suitability requirements. From 2002 to 2005, Mr. Johnson served as a business development representative for Weyerhaeuser Mortgage Company, a GE Consumer Finance company. During his tenure at GE Consumer Finance, Mr. Johnson’s team originated more than $525 million in residential debt. Mr. Johnson holds a bachelor’s degree in economics from the University of California, Santa Barbara.
*The aforementioned collateral value is based on the value of the property at the time of origination, with funding issued through Pender Capital Asset Based Lending Fund I, L.P. (together with any of its affiliates), Pender Capital Management’s inaugural fund.Connect with Cory:
Learn More About Pender Capital: Pender Capital
Connect with Cory on LinkedIn: Cory Johnson
Learn More About Banrion: Banrion Capital Management
Follow Brittany on 𝕏: @Brittany_Mason
Follow Banrion on 𝕏: @Banrion_Capital
Subscribe to our YouTube Channel: @BanrionCapital
Important Disclosures:
The opinions expressed on the “The Alternative Mason Podcast” are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security.
It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any p
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Transcript
Introduction and Overview
00:00:01
Speaker
Welcome to the Alternator's Mason Podcast with host Brittany Mason, Chief of Staff at Bonner & Capital Management. You'll learn how to build alternative knowledge brick by brick. Bonner & Capital Management uses technology to help independent advisors scale and educate themselves on alternative investments.
Excitement for New Series and Guest Introduction
00:00:18
Speaker
Since education is such a good piece of what we do, we are excited to kick off the series and dive into the midst and midst of the alternative space.
00:00:28
Speaker
Hi everyone. It is Brittany Mason coming to you live from the green couch with another episode of the alternative Mason. I'm really excited today because we have a special guest, the CEO and co-founder of Pender Capital.
Corey Johnson's Professional Background
00:00:42
Speaker
We have Corey Johnson here with us today. He is bringing over 20 years of expertise in real estate acquisition, development, finance, and asset management.
00:00:53
Speaker
And since co-founding Pender Capital in 2015, he has driven the firm's success in the US real estate credit opportunities market with a focus on funding loans exceeding 1.4 billion. So Johnson's background includes founding real estate funds and overseeing distressed property management consisting delivering strong returns for his investors. So thank you, Corey. So excited to have you on here today.
Pender Capital's Nationwide Presence
00:01:21
Speaker
Thank you, Brittany. Pleasure to be here.
00:01:23
Speaker
Yeah. Well, I wanna, you know, you're in California, correct? Yeah, I'm sitting right now in one of our offices in Los Angeles, California.
00:01:33
Speaker
Okay, and you guys are nationwide, so where all do you have offices? Yeah, so our headquarters these days is in Dallas. It used to be one of our big origination platform offices, and my partner, our CIO, Zach Murphy, moved there during COVID, so we decided to kind of move the headquarters along with him. And we do have a couple satellite offices, one in Chicago, and one opening up near Charlotte. Fantastic. Well, so have you always called California your home?
00:02:02
Speaker
California has always been my home. Yeah, I'm one of the rare Angelenos that both my parents were actually born and bred in Los Angeles as well. So kind of like the new age West Coast's implant. So you're never leaving, huh?
00:02:18
Speaker
You know, it's it's funny. California for everything that is challenging. I think the state right now it's still. Still a beautiful place to call home. I mean, it's kind of kind of hard to beat on many levels, but I don't. I think it's going to take a lot to get me out of here to be honest.
00:02:38
Speaker
I agree. I used to live, I used to live in Santa Monica for a bit, and then I was in West Hollywood. And no, there's nothing like the California weather and being able to go to the beach. And it's just it's, yeah, it's, you know, Bernie, even though this the last two years, I saw it on the actually a Dodgers podcast or broadcast the other day that LA has got more rain days than Seattle this year.
00:03:02
Speaker
It is so bizarre. The weather I feel like though everywhere has been just bizarre. You know, I mean, you know, I spend a lot of time in Las Vegas and even the weather out there has just been, you know, the winds and then like, it didn't even break a hundred degrees last year until I think June, which is bizarre for Vegas. And, but I feel like the weather everywhere. So yeah, I don't know. Yeah. Well,
Corey's Career Path and Entrepreneurial Spirit
00:03:31
Speaker
Well, I'm really curious to know, growing up in California in your household, I'm really curious to know the foundation of your relationship to money. What's your first memory that you have associated to money? Well, you know, it's interesting. So I grew up in, you know, kind of a very entrepreneurial household. My dad was an aerospace engineer, had a
00:03:52
Speaker
had a business that's put a lot of hydraulics on a lot of the old Boeing seven series jets and whatnot. So my earliest memories are really listening to him kind of the trials and tribulations of owning your own business. And when I kind of got older and kind of came into the out of school and started getting my jobs,
00:04:15
Speaker
It was really funny. My dad gave me the advice. He goes, yeah, don't go after something where you can make the most money coming out of school. Go after something that you can get the most experience because long run, that's going to help you out. And of course I did the exact opposite. I went for something that I was trying to make more money earlier on.
00:04:35
Speaker
You know, it was, it was, it was an interesting can I started my career with warehouse or mortgage corporation which was better known as WMC which really was kind of focused on a lot of subprime real estate debt, kind of, you know, pre financial crisis. And although I honestly I.
