Latest / Real Investor Radio Podcast / Ep 42 | Joakim Mortensen - Evolution of Real Estate Investor Lending: Insights From CoreVest

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Ep 42 | Joakim Mortensen - Evolution of Real Estate Investor Lending: Insights From CoreVest · Real Investor Radio Podcast

• Craig Fuhr (00:12) Welcome back everyone to real investor radio. I'm Craig fewer joined again by Jack Bavier. Jack. How are you today, sir? Jack BeVier (00:20) Awesome, man. Good morning. Great to see you. Craig Fuhr (00:22) I'm really looking forward to today's conversation. So let's just go ahead and jump right into it, Jack. We have Joakim Mortensen from CoreVest. Joakim, you are the chief client officer. And Jack, I'll let you guys jump in, get to know Joakim a bit, and then really jump into the investor lending space and what CoreVest is doing in that space. Jack BeVier (00:48) Yeah. So I think, uh, Joakim, thank you so much for joining us this morning. I think, uh, I met Joakim probably at least 10 years ago, probably at an IMN conference back, uh, when he was at colony American finance, uh, CoreVest's predecessor, or at least in name. And, um, so he's one of, you know, he's kind of one of the OGs of, uh, of the real estate finance for the SFR industry. And it's great to see him. You know, we, we get to catch up a couple of times a year. And I have tremendous amount of respect for the guy. He's done a fantastic job over the years and always, you know, CoreVest has been a really kind of a leader in the industry for the, you know, since the inception of quote unquote the industry. So I was super excited that Joakim was able to make some time and join us this morning. Joakim, you know, thanks for joining us, man. Welcome. Joakim Mortensen (01:33) Thank you so much, Jack and Craig. I really, really appreciate this and also the podcast you guys have put together to further educate investors in our space. And to your point, we've been at this for 10 years, kind of early inception to now kind of being a stable industry within the real estate space. So I'm super happy to be here and thank you for inviting me. Jack BeVier (01:56) Yeah, absolutely, man. Absolutely. Hey, just so for everyone's benefit, that are listening, could you give them kind of a background on your just really your career, how you got to CoreVest and what your experience has been over the past 10 years? Joakim Mortensen (02:11) Yeah, absolutely. So actually, I was born in Denmark and grew up there and I moved to the US in 2000. I had a law degree and then further had ambition on to become an American lawyer as well. I then pivoted after working in the law firm for a couple of years, one of my first jobs with a baby financial down in court, Gables, kind of learning the commercial space and kind of mortgage industry. Then further evolved over to the old GMAC commercial mortgage and then transitioned into Capmark, then joined one of my clients around the great financial crisis, then transitioned into L&R buying distress that post financial crisis where I met Beth O'Brien who was working with auction and at there we did a joint venture called Auction Finance which was basically providing bridge loan. at the trustee auctions in California to provide an immediate funding source when investors were buying single-family homes because they had massive amount of trustee sales. So it was kind of part of the L&R auction.com who had that partnership. And from there, we got hired by Colony Capital and got our seed money because as you may remember they had Colony American Homes which at that point had been... probably bought 17 or 18,000 homes. So we started this lending platform to provide liquidity to kind of the middle market investors. And then, you know, fast forward 10 years, and now we're part of a kind of stable industry and a fully acknowledged asset class within real estate. So it's been a fun ride. Jack BeVier (04:00) Yeah, absolutely. I remember. So we started we kind of got out of our own backyard in Baltimore back in 2011. We started buying in Atlanta just met a met an operator down there who was buying and the market timing was just very fortunate. And so we bought a bunch of houses, we bought a probably about 700 houses over the course of four years in Atlanta, and we were selling houses to colony in that in that market at that time. And then, you know, I remember I remember there's kind of those early conversations at all the conferences would be Joakim Mortensen (04:21) Yep. Jack BeVier (04:30) you know, like, you know, we'd have frustration that we like, couldn't keep everything right. And because they're just the banks were not lending at the time, there was an obvious need for, for institutional capital. And then, uh, it was really kind of like colony, uh, American finance get was formed as an answer to that, right? You know, the, you know, fulfilling an obvious need for, for investors that wanted to keep key properties in their rental portfolio. Uh, Joakim Mortensen (04:56) Yep. Jack BeVier (04:57) And then you guys had competition from a Blackstone owned company, B2R Finance. And then, uh, first key, uh, as well. Well, first key lending was the, it was the, I remember the three, you guys owned the fricking IMN conferences for a couple of years, and it was, it was always very noticeable though, to me, uh, that, uh, and, and B2R Finance and, uh, first key don't exist anymore. They, you know, they, they shut down operations after several years. Joakim Mortensen (05:02) Yep. Yep. Jack BeVier (05:27) But you guys were right there alongside them the whole time, but you could always tell you guys colony had a much different approach. I guess I would, I would, I would suggest a longer term approach to the industry. You guys weren't as flashy. Your events were dinners, not like renting a boat and you know, having, you know, 500 people on it. Um, it was much more focused on, on