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Mini Breakdown | Jack Breaks Down What a Securitization Is Really Like · Real Investor Radio Podcast

• Craig (00:00) Hey, welcome back to Real Investor Radio. It's Craig Fuhr and Jack BeVier. Jack, it's good to see you as always, sir. Jack BeVier (00:05) Yes indeed, yes indeed. Happy Monday. Craig (00:07) I was hoping that we could talk about, Jack, what it's like, ⁓ you know, as an experienced lender that Dominion Financial Services is, and obviously you and Fred and all the experience that you've had in the market, what it's like to do a securitization. and go up to New York and do your dog and pony, and then what you guys heard while you were there, and then what transpired just a few days later after you left there. So talk about that, Jack. What is it like to have all of the experience as a lender that you have, then go to, obviously do a securitization and then. you know, talk about what the experience was like and then what you guys learned and then what happened just a few days later after you left. Jack BeVier (00:52) Yeah, sure. we did a ⁓ we decided like a month ago to go to market and do another securitization. ⁓ Credit spreads were the tightest we'd ever seen them. Our performance is really good. Our story is good. It's well received by the market. ⁓ And we're super proud of it. Like, you know, we like think we're very much a credit driven shop, you know, credit credit with common sense. And ⁓ the so we are expecting like a really, you know, really strong execution. And then we start going to market and they ran war pops off like a week later. And it takes like a month to go do a securitization, maybe six weeks. ⁓ But ⁓ in that period of time, all the treasury rates just take off. The two year was it like three, which is the index that I care about for a two year securitization is the two year treasury. And so the two year just like. like a month ago just starts like, then goes up like 40 basis points, 40, 45 basis points over the course of next three weeks. And we go up to New York, have a bunch of meetings for a couple of days. do a couple other days of teams meeting, just meeting investors. Craig (02:01) What's that like, by the way? What's that like? Bring this in the room, Jack. Jack BeVier (02:05) You basically, yeah, you go, you, you, your investment banking, your investment banker. Uh, we use this company called performance trust. They're awesome. I love them. A big fan of Arjun over there. Uh, don't mind shouting them out there that we think they're the best. Um, and they set up a bunch of meetings for you. They put, they, they collected a ton of data from you. They put together, they, cut that data up, you know, 13 ways from Sunday. Um, and put together this nice deck, you put the story in there, you got all the strats, the stratifications of all the data, and there's some standard ways that the industry looks at RTL loan performance. So your data gets overlaid into that standard format. And so we got a little 15 slide PowerPoint PDF that you work to get into presenting shape. then Craig (02:51) And you just sit around the table and like get sliced and diced on that for six hours. Jack BeVier (02:56) Yeah. Yeah. Well, yes. So basically you go, you take a train up to. Yeah, of course it did. Yeah, of course. Yeah, got the got the suit on, got the, you know, shined up shoes, the whole the whole thing. Get to go to go to the Amtrak station to get the get the shoes shine on the way to New York. Of course, you got to, you know. ⁓ So anyway, yeah, you go what you go up to, you take a train up to New York and you basically you bounce around Midtown from. Craig (02:58) Did you wear a suit? Tell me you wore a suit. Keep going. Love it. Love it. Jack BeVier (03:23) sixth Avenue over to third Avenue from 30th Street up to 80th Street. And you're just, you know, you have a meeting every hour and a half and that meeting lasts 45 minutes. Then you have half an hour to get to the next one. And you just do it over and over and over and over again. You do like 10 of them in a day or eight of them in a day. And, you know, certain, you know, there's different personalities that firms, the firms have different, the bond buying firms have different personalities. The people have different personalities. Some of them want to talk about your real estate experience. Some of them only want to talk about just the, the, the, the data, you know, the, the strats, like the, the stats of, of what your loan performance looks like. ⁓ some of them are newer to the space than others. So it's, you know, sometimes you're doing a little bit of education on the space altogether. Craig (04:11) Yeah. Jack BeVier (04:12) Just kind of like bringing them, getting them used to, here's how we look at the market. Here's