00:04:52
Speaker
very challenging job in the sense that you felt like you needed to spray yourself off with a fire hose at the end of the day. I learned a ton and it charted the course of my career of
00:05:08
Speaker
you know, kind of understanding, you know, starting off on the debt side, kind of, and then I moved to the, you know, equity side and acquisition side of the table. So I got this, like, well-versed, you know, candidly, I probably have a very non-traditional path to where I'm at today and what I'm doing today. But, you know, it's nice to be able to kind of draw back on some of those experiences early on and kind of understanding, like, this is where I ultimately see myself going down in the future. Yeah. And what would you say was the greatest lesson then,
00:05:38
Speaker
on that path, would you say was there a pivotal moment where you're like, okay, an aha moment where you're like, okay, I'm actually on the wrong path. This is more of what I'm interested in and what I should be doing. You know, it's funny. I don't know if there was the ultimate, like just aha. I knew I wanted to eventually kind of start something myself. And I think that was just kind of instilled in me through my father and growing up.
00:06:06
Speaker
So, I remember right before the financial crisis, I had moved up to the San Francisco Bay Area. I was working for a company called Richmond American Homes, we were the ninth largest home builder in the nation at that time. I was doing acquisitions for them. And it really kind of, you know, crisis hit, you know, hey, we're not going to acquire land for years to come.
00:06:27
Speaker
So I kind of, that was my aha moment of, you know, like, hey, I think if there's a time, this is it. You know, I've got to figure out something to do. So basically, you know, went out and kind of, you know, big borrow scrap and still tried to raise some money. We started a couple of opportunistic funds that actually went back and started buying distressed public home builder assets at that time.
00:06:49
Speaker
that kind of morphed back over into the debt side of the table. I was talking with a pretty close family friend that was pretty well to do. And at that period of time, even a guy that had a 800 plus credit score, he was looking at it for a 20% rate in term refinance on an income property that he had down in coastal Orange County. And he called me because he knew I was kind of tangentially in the business and he goes,
00:07:14
Speaker
I can pay cash for this asset 10 times over, but no bank will lend to me right now because I'm not a W2 employee and my tax return shows some losses for a few years. And so it was kind of a weird like light bulb moment kind of flashing in my head. I'm like, wait a minute, if this guy is having problems obtaining financing, there's got to be a ton of other people that are having similar issues.
00:07:37
Speaker
that was kind of like, you know, I say probably, you know, iteration number four of my business career at that point really started kind of arranging debt for, you know, companies or individuals that were looking to obtain, you know, financing that the banks just couldn't provide during that period of time. So that was kind of
00:07:56
Speaker
you know, prepender capital, but kind of leading up into kind of, you know, what we do today and, you know, what we provide. And, you know, today the market's not, you know, it's more similar to kind of how it was post financial crisis. So it's kind of kind of a strange kind of full circle of my career, kind of where I've gone and kind of where I ultimately sit today.
Family's Entrepreneurial Influence
00:08:16
Speaker
Yeah.
00:08:17
Speaker
I, I just, uh, when you said, sorry, when you said your dad was in aerospace, I just wanted to say, I love airplanes. I've always been so fascinated, um, with airplanes and flight in general. And so I would, my question was actually one of my questions I was going to ask, you know, why didn't you go into aviation and some sort of aerospace
00:08:38
Speaker
Um, sort of career. Why did you choose real estate? I mean, but it sounds like you just found the opportunity and you couldn't resist, you know, you know, it was really funny. Uh, my parents,
00:08:50
Speaker
they really were into, you know, non-nepotism, you know, they really saw the, I think the, I think the, you know, the accomplishments of starting something themselves and receiving that, you know, from infancy up until, you know, where it ultimately became. And so when we were growing up, one of my brothers and I grew up kind of similar in age, and I got one that's a bit younger, but
00:09:16
Speaker
They used to throw us, you know, into the basically the big machine shop right not not the not the front office jobs but the stuff it was kind of back, kind of, you know, really more kind of dealing with the parts dealing with everything else. So it was one of those I think it was almost a
00:09:34
Speaker
almost a plan say these guys are not going to want to do this type of business when they grow up because I think they want to just allow us to kind of spread our wings and kind of figure out something on our own and working from that straight forward. It was so interesting though growing up and
00:09:52
Speaker
seeing, you know, I would get on a plane, my dad could point any plane out in the sky, tell you exactly what it was, if they had parts on it. But it was just fascinating. You know, I remember being, you know, a Southwest flight when I was a kid, and you know, the flaps went up, and he's like, Oh, you recognize that part? And I'm like, I do. And the fact that it came out of your shop is frightening to me, because I see some of the guys in the back, they're crazy. But I mean, this, it was, it was such an interesting kind of childhood. Anytime there was any aviation
00:10:22
Speaker
disaster. My dad was freaking out because their parts could have caused certain things here and there. But it was just fascinating. And my friends were like, oh, wait, your dad has parts on this plane or this military jet. And I'm like, I think so. Yeah. It was kind of fun. I love flying. I love being up in the air. But
00:10:46
Speaker
in hindsight, you know, I'm glad that I was able and my parents had the foresight to allow me to kind of forge my own path. That's what I'm just about to say. You had to forge your own path. That's so admirable and so important. I mean, important values for your parents to teach you. And I'm sure, you know, that just only helped you on your path. So like really valuing, you know, your own hard work and the own efforts that you put in
00:11:12