relationship building and it was lower, you know, frankly, lower cost structure. Uh, and that seemed to really served you guys because as those two kind of fell away, you, you know, colony, uh, and then CoreVest really, as you guys at some point in there, uh, changed the name, um, really became like the big dog because you were the, you know, the, the guys who were left standing and able to finance a lot, do a lot of non recourse financing in this space while the buying was still really, really good there in like the mid to late 2010s. Joakim Mortensen (06:22) Yeah, no, yeah, no, it really, it was such a remarkable dislocation in the market. And that's why by at least the buyers, as you said, another one was like Ryan McBride was spearheading Colonies acquisition. And that's probably who you dealt with when you guys were selling to Colonies. He was responsible then joined us. So we had a ton of data from that colony portfolio, because we actually had to go out Jack BeVier (06:22) That must have been a ton of fun. Joakim Mortensen (06:52) distribution or off-take and securitization. And kind of the trick was we were hybrid RMBS and CMBS that we kind of had to marry into one loan. So there was a lot of features and credit enhancement that we put around the loans to begin with, just because there were really no issuers outside of us. And then I think B2R and Firsky did a couple of securitizations. And then we just continued to kind of develop that and had investor buy-in. Jack BeVier (07:18) Mm-hmm. Joakim Mortensen (07:22) for our securitization and then they ended up performing really well because investors like that hybrid structure of commercial and residential assets. Jack BeVier (07:30) Yeah, so something that's that you guys, I think, I know it's not completely unique in your offerings, but something that you guys have really kind of stood out for over the years is having non recourse financing. Smaller real estate investors building their rental portfolios were used to borrowing from banks used to that being a recourse product. So they're used to the five or the 10 year term. And they had become, you know, I guess used to the full recourse options. But when you guys came in, you came in from a bit more of a CMBS approach and that kind of just structurally, no one ever expected or, you know, it was the product wasn't built to be full recourse. And so you guys kind of use that CMBS approach, commercial mortgage backed securities, like for multifamily buildings or other like other, you know, commercial real estate asset classes, that approach to underwriting is what I'm referring to. Joakim Mortensen (08:03) Yup. Jack BeVier (08:27) And applied that to the single family residential space and were, and have been able to, to offer non recourse options, which have been really, uh, kind of game-changing for bringing in equity capital to the SFR space, because now those, you know, in those, in a fund environment, the GP is often not willing to sign a personal guarantee on something that he only has, you know, five or 10% of the equity in that fund. Um, so. Joakim Mortensen (08:54) Yeah. Jack BeVier (08:55) Talk to me a little bit about like, you know, versus the RMBS approach to underwriting single family houses, how you guys are able to get comfortable with non recourse options for real estate investors. Joakim Mortensen (09:07) Yeah, so your point that as this industry evolved and our focus was largely on that middle market institutional investors who had the ability to raise capital but obviously didn't want to give full recourse for LP investors. So that's why we leaned on that CMBS non-recourse with the Carver guarantees approach day one because that was really the only option in order for us to kind of capture and provide liquidity to that segment. So we focused solely on the assets and underwriting cash flow kind of as an institutional commercial loan and that also allowed our investors to grow because for the kind of more conventional mom and pop investor who have to give full recourse, as you know, every bank, every lender want to see your schedule of debt and your continued liabilities. And that's a huge driver that can prevent growth because as you know, if you're guaranteeing a hundred homes and you have obviously a strong net worth, at some point you're guaranteeing so much debt that you look unappealing to investors and therefore the non-recourse approach really doesn't ding your continued liabilities and will continue to execute on a growth strategy because you can continue to come back to your lender and get a non-recourse. loans subject to the current guarantees. Jack BeVier (10:34) Right. Yeah, those, those car carvouts are like, you know, bad boy acts, you know, obviously, if you're misrepresenting stuff or, you know, you know, then those guarantees can kick in, someone's got to be at the driver's seat, at least not doing not being shady. But, but as it relates to like just the pure market movements, the loans are non recourse for folks who haven't gone through a non recourse lending process, can you can you talk to us a little bit about Joakim Mortensen (10:41) Yeah. Yeah. Yes. Jack BeVier (11:01) what the level of property level expense underwriting is. And obviously I assume there's some form of valuations. Is that full of interior appraisals? Or what are the, take us into the weeds a little bit on what investors need to have in order to successfully do a non-recourse loan. Joakim Mortensen (11:20) Yeah, so given our focus on the middle market institutional investors, experience is going to be the key, right? Who manages your property? What is your experience? What's your experience in the markets that you're in? Right? Because we're looking for all those parameters. We want to understand, like, what are your segments? Are you in affordable? Are you kind of more higher in markets? So we try and look at all those things and aggregate them and