how we look at the other players in the market. ⁓ So the conversations are not homogenous in any way. ⁓ And you're just basically, you know, talking shop all day, which is, we think it's fun. Like we love it. We're just like, you know, like. Craig (04:30) No one loves talking shop more than you and Fred. And I'm sure you guys tell an amazing story. You know, one of the things I was thinking, Jack, I was up visiting my mom this morning and I was driving back down 95 and I was like, and this is a kind of a tangential aside, but like, there's not another podcast, frankly, Jack, in, I don't think in the industry where you can hear from a guy like you or Fred when he's on. who like we're talking about a company that like literally started with one hard money loan and you guys are now $100 million a month and you get to hear from a guy who literally is in the trenches up trying to sell our wares to Wall Street. And I just think it's like to be able to have this conversation right now for those who listen, I think it's so cool because you're not going to find another owner of a private lending company the size of Dominion or larger. ⁓ who has a podcast like this. So I just love the fact that we can talk so transparently about it, frankly. I do. I think it's so cool. ⁓ like, so you walk, so you're taking the train back from New York that day and you're thinking to yourself, we just crushed it. Like, we're gonna get rates, we're gonna borrow money at rates that we think are more attractive, right? than what we've been lending over like say the last 12 months. And then all of a sudden the IRAM war pops off and then what happens then? Jack BeVier (05:57) Yeah. So the, red war has been the backdrop and the over the course of the conversations, everyone's getting like a little bit more nervous and a little bit more nervous because the two year just like keeps climbing up and like, frankly, it doesn't matter what the spreads are. If the two year makes the cost of financing non, you know, it's not like we have to do a deal, right? Like we do have other lines of credit. We could just go use those. Like we're at the securitization market window because we think that by doing that, You lock in committed capital for two years. So there's some upside to that. ⁓ And so you know what your cost of capital is going to be. And you can get a higher advance rate. If the market will let you, there is the opportunity to get a higher advance rate than banks are going to give you. And so it's growth capital. Craig (06:30) Yeah. Which means for like every dollar that we give them, they refund us back 90 cents or 95 or, right. Jack BeVier (06:52) Yeah, exactly. It can go up to 95. If you can tell a good story, you can find bond buyers that will go up to 95. So that's another reason to do it. But it has to be cheaper. If I'm not going to pay more for the money to make my cost of capital higher so that I can... That defeats the purpose. What's the point of growth capital that's higher? If I could charge more, I would be like for the borrowers that we want. So ⁓ the idea is to be able to bring the cost of capital down and have some growth capital. ⁓ And so it got very touch and go. At the end, we go, we get ready to price the deal and the two. And it wasn't the spreads. The spreads were fine. The spreads are great. Like they're very the story was great. The bond buyers like us a lot like. They're very confident that those bonds are gonna be repaid, but the fricking two year just went on a 45 basis point tear and like almost killed the deal. So we ended up doing a deal that was fine. Craig (07:52) So were they trying to retrade? Were they trying to retrade you guys off of like what the meaning? it's all probably, is it floating Jack? Is it like, so like today the two year is that, I'm just picking a number 3.5 and then all of a sudden it goes to 3.9. Does that mean you're getting the 3.9 plus a spread at that point or? Jack BeVier (07:57) No, no. Yeah, so while you're telling the story, you're trying to get the spread down as much as possible, right? Like the better they like the story, the lower the spread is gonna be. So that's the pitch, right? Like, hey, buy this at a tight spread because we're awesome at this and like we deserve a tight spread. We're super not risky. But the thing is the rate is floating until the rate is floating until you lock in pricing. And when I say you lock in pricing, you agree to spreads. And then the next day you have a call and you lock in the two year basically and because it's because the bonds have a two year revolving period. Craig (08:48) That has to be a very ass-pocketing call. Like, did I make the call at the very right time? Did I time the call at the very right time or did I? Jack BeVier (08:51) yeah, for sure, yeah, yeah. Yeah, yeah. And