Speaker
you know, for success. So what, go on, I'm sorry. But again, it's, I think, you know, when you're, you know, and honestly, very lucky that I had the parents that I had, but it was it was just such an interesting kind of, you know, with their business was starting to grow pretty well, his business partner, you know, all unfortunately ended up with an illness that so
00:11:34
Speaker
they decided to sell, and I'm not making this up, their closing date was supposed to be September, I think 18th of 2001. So planes hit the towers the week before, they're in aerospace, everything shuts down. So, you know, it was kind of one of these like, you know, he was riding a little high, and then it basically everything got kind of more or less wiped out. And so, you know, you saw them have to kind of go through the ups and downs and reinvent himself kind of, you know, over the years and
00:12:01
Speaker
You know, it's funny that, you know, I've got two other brothers and, you know, we're all entrepreneurs in one state or another. And my dad had a funny comment about a year ago. He goes, you know, you've got three kids that are entrepreneurs. So it basically means one of them is always in the toilet at one point. So it's kind of like, you know, it's kind of, you know,
00:12:21
Speaker
But he understands it and I think that's, you know, I was very lucky to have that sounding board when, you know, things were maybe challenging when we were starting, you know, you know, whether it was, you know, proportions of Pinder going through COVID with Pinder with what we do in real estate debt. Obviously, that was a challenging period for us. But I think really being able, you know, again, being very lucky to kind of have that sounding board of somebody that's kind of been there and done that and ultimately understands that
00:12:45
Speaker
you know, as long as you kind of keep your nose to the grindstone, keep grinding through, you know, things will eventually break loose. And one of the biggest things that he instilled in me, and I learned this early in my career from some of my other positions, was number one, do what you say you're going to do, and bad news travels first. And that is the first thing that you have to get out to people, because ultimately, you know, we're in a trust business, and it's a relationship business, you know, no matter how much technology is kind of impacting things here and there.
00:13:12
Speaker
But if people really, if you do what you say you're going to do and you tell them the bad news early, you really build a lot of credibility. And for me, that's kind of one of our ethos here is we want to stay around for a long period of time. We've been through obviously some ups and downs when the markets have changed and there's nothing you can really do about that. But as long as you say, do what you're going to do, don't drift from that, trying to chase outsized yields or
00:13:41
Speaker
by putting in outsized risk. Ultimately, I think that's what people generally come back to us for. I was going to ask what three qualities would you say are most important as far as being a CEO or a pender? I think, you know, again, I think
00:14:03
Speaker
honesty, resilience, and foresight. I think each one of those, you got to make the most informed decisions you have with the information you have in front of you. You've got to do what you say you're going to do. That to me has always been, if you're not doing what you're saying you're doing, ultimately it will come out and you will get burned at some point or another.
00:14:30
Speaker
Um, you know, and then just, just basically the, you know, I've always said, you know, we're, we're pretty, we're a pretty open book over here. You know, we're not in an industry that, you know, ultimately what we do now and we're in the, you know, we're, we're in the private credit space. We do a lot of senior secured loans across the domestic us.
00:14:46
Speaker
So it's an easy business to understand
Leadership Qualities and Trust Building
00:14:52
Speaker
and conceptually think about. It is a very challenging business to execute because so much of it is relationship driven, both on the investor side and on the borrower-sponsor side of who we're dealing with, why we're providing these loans.
00:15:08
Speaker
It's one of those things that if you burn a few people, you say you're gonna do something and everything checks out and then you don't come through, you have lost that relationship that you have probably taken five years to cultivate. And you have to do what you say you're gonna do.
00:15:23
Speaker
It can take just a moment to destroy a relationship you've been building for years. And really, Brittany, what we've really found over the years in dealing with this public companies or down to the private companies is ultimately, when markets change on you, there's nothing you can really do about it. But what you can do is really educate your clients because ultimately every investor that we have, we view as a partner.
00:15:49
Speaker
Right. So the more we could kind of explain to them what we're seeing kind of on our ground level, whether it's good or bad, you know, the bad conversations, you know, they always start off if there's maybe a little bit of friction because everyone wants everything to do nothing but go up. But that's just not the reality of the way the world works.
00:16:07
Speaker
But when you educate them and explain to you, this is what we're seeing. This is what we anticipate happening. You know, COVID was a prime example. You know, I sent out a pretty pointed newsletter in one of our vehicles during COVID and said, hey, I think this is going to get really rough for the next quarter or two. This is what we're going to do.
00:16:25
Speaker
to try to mitigate some of that. And we got calls right away from some of our largest investors that have investments in other companies similar to us. And they're like, well, Corey, no one else is telling us this. Do you really think it's going to be this bad? You sound a bit draconian at the moment. I'm like, I hope I'm wrong. I really, really do. Because then I, you know, things, things that obviously the world be at a better place. But what it did is I think it really
00:16:50
Speaker
built more trust with groups and said, hey, these guys are just gonna tell us whether it's gonna hurt them or not of what they feel like we need to explain to our investors down the road. So I don't think there's ultimately a secret sauce to anything. I think the resilience, the ability to just keep grinding. And I just read this great book by Angela Duckworth called Grit.