obviously valuation of the assets, location. It's funny, one of the things that we get often is, well, you don't need my tax returns because it's a non-reported loan and that's one of the ones that you kind of smile a little bit because they're thinking about the what we call stated income, stated assets that got us in trouble under the financial crisis. So it's actually, it is us fully underwriting a sponsor. want to see resume, want to see policy and procedures, want to see how they operate today to day, the experience, who are your investors, believe it or not, we for regulatory purpose certainly also have to understand who their LPs are and especially if they're larger. Doesn't mean we underwrite them, but just for compliance purpose, we actually have to know customers, know who our sponsors are. And we heavily lean on the GP or the managing member. That managing member can be what you. referred to as a warm body like a person, or if it's an established corporate guarantee, we've also, where it's more run as a fund structure, where the guarantor, the carve-out guarantor can also be a fund, but not just an MT LLC that was created yesterday. We certainly need track record of that corporate guarantee with seeing how they capitalize, what assets, who are the owners, who are the decision makers. on valuation. we started out everything was scattered, right? And that was a huge dislocation in the market. So we actually went out for most part and got Full appraisals on everything and that was obviously because we want to make sure that the collateral was not like that It had been renovated that it was castro and that you had tenants in there and that it was a good market We were in so we started out doing the full appraisal But then as we evolved and our investors got more comfortable we tried to come up with hybrid structures where we would do a portion of BPO's or as we got further into where it became subdivisions and small communities where there was three or four different floor models, then we came up with more cost efficient solutions because it's in the same community, it's the same five models and we don't need to get into every unit because it could be newly built. So it's kind of we've evolved with that but we are less focused on the cost because As every listener know, the real estate trade is heavy transaction costs. So it's something we have to be conscious enough in order for our investors to be able to provide meaningful returns to them and their investors. Craig Fuhr (14:09) Thank you. Jack BeVier (14:19) Yeah. I got you. How was the, um, so because I mean, one of the things that you guys did really to open up the industry was, was putting this product in a CMBS context and then doing the securitization. So as you, as you've referred to it a couple of times and you know, something that I think is misunderstood or like miss underappreciated is how important getting those first securitizations, getting wall street used to the asset class at all. Craig Fuhr (14:49) Hmm. Jack BeVier (14:49) And so like introducing a new asset class and a new structure, you know, new, you know, potentially was probably was, you know, a step too far for, you know, for all the blue suits at SFA. But, but you guys did this fantastic job of taking SFR and putting it into a CMBS structure and then doing a securitization, a structure that their lawyers, uh, and the investment bankers were used to, um, from, from. multifamily and other commercial asset classes. It just now was, you know, the story, you know, the massage was that the underlying real estate just happens to be scattered site. But you would expect, you know, with good operations to be able to, it would be able to perform just as, you know, just as solidly as those other asset classes. What was that, what was that sale like, right? To do those early securitizations. What kind of, what kind of pushback were you, did you guys get from that? How easy was it to get those first couple of securitizations done into like, you know, how much sales effort went into really educating the wall street on, you know, on this main street opportunity. Joakim Mortensen (15:59) The short answer is a lot because two things is bond buyers are insurance company, pension funds, money manager, commercial banks. And as you know, in the bond market, they have to deploy a ton of money for it to make sense and they have to take the time to understand the credit, the risk. So, us introducing a $250 million securitization where the underlying assets are residential real estate that's rented and just convincing that you should spend some time underwriting a small 250 million dollar bond. It sounds like a lot but a normal CMBS securitization is a billion plus at least. So you can imagine not only educating people but also convincing them that we have a forward path to continue to originate consistently so that they would actually have a... investor analysts sitting there understanding the performance because that's the other thing is RMBS, CNBS has been around for a long time so there's a ton of empirical and historical data that they can use to understand the performance of these bonds. So not only did we have to overcome that it was very small offering but also there was no empirical data to suggest how these would perform. So it was lots and lots of investor meetings flying around meeting investors, convincing them that this was a growing and viable and super attractive bond where we offered credit enhancement that they should invest and protect their money. But then as we grew and B2R first key offered a couple and then they kind of went away, we then continued. were really, really good. So investors really warmed up to it and we continued to then drive in kind of first domestic investors and then we moved into international investors who also wanted to get a piece of it. And then we saw demand increase tremendously and everybody wanted