Latest / Private Lending Insights / The Rise of American Heritage Lending
Transcript
- Rocky Butani (00:00) Welcome to Private Lending Insights. I'm your host, Rocky Butani founder and CEO of LenderLink. In this episode, I interviewed Dave Orloff, the CEO of American Heritage Lending. They're a national private lending company. They do primarily DSCR rental loans, but also fix and flip, ground construction, and bridge loans. We've had a relationship since 2018 when they were first transitioning from the conventional mortgage business to private mortgage lending. They've been listed on our platform since that time. And it's been fun to watch this company grow from small team of just a few people to now having over 200 employees and being one of the top 10 lenders in the entire country in terms of loan volume. In this episode, I asked Dave about their growth and their loan volume just in the last one or two years, asked him to share his thoughts about how the loan volume is so high now with interest rates being the way they are compared to, let's say in 2021, early 2022, asked him for his thoughts on 2025. We touched a little bit about their operation. It's a fairly short interview, about 30 minutes, so hope you enjoy it and let's get started. Rocky Butani (01:21) This episode is sponsored by American Heritage Lending. They are listed on our platform. They pay a monthly subscription to be on there. You can do a search on our website to find them. Just click Browse Lenders, select any of the residential categories, and you'll find American Heritage's profile on there. You can learn lot more about them, and you can give them a call, send them an email, or create a loan request and invite them to view it. Rocky Butani (01:46) Dave, thanks for joining me for the very first real episode of Private Lending Insights. This was really your idea. You've been encouraging me to launch a podcast for I don't know how many years. So it's finally happening. So you get to be the first guest for our first real episode. Dave (02:07) Congratulations, Rocky, and thank you for having me as your first guest. You're right, I've been sort of poking you to help you build your brand which everybody knows Rocky Butani and everybody loves Rocky Butani. It was something I was thinking about a while ago. Let's do a podcast and I wanted to be part of it. So seeing you bring this to reality all on your own is just awesome. So congratulations and I hope it is very successful for you. Rocky Butani (02:41) Thank you, appreciate that. And more congratulations to you because we've known each other since maybe 2018, 2019, and I've watched your company grow over the years and what you've accomplished this year is just unbelievable. I don't know about you, I didn't think you were going to get to this level of loan volume. You know, and it's really impressive. so congratulations and it's been, it's been amazing to watch you grow over the last few years. So, so yeah. Dave (03:19) So we're I am very, very humbled and I owe a lot of that to you and some introductions and some coaching and picking me up when I kept getting bogged down and kicked around. And it's just, it's really humbling to see the results that are being produced and the team that's producing them. You know, we've really grown a lot internally and I'm just very, very, very humbled and this team's done an amazing job and they really deserve, they deserve the act. plate. Rocky Butani (03:51) Yeah, well, I'm really happy for you and really proud of you. So congrats and keep it going. So that brings me to the first question I had is this whole thing about looking at your loan volume for this year. When you compare it to last year or the year before, tell us about how the growth has exploded so much in the last two or three years or whenever the growth started exploding and when your company started growing to the loan volume that you have now. Tell us about that journey just in last two years. Dave (04:28) I think the foundation was sort of poured in taking on a capital partner and professionalizing the company with some very, very key people. And then kind of sticking to a mission of We're gonna go after this whole giant private lending non QM sector. We love it. Although we might be new to it coming from the conventional landscape, this is more interesting. It's more intellectual. You get to kind of make up your own mind as to credit decisions and what's a good loan, what's a bad loan. And then the capacity to be able to scale at this clip, I'm gonna say it again, we've been extremely fortunate in this kind of a market, which has not been a great market to find great, great talent and those people have executed almost flawlessly when we've been growing. I don't even know, Rocky. think we were 58 % year over year this year and probably 200 % last year. And that's a lot to manage and keep organized. You know, we're still all humans and for the most part, our company, not dissimilar to most in this industry, we're scattered across the nation working remotely, mainly. And that's a lot just to keep the communication flowing, just to keep the connectedness between us, the marketplace, our clients, borrowers, and It's a lot, but it's been very fun and I think as you mentioned, as you look back at some of the results, they're sort of staggering. The rise overrun of that curve has been pretty incredible. Rocky Butani (06:14) Amazing. And the data that I have, so our friends at Forkasa have shared with us some data about the top lenders in the country. And it seems like American Heritage is definitely in the top 10, around number nine for the third quarter of 2024. And it shows that you funded around 840 loans. Does that sound about right? Dave (06:40) That's through September. Rocky Butani (06:42) That's just in the third quarter of this year. And then the quarter before was around 869, is the number I have. Dave (06:45) Yeah. Okay. That's a lot of loaves, Rocky. Rocky Butani (06:55) That has a lot of loans. Wow. then a new relationship we have is with SFR Analytics and they provide some similar data to Forcasa, but sometimes a little different. They're showing that you've funded around $800 million year to date. So from January till September, not including October and any of November. Dave (06:58) That's a lot of loans. That does seem right. Rocky Butani (07:23) So with that, sounds like you're on pace to pass a billion dollars for 2024 and total loan origination