00:17:17
Speaker
I love that book. I've read it. And Angela does. It's a great book. Yeah. And Brittany, everything in that book. I mean, there's so many chapters. I found myself literally highlighting, which I never really do with a book. And I kind of went back to it. I'm like, you know, there's
00:17:32
Speaker
there's so much truth to this. You know, you just have to get up each day, whether it's going to, you know, it's going to be a good one, you know, it's going to be challenging one, and you have to get through it. And I think over time, and, you know, in any career path that anyone's really choosing, unless it's, you know, really, hey, this is just flat out not going to work. The more your your ability to just kind of just grind through it. Ultimately, I think you're going to
00:17:56
Speaker
just generate more success. I saw that with my father early on. I was lucky enough to learn those lessons watching that as a little kid and you know been able to take it to kind of you know what I do. My brother's kind of done the same thing you know been through his ups and downs and you know that's kind of what we you know ultimately do at Pender. Now what we do is a little bit more boring and down the middle so hopefully we shouldn't have these crazy ebbs and flows but
00:18:20
Speaker
you know, at the end of the day, getting up and kind of getting in front of people and not telling them what they want to hear, telling them what, you know, you think they need to hear about what you're doing. I think it ultimately builds a lot of trust.
00:18:31
Speaker
Yeah.
Company Culture and Post-COVID Challenges
00:18:32
Speaker
Well, yeah. Our two week quarantine turned into two years real quick. It's almost like we blinked and it just went by. It's crazy. You know, I mean, and it, and it a lot, it changed so many lives. We live in a very different world now, it feels like in so many ways. And I know a lot of people are still, you know, recovering in a lot of ways from that, you know, as well. How do you motivate your team at Pender?
00:18:58
Speaker
Ah, yeah, the motivation. I mean, luckily, you know, it was really, it flashed back to like pre-COVID. You know, we really, you know, we're really big on culture here. We really like when people enjoy coming to work, enjoy the people that they work with, you know, we're a smaller office, smaller teams. So pre-COVID, we did a really, I think a great job of, you know, people just enjoyed being with each other.
00:19:26
Speaker
They enjoyed coming in, they enjoyed, you know, kind of going out after work, you know, every now and then. We would bring our Dallas team or in our LA teams together for kind of some off-sites to make sure the two offices had, you know, a lot of, you know, the coexistence was there. It wasn't a competition between the two offices.
00:19:47
Speaker
COVID took a lot out of the window, right, it kind of threw that office culture away and, you know, one of the biggest challenges and I know we're not, we're not alone in this is when you're trying to build back, you know, company culture, you know maybe lost some key personnel.
00:20:02
Speaker
but now you're trying to bring them back in and you're trying to get them to kind of work together as teams. And that has been a challenge in a post-COVID world. I think it's been a little easier for our Texas office just because they didn't have to experience the same level of lockdowns as we did in Los Angeles.
00:20:18
Speaker
I mean, it was funny, like the office that we're in in California, we've got, there's 16 consulates in the building. So the building kind of remained open, but I mean, for a good probably 16 months, I would sneak into the office and go up the elevator and just hide up here, but we didn't have team members. And obviously with the advancement of technology, you've been able to kind of,
00:20:46
Speaker
you know, keep some of it, but when you're hiring somebody new in an environment like that and they're trying to, you know, hey, understand who people are via, you know, a Zoom screen, it doesn't have the same effect as it did before where, hey, we're sitting together, you know, hire people. You could be the greatest person, but if you can't get along with your co-workers,
00:21:08
Speaker
especially in a smaller office environment, that could turn rather toxic quickly. So, you know, I think it's just really, you know, we want it to be a workplace that people have the ability to advance, you know, collectively, as we say it all the time, you know, as the company grows, there's the pie gets larger for every right. You know, that's, that's the people we want. We look for self starters, we look for people that are hungry, that want to learn. We don't really, you know, if you're a person that kind of wants to punch in, punch out and
00:21:37
Speaker
You know, that's probably not the person that we want. We want people to take ownership. We want them to feel ownership. And, you know, obviously, managing styles are always a little bit different, but, you know, we really like to empower our people that, hey, this is you. And I'm going to allow you to make a mistake. And, you know, if we take key for it, I'll take it. Don't worry about it.
00:21:55
Speaker
We don't want to make the same mistake multiple times, but you have to allow your people to ultimately learn and to have the ability to make a mistake because that's the way they're going to grow, they're going to understand it, they're going to figure out what they need to do on the next iteration, whatever challenge that comes in front of them. And we've had a lot of
00:22:16
Speaker
changes with product types. We've had a lot of learning that we've had to do internally and, you know, I feel very fortunate that we have the right personnel with us to allow us to move forward. And, you know, as we continue to grow, I mean, that's one of the big things too. We have, I all have people interview outside of their departments
00:22:36
Speaker
just to get different feels for who this person is and if that person who not going to have to really interact on a day-to-day basis, but is this somebody that you would feel like you want to come to work with and work next to? Yeah, I love that. So what sets you guys apart from other companies in this space?
00:22:58
Speaker
Well, I think, you know, number one, I think when you look back to kind of where our beginning, so we had a RegD product that we opened up in 2015, really more or less, it was very, we had probably 85% of our client base came from registered investment advisor channels.
Principal Preservation and Resilience
00:23:17
Speaker
Did have, you know, we have a couple, you know, big 10 universities and some estimated, some global asset managers that came through us.
00:23:23
Speaker
Um, one thing was really interesting, you know, and I go back to this often. So back in, you know, I think it was Q in the Q2 early Q3 of 2019, we were just on a stretch that we could not win a deal to save our lives. We just lost it for about 45 days straight. I mean, every deal that we, that we bid on, um, we just could not seem to, to, to get to the finish line.