more. And that's why we obviously had to go out and try and drive in a lot more business to grow. And that obviously was also part of our success. Jack BeVier (18:19) Yeah, yeah, the legwork to get the industry off the ground, you know, coming out of 2014 15, and really kind of like, make the capital markets more liquid. Like that, it's an underappreciated idea. But if there's not liquidity in an asset class, then, you know, then it's gonna, you're never gonna hit an equilibrium, right. And so there's, there was always a spread between single family houses and multifamily, frankly, because of the liquidity of the multifamily financing. Joakim Mortensen (18:35) Yup. Jack BeVier (18:48) And you guys were an early leader in developing that market. So, hey, happy to stand on your shoulders as we move forward. So thanks for that. Joakim Mortensen (18:56) Yeah, the other thing is, believe it or not, we actually welcome competition because the key to success is liquidity. If there is no liquidity, then it's impossible for a market to function. And then with Dominion also jumping in on the lending side, I think it's terrific. And believe it or not, we are actually all friends, right? So we all know each other. We all want success. You want to help out. We share. ideas, we share best practices, we share the good and the bad and I think that's so important because one of the other things that I am truly appreciative of is our industry, the SFR rental is actually incredibly friendly, not only our investors talking to each other, helping out, we host a bunch of dinners as an example where people compete in the same city, actually get to meet each other, to become friends, they actually work together. Other real estate industries have kind of been secretive, don't want to share, everybody think they have the secret sauce, where our, call it little industry compared to others, everybody is actually very friendly and very open to sharing ideas and best practices, which is somewhat unique. Craig Fuhr (20:01) Thanks for watching! Jack BeVier (20:09) talk to me about the differences in, when you first go to market with a product, right? Particularly when you're introducing a new product to Wall Street, it's kind of gotta be it's most conservative, most buttoned up, fewest bells and whistles on it at that point. And then over time, as the market gets comfortable, sees that these loans are performing very well, they get comfortable. uh, you know, opening the box a little bit, right? We're allowing, allowing features, allowing bells and whistles, expanding the box a little bit. What's that, um, in guys, your guys non recourse offerings, what has that, uh, process looked like over the past 10 years now? You know, like what, what features have you been able to add or restrictions you've been able to eliminate over time? Joakim Mortensen (20:51) Yeah, that's actually a question because that's one of the things that also when we talk about liquidity, we are seeing the first thing that happens when there's more demands, that means that actually spreads come in. It means that the yield that bond investors demand, they're willing to lend money at a lower interest rate because of the performance and also that there's more and more of this product offered, they're trying to get that historical empirical evidence that the bonds are. performing well and that's why we see that rates started coming in but early on we had all these what referred to as credit enhancements where as an example if we did a million dollar term loan five or ten years we would require what we call hard cash management which is basically all rental income is kind of trapped in a bank account and then it's distributed to principal interest, taxes and insurance and whatever excess cash flow is available is then distributed to the investors. The problem was they're actually very costly to operate and banks didn't necessarily particularly like this because these are small loans, it was a small amount of money. It was costly because it was a fairly steep monthly fee and investors absolutely hated it. And one of the things that was also very kind of comical was that... We swept, I think, every nine days. And as you guys know, it's not like every investor sends the money in on the first of the month, right? It kind of trickles in. Somebody didn't get paid on time. So it was just never a consistent process. And it got very frustrating for the small investors that we at some point just made the decision. It makes no sense. So one of the things we did, we escrowed one month principal and interest. because if they then went to link when we at least had that month to tap in until we could figure out what was going on with the loan. So that was a huge feature that we could kind of evolve from that and it was something bars just were thrilled about because we also got to the point where investors say we're not doing this loan. We could then offer kind of the recourse component in lieu of getting cash management, but then they might as well go back to the bank at that point could offer better rates, right? So So we kind of evolved from that. And then as we got all the way up to today, one of the other things that we used to kind of like in a CNBS, we would escrow taxes insurance and capex. The capex was to ensure that there was money if a roof blew off so we could replace that or there would be money to replace that roof so they could keep tenants in there because otherwise it would impair our cash flow and their ability to pay us principal and interest. So we also saw through historical evidence that investors weren't actually tapping those capex funds. So a lot of small loans we went away we don't no longer require that capex account because it was just dead money for the investors sitting there because we thought they would tap into it. It was very cumbersome to begin with to tap into capex money. So we try to make that process