volume. Is that correct? Dave (07:33) Do remember the days when we were talking and we were doing less than double digit loan of unit volume? But yes, it will go past a billion this year in gross funded volume and it is staggering. Just staggering. Rocky Butani (07:49) I do remember those days when I remember specifically a couple of times when you told me it was single digits something like five million or or something like that and And that wasn't that long ago that might have might have been 2019. I want to say Dave (07:58) Yeah. think you're right. We met in 2018, but late in the year, because that conference circuit was out here on the West Coast. I was just kind of formulating a plan to move solely to this space. You helped give me the lay of the land. I owe you so much. then 2019, we just started to implement and execute. then from there, it just sort of kept scaling. Rocky Butani (08:35) And the, you know, the I'm surprised about the loan volume at this particular time, because interest rates are high, right. And, and especially for DSCR loans, they're, you know, they're so much higher than, than 2021. And, you know, when I was at the American association of private lenders conference last week, you know, Nima from lightning docs and Jurassic law firm, he always gives us presentation about, and showing the data from, from their lightning doc system. And it showed that they had. that that overall industry wide there were there were more loans funded in 2024 just in the first three quarters than than even in 2021 which I was quite surprised about and I'm wondering if that's maybe just due to the volume of of loans that are or that are using lightning docks at that time compared to now or or if it truly is a higher loan volume now than than even post-COVID when interest rates were so low. Any thoughts on that? Dave (09:40) My mind, you triggered me with that concept and those stats. So the lightning docs being newer than that it is today and the wide adoption, I think that's part of it. But I was triggered a little bit thinking, and you would be the guy to ask this, but were less bigger companies focused on this space in 2021 as everybody was helping these conventional folks and these primary residents? lending opportunities that was the first thing that went through my mind is just there wasn't as many people you know focused and cultivating and and and working this side of the fence so to speak but but I don't know certainly it's not doesn't correlate to your typical mortgage market where rates go up volume goes down and vice versa so I don't know Rocky Butani (10:36) Well, from what I've heard, seems like some of the other large lenders in our space are saying that they have record volumes. know, like even for example, I listened to Kevin Kim's lender lounge podcast and he had Ben Furtig from Constructive Loans on there and they're in the top five for loan volume. And Ben saying that they've had, I mean, they're hitting their record volume of all time. So, 2021 has already dwarfed. Dave (10:42) you Rocky Butani (11:04) compared to what they're doing now. And maybe that's the case with other lenders that you know, they're in the top 10 or top 25 in loan origination volume for this year. Dave (11:17) So I agree. mean, we're certainly seeing that we've, we've added a bunch of capacity to the business to be able to produce it, but we are experiencing the same record volumes. And I think you bring up a really good point is maybe there just is, you know, So markets sometimes mature through education and repetition and brand awareness. Maybe even the product categories are becoming more mainstream. And you and I talked about that in 2018. This DSCR loan in particular, I thought, was the bridge that crosses the chasm of conventional lending, private lending. It's a 30-year product. I don't have the specific answer for you, but that's interesting to hear. other colleagues I speak with are saying volumes are out of control. You and I met, gosh, just a couple months ago in my office, and we were talking about the secondary side of the business and the capital and the demand levels that we're all hearing stories about. And I have just done some early 2025 planning with some of our investors. demand is projected and capital mandates are projected to be up 30%, 40%, and 50 % across all of our product suites. So maybe it's simple as demand creates supply. I'm not really smart enough to give you the specific answer. But there are some. There are some interesting conversation topics we could explore as to, wow, this space just keeps exploding even though these rates are not what we would call low rates. Rocky Butani (13:02) And speaking of that, can you give us a general breakdown of the types of loans, let's say out of your 2000 or so loans that you funded in 2024, what's the breakdown of DSCR, fix and flip, standard bridge, construction? Dave (13:19) So we are, you know this, that was a sort of fun question. Today we are about 70 % DSCR and 30 % the entire other product categories. That's up substantially just from last year. We were about 50-50 and you've been saying and... I don't think this is news to the market. Even in 2020, we were talking about the difficulty to find good deals for investors. So whether it's that or some age-old burr philosophy, people are exploring more fixed-to-rent and stabilizing assets and building portfolios. So what we see significantly increased volume is in the DSCR loan category. Rocky Butani (14:13) And you brought up a good point. Maybe it's just education and more people know about this loan product now than they did three years ago. Because even just the term DSCR seems like it's popular in the investor community where I don't like to use it because it's, when I'm talking to borrowers, because it's so technical, it's like, do you even know what a DSCR stands for? And a lot of investors might just refer to it as a rental property loan or a rental loan or whatever the terminology is. So it seems like maybe the investor community has just been educated on this term DSCR and then they know about it that, hey, it doesn't use any personal income and maybe that's what everyone thought it qualified on before. So maybe that's what it is. It's just the popularity of the loan program. Dave (15:08) Personally, and you know that's been something I've been watching or thinking about for years, I think a lot of it I could chalk up to that. I mean, we