00:23:48
Speaker
And it was one of those that we had to call back several of our larger investors and said, hey, look, this is what we're seeing in the marketplace. And what we were really seeing was when you're in the debt space, if you're more expensive than another, that's part of the business. You're going to lose deals because this cost differentiators. But when we were losing deals, because say we were maxing out at the time, I'd say like a 70% loan to value on a new purchase,
00:24:15
Speaker
we were losing because groups were going up to 85% loan to value. And we called a couple of our investors and said, look, we feel like some of these other groups are really pushing the risk spectrum to cure the deals. And I've said it multiple times, it feels like people are taking equity type risk or debt type returns. And fundamentally, that did not make sense for what our investment thesis was. Because we've always been principal preservation first.
00:24:45
Speaker
yield generation second, and it was really kind of telling, you know, you flash forward, you know, call it nine months, you get into COVID. Some of these groups that were really pushing the envelope there, they had serious exposure almost overnight. And not to mention that
00:25:01
Speaker
you know, certain groups in our space, you know, you generate, you know, different yields by, you know, the amount of leverage we don't really utilize, you know, we're generally around 10 to, you know, 25% leverage on the fund, which is really more cash management than yield enhancement. But you were going up against firms that had 3x leverage.
00:25:18
Speaker
And so you couple that with you're going up the risk spectrum with where you're in the capital stack and you're putting leverage on top of it. So it was kind of a perfect storm for certain groups to really get wiped out or take some significant losses. Something for us that we were very proud of. COVID was definitely challenging. Our returns went down for a period of time. But
00:25:40
Speaker
We never lost a dollar. We never had a down month. I think the worst we did was dropped down to about 4.6% annualized returns. And then we popped right back up. And I think that was just a testament to, you know, really going back to do what you say you're gonna do. This is our investment thesis. This is, you know, it's, you know, yield or principal preservation. That's, you know, we kind of went up and down. And I think the best compliment I got during that period of time was, you know,
00:26:07
Speaker
with what you guys had in front of you, and we absolutely had exposure. We had about 40% of our book that was in retail hospitality, healthcare, and office, which got pretty much beat up. But somebody said that you guys performed exactly as I would have hoped you would have performed in a time of this level of distress.
00:26:29
Speaker
And so that was kind of like, hey, we're doing what we're saying we're gonna do. We don't have style drift here. And we've really been able to build such a nice origination platform. And, you know, the vast majority of borrowers that we deal with, which generally are, you know, equity funds or single family offices that have, you know, real estate arms.
00:26:46
Speaker
you know most of them are repeat borrowers at this stage and that's a testament we're very firm with them but we're very kind of you know fair like this is if it fits these parameters and you know we've got you checked out you know unless there's something that's not we're not seeing you know this is probably a deal we're going to do and they understand they're going to pay a little bit more for it uh for us for our capital but
00:27:06
Speaker
they're willing to do so because you know hey we are a consistent source of capital for them that they understand what the process is going to look like and you know not to say like I mean our deal files still weigh like 13 pounds they're huge but we give it a very institutional level under right but we do it in a more timely manner and I think that's really bought us a lot of credibility on the deal side with with the groups we play with. Yeah I was gonna ask other I mean you know the fact that you've
00:27:32
Speaker
you've taken Pender over to a billion in commercial real estate.
00:27:37
Speaker
are there any other strategies that, key strategies you can share with our listeners for how you were able to do that? Well, I mean, most of what we do is a shorter term bridge, a one to three year kind of loan. So I mean, so we've originated since we started over a billion four. Again, we're able to recirculate or recycle some of that money kind of over, these days it's a right around an 18 month mark.
00:28:04
Speaker
you know we'll have a loan that kind of come we do and then 18 months later it pays back off. I think really as you look at kind of where the world is at today.
00:28:14
Speaker
We've had a massive interest rate kind of movement from the Fed. We've had the regional bank dislocations, which is kind of all the hallmarks of why private credit has become such a talking point and such a focal point for so many investment portfolios. And I think with what we do, we play primarily in the lower middle market. So we're really targeting loans that are between call it 10 and maybe $35 million.
00:28:41
Speaker
which even pre-COVID that was always, you know, you had liquidity with the banks and whatnot, that was always a rather fragmented and inefficient segment of the marketplace. So we really were able to kind of capitalize on that. I mean, we used to send our deal teams to, you know, local events in like an Oklahoma city or in the Carolinas, you know, not the big nationals, you know, the New York's, the LA's of the world.
00:29:06
Speaker
but really kind of you know more of kind of fill in the gap America and you know what it did for us it just created this a tremendous amount of direct sponsor business that came directly to us they understood what we did and what we do and I think as you kind of you know where we're at today is you just don't have that same level of competition from the regionals to
00:29:28
Speaker
you know, we're loving it because, you know, our loan to value is now or 55% senior position. And, you know, with what we're able to charge because where the interest rate world currently is, you know, it's just a phenomenal time to get the best risk adjusted returns with the best sponsor quality, the best asset types that we've ever been able to see. So we're very excited for what we're able to do on a move forward basis for our clients.
00:29:52
Speaker
and really where we fit in an investment bucket for a financial advisor for what they're dealing with on their clients. We've got a higher yielding instrument that's got some senior position security on this side. I used to say it was boring, a boring return profile, just nice and easy, steady enough.