super easy as well. People still didn't really utilize it. It doesn't mean we keep the money. It's just sitting there until the maturity of the loan and then they get a chunk of money back. So we kind of moved away from that. Obviously with larger loans, we were a little bit more cognizant of the capex requirement. And so are they because they typically tend to run very, very large portfolios where there's a lot of capex needed to maintain those properties. Jack BeVier (24:30) Right. Craig Fuhr (24:32) from a servicing standpoint that had to be a bear. Joakim Mortensen (24:37) For sure, it's a constant evolving process, but I also think certain services have allocated sufficient resources to get their arms around it. And also again, by behavior of the investors, the fact that the market has continued to grow, so it means that there actually is a business for the servicer to get enough scale where it makes sense to them to set this up. Because as you know, We are such a unique hybrid structure where there's many, many properties in each loan that we need to ensure that they're functioning and that they'll lead us. One of the things I kind of want to go back to is a big selling point for us to investors was that if you think about real estate, right, it is per definition an illiquid investment, right? It's very difficult to sell a real estate. It takes a while. One of the unique features we have is the most liquid real estate there is residential real estate, right? So one of the pitches is also, and I told this to investors, this is one of the only loans you can write such, right? If you have 100 properties, you'll... Jack BeVier (25:43) Mm-hmm. Joakim Mortensen (25:48) leasing out, if 10 of them isn't performing well, you can sell off those 10 and then you would have 90 homes that's fully leased and functioning. So you can right-size the loan or something investors like as well. Investors also like that if in the event that there is a default or decides to walk away, we actually take a pledge of the equity because if you are in Florida, which is a traditional foreclosure state, it is very, very expensive, very, very time consuming. to potentially have to take control of 100 properties as opposed to if you have a hotel in Miami Beach, that's just one property. So those are some of the things that we also try to think through and you have no ability to right size a hotel but if you have 100 properties, you can sell off 10 of them and you still have a fully payable loan. So those are some of the things that investors really like but then also the liquidity because as you guys know, if you take control of a residential asset, it's very quick to dispose of or... to liquidate compared to an apartment or retail center. Jack BeVier (26:51) Yeah, absolutely. I mean, totally makes a ton of sense. Hey, switching gear gears slightly. I'm curious from your perspective as someone who's been there for you know, the entire history of you know, the company's evolution, when Corvett CoreVest usually used to be owned by colony who's a very large asset manager and private equity group. And then CoreVest was sold to Redwood Trust, which is a publicly traded mortgage REIT, and so they're, you know, they're focused on providing dividends to their, to the investors in that REIT. So two totally different kinds of owners, right? of the company. What was that? What was that sale process like? What was that transition like? Did it, did it, you know, did it affect operations that it did it, you know, were the changes to the program, good or bad that made it down to the borrower level? Joakim Mortensen (27:32) Yup. Jack BeVier (27:46) How was that transition? Joakim Mortensen (27:48) Yeah, so I'll take you back and kind of give you, so we started, we got our seed money from Colony Capital to provide this finance kind of, in conjunction with the Colony American Homes, we got that seed to provide liquidity to the, to the, to that middle market. In 2017, we were actually sold to Fortress Investment Group and they were a terrific partner who also just, we wanted to build the company because at that point we kind of had... proof of concept, as you may know where Invitation Home sits today, it ended up being a couple of transitions, a couple of mergers and then all the assets pretty much sits with Invitation Home. So that's where we got sold to Fortress Investment Group in 2017. They were a terrific partner. And then in 2019, October 2019, we kind of got a permanent home with the Redwood Trust. That was actually the first company traded mortgage-rate on New York Stock Exchange, or RWTC. This is their 30th anniversary this year. So they've been around. And they're also one of the biggest provider of liquidity in the jumbo space. Their security station, Sequoia. So we fit perfect into their housing mandate, which is... basically to provide liquidity in the residential segment, whether it's on the own occupant side or it's on the, we're typically referred to as BPL, Business Purpose Loan. So if you ask me if anything really have changed, I would say no. The past 10 years have been a very consistent approach to doing business. And to be honest, I'm not quite sure that a lot of our investors know that we've had kind of three stops and now we're part of the... the Redwood flag and one of the things that's been wonderful with them is that very, very like-minded people. So we've spent since 2019 all this time kind of being integrated with these guys and it was great because everybody kind of was like-minded. The senior management had the same vision we had at the CoreVest and that's where CoreVest actually we just had to change from the colony because we were no longer affiliated with colony, which is why we came up with the CoreVest and even under Redwood. We've kept the CoreVest brand because we do believe it's a super strong franchise. Now. Jack BeVier (30:14) Yeah, absolutely. It's become very much a household name for, for larger real estate investors. I mean, larger single family real estate investors. Yeah. How was the, um, how did navigating, I mean, the past three years have been a roller coaster to say the least, right? 