you're taking interest rate risk until that call. if all of sudden a bomb goes off on that island, then the two-year could spike up 25 basis points in the last minute and fuck your deal. yeah, doing the sales is, that's what the investment bankers are doing. They're making sure that they've got bond buyers to fill up all three tranches that you want to sell at pricing that is acceptable. Craig (09:25) Yeah. Jack BeVier (09:27) And then you just pray overnight that a bomb doesn't go off and blow spreads out. And then you do a pricing call and lock in spreads. And then a week later, have a, you know, four business days later, you have a closing. Yeah. And all the money actually changes hands. ⁓ So dude, the, the, there's this thing, apparently, but know, the, but where the ides of March, we freaking last, last year when we did a securitization, we did, we went out and it was freaking, ⁓ Craig (09:45) ⁓ Yeah. Jack BeVier (09:54) It was the tariffs. was what was that day called liberation day? It was liberation day. So last time we went to market, we went to market. Yes. Yeah. So last time we go to market, it's liberation day. This time we go to market. It's the fucking Iran war. Like, dude, we got to pick another month. March is no good, man. We got to stop going to market in March. It's everyone gets all riled up and like there's like volatility in March. So we we're not going to do that again. We're going to we're going to go out in January. Craig (09:57) Yes, when he came out with the big chart of all the countries and what they're Jack BeVier (10:22) or February maybe or wait, you know, till everyone's back from summer camp. Craig (10:26) Check you. I'm not trying to get anybody to send in some bourbon into 32 South Street, but my birthday is next week. You can wait till April, Jack. All good things happen on April 3rd, especially my birth. So keep that in mind as you and Fred are moving forward with your multi hundred million dollar deals. Just keep that. Keep that in the back, Jack. Just put it in your pocket there. So then how does it all shake out? Where did it end? Where did it shake out? I know you did a company call last week where you were talking about it. was like a little bit in the, you know, we're 50-50 right now, whether or not we do it or not. Like, where did it all shake out for you? Jack BeVier (11:09) Yeah, so it all and it we were doing the deal. It ended up fine. Like it ended up that it's not nearly as a creative from a capital markets perspective as we'd hoped because of the slippage in the two year. The spreads were fine. The spreads were great, actually. So like the story was well received. I really we like the guys who we're doing business with. We're buying bonds from us. Like we feel like we got a cast of characters that is like our people that like our story and like us. ⁓ Craig (11:33) Yeah. Jack BeVier (11:37) So no issue on that side. It's just the freaking back. The macro backdrop is, you know, kind of, you know, kind of took a chunk out of our wallets. Craig (11:45) So ⁓ I think ⁓ as we've received some calls over the last, I'm gonna say 90 days, Jack, 90 days. ⁓ Folks that I've talked to for RTL loans and for those of you who are listening right now, we're talking about fix and flip loans or buy, renovate and sell short term hard money loans essentially. The nice way of calling those now on Wall Street is called RTL. So get to know it, residential transition loan. That's a really, really lovely way of calling hard money something different, I'm still trying to wrap my head around it. I feel like, Jack, that, and I hate to talk about our competitors, so I won't mention any of them by name, but I feel like there is, there's some kind of crazy pricing out there right now. And I don't know that When you put all the deals together in terms of how much you get at the table for LTC, how much you're going to get towards rehab, and then obviously the leverage that you'll get on the ARV of the deal. But it feels to me like, Jack, that it's very competitive right now in the market. And I'm wondering if you feel the same way. Like DSCR, we've talked about this a million times, Jack. My take on DSCR is that It's a race to the bottom. It's going to be commodity. It's a commodity. And those who can deliver fast and great service, you get some goodwill there. But for RTL, feel like that was a different side of the market, Jack, where you could really carve a space. And I feel like that's becoming very competitive. What's your take there? Jack BeVier (13:22) Yeah, that's definitely the case. I mean, I think that the major driver for that was that last year in 2025, I think there was something like eight new securitization issuers to the market. So eight new guys went and did their own bond deals and they didn't price as tight as