00:30:11
Speaker
And until I found out boring was actually, you know, not a bad word. It was actually something they liked.
Evolution of Private Credit in Real Estate
00:30:18
Speaker
So I think it's really, you know, I think the hardest thing these days is, you know, commercial real estate is getting so many bad headlines, which rightfully so in some parts. But on our end, what we do is we're dealing with these groups that are going out and
00:30:31
Speaker
in really negotiating pretty tough terms with sellers. And when that's coming in, we're able to set our risk exposure on new valuations and a lower leverage point for the sponsor. And ultimately, that gets passed on to our investors. So it's really kind of a win-win on both sides. Our sponsors need this type of liquidity right now because it's very hard to come by. And for our investors, getting
00:30:56
Speaker
getting a, you know, a very solid, you know, return profile that doesn't have a ton of volatility. It's seemingly, you know, kind of a match made in heaven at the moment. Yeah, I was gonna ask also what types of challenges have you faced and, you know, in the space of alternative type of, you know, these real estate space?
00:31:18
Speaker
You know, I think obviously if you flash back to kind of COVID, I think one of the biggest challenges that we faced obviously was the elongated litigation timelines that you had in certain jurisdictions. You know, generally when you're a senior position lender, it's kind of, you know, hey, you're the first to get paid, you're the last to take a loss.
00:31:42
Speaker
And it's really interesting, my partner Zach and I, we both dealt with so much distress prior to Pender that Zach used to joke, we've seen every reason alone could go bad and why. And I will say, when you're in a normal time and the real estate valuations are more or less static, if a borrower trips up or falls down for whatever reason,
00:32:07
Speaker
Generally, we kind of liked it because you had 30, 35% of equity protection in front of your first dollar of debt. So you could go through the legal process, maybe obtain the asset or even sell the asset. And generally, you could probably make a little bit more on that.
00:32:24
Speaker
And one of the things that we've always done here is before we fund a loan, we've got our real estate teams, we got whatever appraisals, broker priced opinions, but it really comes down to our investment team saying, do we feel comfortable owning this asset at this basis plus foreclosure cost? And ultimately, because you could have a
00:32:44
Speaker
a great sponsor, but he's buying an asset in an area that's just maybe this guy goes away for whatever reason, this is going to be a challenging asset to manage. And I think that's been one of those things that has really additionally helped us work through a challenging time such as COVID and able to push through and still generate those positive returns and not lose any money on any deal.
00:33:10
Speaker
that has been very beneficial. So I think those are areas that we kind of look at as we kind of move things forward of, you know, hey, what, how do we get hurt? And how do we not know there's certain jurisdictions and, you know, even though I'm sitting here in LA, you know, California, California used to have tremendous lender rights.
00:33:29
Speaker
know, since COVID, it's been a bit more challenging. LA County, San Francisco County have been two very, very challenging jurisdictions or municipalities to get a foreclosure process through. So I'm sitting in LA, we've got one loan in California at the moment. So it's just really not a focal point for us. Some of the other states that you've seen, you know, more of the
00:33:52
Speaker
I think the population trends kind of move towards they've been a little bit easier to deal with. So you're always looking at kind of everything that, you know, we're on the debt side, right? So we're looking at everything that could go wrong because we're not really looking at the massive upside on these assets. It's just, you know, our job is to limit the downside. I think we've done a pretty good job with that over the years. Yeah. Well, where do you foresee things evolving in this space now?
00:34:18
Speaker
Well, I mean, I honestly, Brittany, I think this is, you know, what we've seen happen, you know, since since basically Silicon Valley Bank started with that kind of, you know, whole kind of domino effect of the regionals kind of pulling back.
00:34:31
Speaker
You've really looked at, and I was looking at some data from Green Street the other day, and they were showing kind of on one of their graphs, kind of where the regional bank world used to provide debt, and private credit was this big, and their projections in the future are kind of like somewhere more here. Although we believe the regionals are going to come back to a certain level at some point over the next year,
00:34:53
Speaker
year to three years, private credit is going to have more of a stranglehold in the private credit space, more generally speaking, but I'm really focused on real estate, the real estate side without a doubt. Because you really look at the lower middle market, those regional banks were responsible for a very sizable portion of the takeout refinancing that was in that world. And
00:35:17
Speaker
They will come back to a certain degree, but I think you know really this is going to be a heyday I mean it's it's going to be here it's going to stay here longer. And you know private credit year there's a reason that all the big shops are gearing up in private credit right now, and most of it's going towards the corporates you're seeing more and more of it kind of come back into.
00:35:34
Speaker
this is some real estate, but strategically we don't want to play against the big boys. We don't want to do the $100 million loans if there's more competition. We like this segment of the market that there's just more fragmentation that we're able to capture what we think are the best risk adjusted yields.