2021 was super, you know, 2020 was terrifying. Didn't know, you know, that the everything, well, at least we like shut down originations for a little while because Frankly, because we weren't getting payoffs, right? Like houses aren't selling, I'm not getting payoffs. You know, we run out of cash eventually. Um, the capital markets were all messed up. So going in like raising capital externally was not an option. So 2020 was a show. And then 2021 was like super fun because the world came back in obviously low interest rates and, uh, we all kind of benefited from that low interest rate environment as, as people who already had shops. Joakim Mortensen (30:41) Yeah. Yeah. Jack BeVier (31:04) And then 2022 is catching a falling knife the whole year because interest rates are rising, you know, aggressively. And I feel like 2023 was like the, you know, not good, right? Just kind of now in 2023 was just pain, right? Like, like rates are just super high and like, Hey, you know, what do you want me to do? There's nothing, you know, kind of, kind of like shrugging my shoulders. Like it's the best rates that the world has to offer right now. How, um, Joakim Mortensen (31:10) Yep. Jack BeVier (31:29) From your guys perspective, like similar roller coaster or any, any unique challenges or opportunities that, uh, that, that environments, uh, allowed you guys to take advantage of. Joakim Mortensen (31:41) Yes and no. Just what you stated right there, we felt it, we saw it, we lived it, our investors lived it. I think the biggest challenge because us as investors and us as Trying to predict the future, right? At least in the past two years have been very difficult because COVID and basically super low interest rate stimulated the economy, it took off like a rocket, but then also going the complete opposite way of rates going up this fast. And for most people, and I am an older guy at this point, we haven't seen inflation, what my parents might have had and remember it. But for most of us who've had a career in the past 20 or 30 years, we just, we'd have inflation has never really been a factor. So kind of trying to navigate through that and understanding the ramification and positioning yourself long term has certain percent challenges. And as we can see from last year, even also early into this year, the transaction level is pretty much non-existing. But then we also just see people having to make a decision on either refinance. Jack BeVier (32:33) Mm-hmm. Joakim Mortensen (32:53) and how do they position themselves best. And we are seeing some relief and I think everybody probably thinks that it's at some point in the not too distant future we are going to see rates starting to normalise. I wouldn't expect it to come back to where we saw in the past couple of years, but a more normalised interest rate environment I think is super healthy for all of us for the long term. Jack BeVier (33:19) Yeah, as someone, I mean, you guys now have, uh, you know, Redwoods balance sheet to, you know, to originate to, and obviously you guys have always been very active in the securitization market. Did you guys find that you were balance shooting more last year and, you know, hoping that spreads were going to tighten or rather that the world's going to calm down a little bit on the securitization side, was that a strategy? Joakim Mortensen (33:43) Well, so again, past two years, at least certainly last year, this securitization market was largely non-existent. So we have a fantastic capital markets team that actually went out and found counterparts who would, who we call them bilateral securitization. So it's basically one counterpart that would buy the entire stack except for the equity or our risk retention requirements. So we kind of didn't go to the public markets. We came up with creative structures of still having the ability to provide liquidity and certainly also having the right balance sheet was super helpful because one of the things you can also imagine, we actually have a decent amount of bridge loans, the fully stabilized portfolio that's basically just sitting there and waiting for interest rates to normalize. And that's for, again, investors have an expectation likely that in the not too distant future. that they're going to see some relief. And then at that point, they want to lock in five, seven, or 10 year perm option. And we also created a three year fixed product just because you wanted investors who kind of wanted a ceiling on their floating rate. And that three year with a call protection of two to two and a half years, we then allow them to refinance once they felt that rates would be normal. Craig Fuhr (34:45) Thank you. Jack BeVier (35:11) So what's your, how you feeling about 2023? I'm sorry, 2024 and maybe looking into 2025, you guys, you know, our volume started to pick up for you guys, you know, the, we were out at the last episode we talked about Fred and I were out at the structured finance association conference in Vegas. And there seemed to be, you know, versus last year, a fair amount more optimism as it relates to, you know, Least the ground's not moving underneath us. Credit spreads are starting to tighten in certain product classes. You know, do you guys share that kind of cautious optimism? Joakim Mortensen (35:49) We do, and the good news is the capital market seems to functioning a lot of liquidity. We did an RTL late last year, residential transitional loans. It's a securitization where we can finance our bridge loan and some of our friendly competitors have also executed very successfully. We are seeing spreads tighten, so it's very nice to see that capital markets are functioning and liquidity is returning. And