everybody as the guys who, know, as us and some others who have been done multiple deals and been in the market for a while, but they priced it, but it was fine. You know, it was pretty damn good. You know, like they can make their they're close enough. to put out some really competitive term sheets. And so, hey, it's good for the borrower, by the way, right? Any borrower is listening, who gives a shit? They don't give a shit what our cost of capital is. They care about what the rate that we can deliver to them is and the service that we can deliver to them. ⁓ But it is the case that there's more parity amongst hard money lenders, especially the big ones. Before, used to be the top 10 could do a securitization. Now it's like the top 20, 25 that are all doing securitizations. So, ⁓ hey, it's good for borrowers. It's better cost of capital. And also it's funny. What's happened there is that it's kicked out the aggregators. Like the aggregators are kind of dead. Like the guys who were buying hard money loans from little, from smaller hard money lenders, ⁓ there was a lot of that. Some of the biggest names, if you look at the Forkasa data or... Craig (14:22) Yeah. Explain that. Explain that. Jack BeVier (14:47) ⁓ SFR analytics data, some of the biggest names in of who we were actually funding RTL loans were not originators themselves. They were actually just like they were actually table funding the loans for local originators. Well, those guys were being fed by the 11 to 25 biggest originators. That's that's those originators were using those aggregators as overflow. Well, but once Craig (14:54) Yeah. I had no idea. Jack BeVier (15:15) Once the originators, the 11 to 25 ⁓ originators started doing their own securitizations, they stopped selling to those aggregators because they needed to fill their own bond full of of loans. so the aggregators have actually like one is selling, one got out of the market, another actually just sold ⁓ and volumes are down across all of the aggregators. as a result of that dynamic. From a borrower's perspective, this is all a good thing, right? Like this is, took, the market took out the middleman, the aggregator got kicked out, that guy was a middleman, and now it's originator going straight to bond buyer. That is like the most, that's mature, right? That's the most efficient way, that's the way it should be. ⁓ And we're getting closer and closer year over year to ⁓ that. So now it's gonna be, I think the next phase here is going to be, Craig (15:50) Yeah. Jack BeVier (16:13) And you know, because we're in this like flat, soft to down market depending on what sub market you're in. Craig (16:18) I just read a story the other day that this might be one of the worst years ever for flippers. It's just so tight right now, so keep going. Jack BeVier (16:26) Yeah, 25 and 26. Yeah, exactly. in that with that backdrop, we're going to see some differentiation. We're already starting to see and I think we're going to see more differentiation between originators in terms of credit performance, right? Like what's your delinquency rate? What's your default rate? What's your loss given default rate? And when and that's going to get published, it's going to get published to these bond buyers. And then those bond buyers are going to start pricing the originators differently. And that's going to be the full maturity of the market where like Yeah, there's the risky guy who goes a little bit higher. I don't know who who who know doesn't do as good of a job, you know, frankly underwriting as somebody else and he's going to pay more for his capital to the guy who's really the originator who's really good at this is going to have a is going to have a cost of capital advantage and he's going to be able to as a result choose his book because he can write loans cheaper and you'll see a stratification of the market from the flipping market where the prime Craig (17:21) You said that you said that you said that months ago. I don't know if you remember or not that stratification. And is it is that going to be national guys Jack or will that be kind of the regional local regional lenders the larger local regional lenders that stratification between like a national lender versus ⁓ a regional guy or is it going to be stratification amongst the regional lenders as well. I'm sorry the national lenders as well. Jack BeVier (17:48) I think it's going be stratification amongst the national lenders, anyone who can do a securitization. ⁓ And I think doing a securitization is important from a cost to capital perspective. It is definitely the most efficient way still. It is still the most efficient way to fund your RTL lending business. And so it's a haves or have nots. You can or you either have a securitization or you have a several hundred basis point handicap