00:35:49
Speaker
And not to make it sound like a niche, but it's a very large volume space that there's just not as many, you know, brand name players that play in it. And it's really kind of challenging when you're looking at getting if you're looking and I'm picking on Oklahoma City for some reason at the moment, but, you know, if you're looking for a $25 million dollar bridge loan in Oklahoma City,
00:36:09
Speaker
it's not very clearly defined of who you're going to go to. So having those relationships kind of keyed in and some of those key markets really allows a group like us to produce a lot of loan origination volume. And I think one thing is rather unique to us. We don't buy secondary paper. We have an origination team. We know these borrowers from the moment they send us a loan all the way through the underwriting process, all the way through the asset management process. So
00:36:33
Speaker
you know, for us, it's, we kind of know where the skeletons are hidden, so to speak. So if somebody is not kind of, you know, executing on their business plan or they're behind, you know, we can, we can call on them really quickly. So, yeah, we're really excited. I think, you know, I think the next, you know, three, four years are going to be an absolute kind of, you know, heyday for groups like us. And I think it's kind of, it's more or less going to be here today. I mean, it was, it was here, even though when there was liquidity back, you had to fight a little bit harder on certain deals to get things done.
00:37:03
Speaker
But for what we do, which is primarily value add commercial real estate, bridge debt, there's a lot of, a lot of good opportunities out there right
Passion for Real Estate Investment
00:37:10
Speaker
now. And we're very excited about it. What makes you so passionate about this space real estate and.
00:37:16
Speaker
in this space, you know? Well, I mean, if you really look at it, Brittany, it's like you look at the financial markets, you look at kind of the turmoil. Obviously, the equity markets have been phenomenal for years. But this is really, you know, we feel a very, I think it's going to become more and more of a common part of some an investor's investment portfolio. You know, they're going to have something it's, you know, alternatives have obviously kind of blown up over the last, you know, seven, eight years.
00:37:41
Speaker
And, you know, as we kind of get to where we're at today is, you know, if you can generate a substantial, you know, risk adjusted return with a security instrument, we have a, you know, physical hard asset here that, you know, not everything goes wrong. You still have this asset that does have value. I think it's going to become a larger part of clients portfolios. And I think we're very well positioned to take advantage of that.
00:38:06
Speaker
I love it. So you mentioned grit earlier. What are some of your other favorite books or resources for people who want to learn more? I mean, it's so funny. I'm in a
00:38:20
Speaker
complete like, you know, autobiographies. That's kind of my thing these days. I'm reading on way too many planes, so I'm getting a little bit more reading time in, which is nice. I've actually just kind of gone back to, you know, books that were published for like the last 20 years and any avenue of the financial markets
00:38:39
Speaker
Because, you know, it's, you know, we're in a different world today, right I mean I think a lot of the drivers of where we sit today or are drastically different than what they have historically been. But, you know, you kind of, you look at the psychology of people, and you know why they do certain things and you know you're really looking for opportunities and
00:38:57
Speaker
I think that we really have just landed in a funny opportunity. It's a space that we've always been passionate about providing this because when you can work with a good quality sponsor on one side that's taking an asset that's maybe dilapidated, maybe it's deferred maintenance, maybe it's been kind of a blight on a block of a community.
00:39:18
Speaker
you know, what our sponsors can do when they can turn something around and turn that blight into, you know, a part that maybe can revitalize a portion of the community. And we're able to kind of help with that and provide, you know, our debt on the one side. That's to me where I think, you know, why I get excited about some of this.
00:39:37
Speaker
So just again, we're going back to the books. I mean, I'm kind of all over the place. I don't really have any black, you know, favorites. I mean, I think I've read the grid book twice now. So that's, that's been my, my one just because, you know, it's, I think it's, I've actually highlighted a bunch of passages and was a show into my 10 year old. And he's looking at me like I'm nuts. But I'm like, this holds so much weight in anything you do in life, in any industry you go into.
00:40:03
Speaker
Yeah, I just actually today just got The Soul of Wealth by Dr. Daniel Crosby. So I'm really excited to read that. I haven't read that one yet.
00:40:16
Speaker
Yeah, really excited about that one. So yeah, definitely add that to your list. Cause he's all about, I mean, he's the expert in behavioral finance. So I just, I just love him. I had him one here a couple of months ago, but yeah, how, so you said, you mentioned that you have a 10 year old. I'm curious how, what are you, so do you have just one child or? Yeah, I've got two, two boys, 10 and eight.
00:40:43
Speaker
Yeah. What are you teaching them? What are you passing along to them? You know, it's, it's funny, my, my, my wife, so she grew up in Brazil and Sao Paulo, but she, you know, with Stanford, Harvard Law, I was a federal prosecutor. So she's much more the academic of our house. Yeah, but it's, I think between the two of us, it's just, you know, and she's the same way. I mean, she goes, I just, I just, you know, maybe wasn't,
00:41:11
Speaker
She finished, she did extraordinarily well academically and in her professional life, but she was obviously very intelligent, but she goes, I don't think I was the smartest in every class, but I just worked harder. I was grinding that through. It's funny, I did a lot of team sports when I was a kid up through high school and college.
00:41:32
Speaker
I see so many parallels to kind of the success you make for yourself kind of as you're growing up in some of those realms to what you can do in your professional life as you get past all that. And really, at the end of the day, there is no substitute to the amount of hard work. And I had a, there was a great baseball coach, Coach Stanford, I heard him say to group kids, he goes, you know, you talk about cross country runners, you see the people that are competing for, you know, metal at the end.