it's also where I think we see slight optimism that things will normalize and obviously with some relief and the yield curve kind of normalizing as well. I think that's gonna be very important in order for us for the market to function more predictable. Jack BeVier (36:36) Yeah. TORAC did a rated that first rated securitization or they were the first ones to get a rating on an RTL securitization. So that's like, you know, pretty, you know, exciting, you know, as a as a first reference point for the market. So really curious to see, you know, who goes next in terms of, you know, getting a rated deal done and you know, and who's going to be the first originator to do it because TORAC is more of an aggregator of other paper. Joakim Mortensen (36:41) Yep. Yep. Jack BeVier (37:05) So that'll be an interesting thing to see. And yeah, hopefully help everyone's cost of capital. Joakim Mortensen (37:09) Oh for sure, but it's also that we're rooting for Craig Fuhr (37:12) Yeah, I was gonna say I love to get Joakim. Go ahead. Joakim Mortensen (37:15) Go ahead. Craig Fuhr (37:17) I was just going to say I'd love to hear your thoughts on Jack shared his thoughts on how that announcement from TORAC and sort of seeing those tightening spreads would come down to the borrower level. I'd love to see, I'd love to hear your, your take on that as the industry obviously becomes more and more, you know, comfortable with these types of securitizations. Joakim Mortensen (37:32) Yeah, for sure. Absolutely. As I said, we are rooting for our friendly competitors to do well because it just benefits all of us and the fact that they could pull that off, it means that we can likely do that as well and that provides more liquidity, gets hopefully tightening spread, opening up the bucket for us to continue to waive in loans and then offer the best attractive interest rate and the investors and that's for what you guys like the DSCR, the fix and flip, the single asset loans, I mean that's tremendously important to provide equity in those smaller markets because one of the things we certainly also benefited from is we saw the regional and the local banks also really tightening or to a certain extent getting sidelined last year and that's where what we refer to as private capital is filling that need that banks historically have filled for so long. And us as private capital can provide solution and go in and provide liquidity to real estate investors. Jack BeVier (38:57) Yeah, absolutely. That's a theme that we've talked about often. It's a, that's like, that's, hey, that's our whole thesis here, right? Is that we're going to be able to do it, uh, provide capital to. Main street borrowers who need it to do that, to do their great projects. And we're going to be able to do it better than the banks are. And as the securitization market continues to mature, hopefully, you know, at points in time, you know, back in 2021, we, we were, you know, we, we were able to beat the banks in terms of cost of capital. So Joakim Mortensen (39:26) Yeah. Jack BeVier (39:26) If the securitization market continues to tighten up a little bit, I think right now, even the, I've called locally for our rental portfolio, refinances and the, the rates that I'm getting quoted by local banks here, and we look pretty decent on paper, are not competitive. You know, they're, they're not exciting, right? Like you'd, you'd rather do a DSCR loan. You'd rather do one of your non recourse op, you know, offerings rather than, than go to the banks right now. So I'm, we're, you know, we're super, obviously we're super bullish on the, uh, the private lending space for, uh, for residential real estate. So that's our whole thesis. Joakim Mortensen (40:04) Well, another interesting point is we actually have a decent referral network from banks. And believe it or not, it's actually very fruitful for both the banks and us because banks have a ton of clients who need solutions and we don't care about deposits, right? So for bankers to be able to, if they're not lending, that they can still provide solutions for their customers. keep them happy, keep that deposit relationship, which is kind of the lifeline of the bank. So those kind of partnerships have been very fruitful because we have no interest in the deposit and the banks are just thrilled to be able to offer some sort of solution and maintain that relationship. So it's not just, again, competing, it's also kind of collaborating and working together. Jack BeVier (40:57) Yeah, it's very, very smart. Makes a ton of sense. Craig Fuhr (41:01) Joakim, we obviously have some overlap here that we've talked about with what Dominion does and what CoreVest does, but perhaps you can tell for the folks that are listening, what does a typical borrower look like for CoreVest? I'm assuming that we have some overlap there, but based on what I've read, it's obviously a probably a more experienced, larger type borrower. So talk about that. Joakim Mortensen (41:29) Yeah, so we kind of pride ourselves of being a one-stop shop for kind of the BPL or investment housing credits, right? So we solely focused on residential investment properties and multifamily. We are kind of what we call the core product have been the scattered side SFR rental loans, what we've been doing for the longest, we had the biggest issue, the largest issue of the, what you call multi-borrowed securitizations. And we also had the lines of credit, the fix and flip lines of credit, that started out with that enormous dislocation that people were buying, renovating, and then selling. That evolved into aggregators, right? Where it was buying, renovating, leasing up, rolling them into a core best perm loan. But then also, we actually did our first, BFR construction loan built for rent back in 2017, but that's certainly also taken off and I believe we're one of the largest lenders in that space. But then as we continue to evolve, we've also