and you're not making the money that you could be if you could do a securitization. And so now it's gotten basically the top 25 RTL lenders can all do securitizations. And now we're going to see a stratification amongst that group. ⁓ And there'll be a sorting amongst that group as to like, who's got the best folks. Craig (18:26) Even though, well... yet because they tell a different story in terms of their performance. Jack BeVier (18:34) Yeah, exactly. Craig (18:35) Let me ask you one last question. Of the top 25 Jacks, How many of them have properties businesses where they're actually still buying 100 houses a year, where they've got 20 years of property business? I'm not talking about lending business. I'm talking about guys who have been in the trenches, who have literally walked like you and Fred have through tens of thousands of houses and understand the business. How many of them can tell that story? And is that story even a part of when you go and talk about the lending business. Jack BeVier (19:09) I mean, there are a couple. There are very few, but there are a couple. And they tend to be some of the smaller ones, right, who are growing right now, who I think are like, they're going to be good competition for a long term. It's all good. know, like, know, we're the only ones who are going to, you know, who can make a decent RTL loan out here. but I do think, I mean, we very much believe that real estate grounding is very... Craig (19:19) Yeah, yeah. Jack BeVier (19:34) is like crucial to a lower default rate and as a result, a lower cost of capital on a going forward long, long-term basis. ⁓ We're very convinced that we are lending to small businesses that happen to be, we're making small business loans that happen to be secured by real estate. It's important to get the value of the real estate right, but it's more important to get the, to underwrite the nature and quality of the business that you're lending to. And We think that that idea is a little bit misunderstood. It's almost especially by Wall Street. ⁓ They want this to just be a FICO LTV LTC quantify this. They just they want it to be, you know, hey, just show me the stats and like. Craig (20:17) They wanted to fit into an Excel spreadsheet. Jack BeVier (20:20) They wanted to fit an Excel spreadsheet. Exactly. Yeah. And the more we tell our story and our approach to underwriting and our background, the more I believe that they're coming around to the idea that like, shit, this is, this is a little different. This is an operating business lending model. Um, and so I don't think that the, like, I don't think that the, the underwriting guidelines from 2021 to 2025 are going to be are going to be what the market ends up using five years from now. think it's going to work. The market's getting more granular into the nature of these small businesses that we're lending to. ⁓ And we see that because we're having very low default rates right now because we attribute that to this hyper focus that we have on that dynamic, on that philosophy. So anyway, that's what we think. Craig (20:48) Yeah. I will say that... As a loan officer, ⁓ it's not always the best. ⁓ Look, I've said it a million times, I'll say it here on the podcast, and I have a sincere appreciation for the experience that Jack and Fred bring to the table as guys who have been in the trenches investing in real estate. And that translates to the lending side in how we look at borrowers. And sometimes it doesn't always look favorably. you know, every loan's not a great loan and every investor is not a great business person. But man, I tell you, the guys who are Jack, we've talked about it a million times on this show, the guys who have spent the last couple of years really battening down operations, really understanding all of the costs of their business, those are the guys right now that are just so easy to work with, aren't they? Like Jack, I mean, like, The guys that tell great story and you know that they've spent time really working on their businesses over the last couple of years rather than just riding out this era of like, just price the house, whatever I want to do a shit rehab. The guys that have really spent the time, Jack, making real businesses of real estate investing, those are the ones that I think are fantastic to work with. I never have a problem getting an approval from you on those types of loans. And I would just say to anyone listening right now, work on that. I think we're coming into an era where you better have your equity right and you better have your debt right. And if you can tell a great story, you probably won't have a problem getting either. Jack BeVier (22:50) Mm Yeah, I completely agree with that. Craig (22:52) We'll end this one here. That's Real Investor Radio. and we'll see you on the next one.