00:42:02
Speaker
you know there's no substitute to put it in the miles yeah and i just whatever reason i kind of just stuck with me i'm like you know you're absolutely right and it kind of just in anything you do you i think in the world we live in today that you're you know you see these success stories that
00:42:18
Speaker
everyone thinks there was an overnight success that, you know, you didn't see the last 10 years of just the sleepless nights of kind of working through challenges. And, you know, I think, you know, obviously with some of the, you know, all the unicorns in the tech world, you know, people think that this is the norm, but you don't see the other tens of thousands of companies that didn't make it for whatever reason. And it just goes back to like, if you trust the process, if you trust kind of who you are, your ability to kind of withstand
00:42:46
Speaker
And it's, and again, there's, there's no easy, there's no easy entrance to it. I mean, when I started my career, I remember that I was at that warehouse mortgage pro price and I had a job that was this, but I would just kind of sit around all the management guys and Hey, do you need any help with this? Because I just wanted to kind of like learn and understand different avenues of the industry.
00:43:03
Speaker
And really what it did, it almost made me indispensable to a certain degree because I could do everything. If somebody was sick, I could kind of go out and help out in that section. And I think it's just like the curiosity. I think once your curiosity kind of wanes, then you got to figure out something else to kind of build it back up.
00:43:20
Speaker
you know, constantly learning, constantly pushing through. And, you know, that's the one thing that we, you know, we promote, like, people here, like, hey, continue your education, you know, it's what I never want to lose an employee, but I'm always proud of them, you know, when somebody gets the point, they come to me like, hey, I've got this opportunity here. And, you know, hey, it'd be terrible to lose you. But, you know, I love the fact that we were able to kind of be a stepping stone for you to somewhere else. And that's just, you know, kind of you got to pay it back a little bit. You know, I've had some tremendous mentors.
00:43:50
Speaker
that I've been fortunate to have in my life that and I've got one of them it's one of the biggest you know investment firms in the world and I sit down with him quarterly and and he's like you're not going to really get anything out of this I'm like you have no idea what I get out of these meetings and so when I am able to talk to you know somebody that's starting you know hey this is this is what I did wrong don't do this and help it help people back a little bit because you know ultimately
00:44:13
Speaker
We need more small businesses. We need more different investments, differentiators kind of out there because the world's always evolving and that's what's so fun about it.
Advice on Resilience and Conclusion
00:44:26
Speaker
I love it. That is amazing advice. That's amazing advice. Well, where can our listeners find you in Pender Capital?
00:44:35
Speaker
Yeah, Pender Capital, pendercapital.com. And then, you know, if you've got financial advisors out there, that's generally who they can obtain literature, you know, on what we do generally through those advisors. Some of it is available on the website to a more retail type investor.
00:44:55
Speaker
And, you know, we're always around always happy to talk with anybody on the deal side. You know, we can find our you can find our origination team on the website as well. Got any questions there. And, you know, we're always always happy to have a conversation, you know, never know where this this this crazy, crazy road of life takes you. But it has been really, really nice kind of dealing with
00:45:14
Speaker
the investors that we have, generally we love, we talk to regularly. We like to know who comes in with us, because it just makes our lives a little easier. I always laugh, when times are good,
00:45:29
Speaker
you know, everyone's good, right? It's just like, I always laugh. It's like such a, you know, the flaw hider, right? You know, for years, you know, from, you know, 2000 and basically 12 to 2019, I mean, anyone could have entered the real estate space and, you know, look like a genius, right? It's the times when things get really tough. That's when I think really the more sophisticated groups that, you know, don't have style drifts that this is what we really do as a living.
00:45:57
Speaker
that's when we create so much extra value. And I think it's, you know, now, you know, you have the ability to withstand, you know, downward pressures. So you've been there, you've done that. And I think that's where a lot of people have really liked kind of our story of what they knew what, you know, I did prior, they knew what Zach did prior with a lot of distress. But until we actually experienced a significant amount of distress,
00:46:21
Speaker
through our own vehicles. That's when people are like, oh, wait, these guys actually do know what they're doing. They can work through these items. And I think that just kind of builds more trust and allows you to really push things kind of forward. And we're really excited about it.
00:46:37
Speaker
Adding another person and kind of our distribution teams, you know, we're working with groups like Ben Ryan. We're very excited about kind of where this pushes us out in the future and ultimately who we want to be. And as one of my mentors of that, you know, very large global asset manager, you don't have to be us.
00:46:55
Speaker
You can just be, you know, a much smaller version and you're going to be absolutely fine. And if you guys are providing this to your clients and you do what you say you're going to do, you're going to be around for a long time. You can really do something with it. And you know, I think he's absolutely right. Um, and it's, you know, for us, it's kind of just keeping the eye on the prize and you know, yeah, going back to grit, just waking up every day, just getting back in front of it. I love it. I love it.
00:47:21
Speaker
Well, thank you so much for taking the time to chat with us today. I learned so much and I hope our listeners did too. Thank you everyone who has tuned into this episode and very excited for the next one. Be sure to follow us on all of our social media, you know, Boundary and Capital is on Instagram, X,
00:47:40
Speaker
Twitter, whatever we're calling it these days, LinkedIn and all of it. So give us a follow and I will see you next time right here from the green couch. Everyone have a great day. Thank you. Thank you.
00:47:56
Speaker
The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or any specific security. It is only intended to provide education about the financial industry. If the criminal investments may be appropriate for you, consult your financial advisor prior to investing.
00:48:16
Speaker
Any past performance discussed during this program is no guarantee to see results. Any indices referenced for comparison are unmanaged and happily invested in this reference. As always, choosing number of investment involves risk and possible loss of capital. Please seek advice from a licensed professional.