added the DSCR and the fixed inflate with a single asset loan. So we kind of try and touch on all of it. So it's a little challenging to kind of label what our normal investor looks like. But I wanted to say is that I'm kind of focused on that institutional. So that's a lot of the guys that now have grown really large. And some of the big one of my clients have done 32 loans with where it's just been amazing to see where we started out 10 years ago and how they've grown and how they actually run really, really large as of our rental operations. And we also understand that we somehow also fit the gap of. We don't need the full loan cycle so that bill for rent don't always go into a CoreVest, they can go agency, they can go HUD, or they can go elsewhere, right? So we also fully understand that we can capture it all, but we can be a part of that cycle of you buying the land, developing, getting a construction loan, and then getting to a long term either agency or CoreVest term loan. So we continue to kind of go where we see demand and what the investor need is and kind of. try to tailor those solutions. As I can say, five years ago, two thirds of our production would be the SFR rental, where in the past couple of years, there's been a ton of BFR and bridge loans, where that's because that's what investors want. And then we have to constantly adapt to the demand of the investors. And I would also think that once REG normalize, that long-term, whether it's scattered site or entire communities with finance, that probably going to take off because rates have just been very, very high for perm loan. But once they kind of get to a level where the investors feel they're normalized, I think that the name is going to pick up tremendously. Craig Fuhr (44:33) check. Jack BeVier (44:34) That's great. Thanks, man. Hey, really appreciate you having on have taken the time to come on with us today really enjoyed the conversation. We get to catch up a couple times a year at the conferences, but and it's been great because it's when I started going to these conferences back in 2014 and 15. You know, at the time, the question was, is single family even an asset class and that was like an actual panel that was there was like an actual debate going on about that. We always thought it was a bit of a ludicrous conversation. Joakim Mortensen (45:02) Yep. Jack BeVier (45:04) And, uh, and there was a lot of wall street activity, folks who were taking it, buying houses, just, you know, it was a land grab at the time. Right. And I remember, I remember saying this out loud to Fred being like, I don't really care who the biggest guys are in the room at this conference or at the conference six months from now. I want to know who the guys are going to be, who the guys in this room who are still going to be in this room 10 years from now, let's go make friends with them because they're the, they're the only ones who I care about. They're the only ones who are real, who really matter. Um, Joakim Mortensen (45:11) Yep. Craig Fuhr (45:26) still left. Jack BeVier (45:33) And so you, I've always, we've always considered, uh, you, Joakim, you know, very high on that list of folks and it's great to that's played at the world's played out that way. So, uh, really, uh, appreciate you taking the time to talk with us today and I'll see you in Miami at, uh, at the next diamond. Joakim Mortensen (45:49) That sounds great. Well, thank you very much for your kind words. I truly appreciate it. I feel the same way. Craig Fuhr (45:52) I'm not Yeah, I'm not sure if I'll see you in Miami. I still have to wait for my plane ticket for that, Jack. So we'll work that out after the show. But Joakim, if folks want to get in touch with you or Corvess, why don't you go ahead and tell them how they can do that and see if we can send some business your way. Joakim Mortensen (46:03) Hahaha Absolutely. My phone number is the easiest. We also have a website. I know if you share emails or I'm happy to share my phone number if you guys get any inquiries or did you tell me how you prefer that this is communicated? Craig Fuhr (46:34) whatever you feel comfortable with. You want to put your cell phone out there? Go ahead. Joakim Mortensen (46:39) Yeah, I get enough calls as it is. So joakim.mortensen@cvest.com or CoreVest Finance, we have every way of reaching me or any of our originators. And obviously, I would also just encourage to call Jack's cell phone number so he can give my cell phone number. Perfect. Craig Fuhr (47:01) Hahaha! Jack BeVier (47:01) I'm sorry. Craig Fuhr (47:03) We'll give that out later. Well, thank you so much for your time, Maki. It's been a real pleasure. Joakim Mortensen (47:06) Well, thank you so much for inviting me. These conversations are great because they just further educate our little community and I think it's great what you guys are doing. So thank you so much for inviting me. Jack BeVier (47:22) No, thank you, sir. Craig Fuhr (47:24) So folks, we thank you for once again joining us on Real Investor Radio. It's been a fascinating conversation. It's clear that there appears to be no lack of liquidity for better investors in this market, even in this market. So Jack, any final words? Jack BeVier (47:44) No, really appreciate Joakim coming on. Yeah, there's, you know, as Joakim mentioned, there's lots of friendly competitors in the space, you know, folks who have, you know, figured out that there's no like, you know, dominant, you know, three dominant players who are banging it out. Yeah, it's still a pretty fragmented space. We got a long way to go from a consolidation point of view. So it's great to have conversations with folks who know the industry well and are the ones moving it forward. So thanks Joakim. Joakim Mortensen (48:14) Thank you. Craig Fuhr (48:14) Alright folks, that's Real Investor Radio. Hope you enjoyed this episode. Leave some comments below and we'll talk to you next time.