do a substantial amount of wholesale volume and the DSCR, you know, the repeat clients of ours have typically been, you know, we call them private money hard lenders. And then their clients were stabilizing the asset or exiting the asset for rent and they, you know, originated the DSCR loan. Now it's not uncommon for us to see a traditional monoline conventional lender doing a DSCR loan for their client and wholesaling that loan into us. So there's no doubt, speaking from experience, that we are seeing more traditional monoline conventional agency people originate the loans. I think the borrowers are understanding more, hey, we know what a DSCR loan is, it's, you know, we got it. And it's not as obscure or nichey as it once was just three years ago. And I think for me that, you know, I can accumulate some of those numbers into that bucket. I don't know if it's the majority of the reason, but a lot of the reason I can attach to that. Rocky Butani (16:26) So you said that the majority of your customers are lenders or brokers or originators versus the direct borrowers. How did you build up that whole network and get so many of these customers? Obviously, we don't want to give away your secrets, but tell us a little bit about that journey of just becoming more wholesale versus retail. Dave (16:38) Mm-hmm. So in my experience in the mortgage business wholly, you know, I'd never focused on the wholesale side. And so the easy answer is we went out and found a great team of people to build that part of the business with us. And I think in, you know, now DSCR and everything has kind of been called non QM. In the non QM space, the wholesale channel is really the channel that has that explosive growth. It's hard to find borrowers, you know, with a retail outlet or channel. And so we really worked hard on, what would a broker or a lender need that doesn't currently exist in the marketplace with a lender partner or a buyer? whatever you want to call it. And we spent a good amount of time and some money on technology, making sure that that process was fast and easy and that there was some industry conveniences from our old conventional experience that we tried to bring forth into this market. And a simple one I would bring up is just to be able to lock a loan. You know, I think two years ago, three years ago, whatever it was, Rocky, we were sitting around and I don't remember if that was in Las Vegas, but I was telling him, you know, we're locking loans for 45 days when in December of 22, know, rates were just going up and up and up and up and up. So sometimes it's just trying to provide some conveniences. and some marginal utilities to these partners of ours so that they can have some comfortability when talking to their borrowers that, we're going to do what we say we're going to do, and we're going to finish it when we say we're going to finish it, and it's going to be at the rate we promised you. So some of it is classical, and some of it is trying to find these little tools we can use to provide a partnership approach for our clients. Rocky Butani (19:00) And just for our audience that's not familiar with wholesale and how it works, if you're a real estate investor, essentially you've got your broker or lender that's helping you get the loan. if they're coming to American Heritage Lending as their capital partner just for these DSCR loans. And that's typically how it works. There's a lot of different ways it could be explained, but that's one simple way. Dave (19:27) That was the bullseye. Rocky Butani (19:29) Nice. so tell us about your operation and let's say the size of your company and the location and where everyone's located if they're not at headquarters. Dave (19:44) So it's a big puzzle. We have a couple hundred people today and growing by leaps and bounds every month. We're headquartered in Irvine, California, in Southern California. And we have about 60, 65 employees that are here pretty much every day in the office. And then the rest of the company is spread out across the US. I think we have employees in 41 states. it's crazy. It's very, very crazy. And we just started a tiny satellite office in Michigan in June, but this is our only physical location so far. Rocky Butani (20:29) And what's the reason for having a satellite office in Michigan? Dave (20:34) So I don't think it's anything proprietary, but we have noticed that if you're going to participate on the retail side of this business, it's pretty important to have a connected group of people. I think they feed off the energy. There's momentum that's established. I think there's through collaboration, I think there's some real speed of effectiveness. It's a little bit hard. when you're at home and you're disconnected and you're not able to reach a manager when you have a question, you're not getting that kind of learning through osmosis sitting across from somebody. we started having some people that have said, I'd like to have a place to come in the office, set my computer up, be ready to go, me, or dinosaurs maybe, where that's what we're used to. And so we're experimenting with it and so far it's been... been magical. know, so I think whether we force people as a nation to go back to work or not, that's a whole different discussion. But when somebody's electively asking to come back to an office, it's a pretty magical change. Everything that's non-work related as well as those activities that produce results for them that are work related. Rocky Butani (21:56) Interesting. So do you have a lot of employees that are based in Michigan? Dave (22:02) We have seven today and I think by end of next year that'll be five times, six times that many. Rocky Butani (22:11) interesting. It's, this is kind of a random thought, but it seems like, like Orange County, California, and then Michigan, the, you know, the suburbs of Detroit are, are the mortgage capitals of America. Seems like most of the major mortgage lenders, mostly consumer lending, but, but it seems like most of them are in those two locations. Dave (22:35) You crack the code. This is where I live. But the Detroit office was sort of, you know, there was some thought and strategy going into let's go where people they're already accustomed to what this work is designed to be. You know, that's sometimes difficult when you unpack and sort of deconstruct what it's like to, you know, produce a borrower transaction or produce a broker relationship and you deconstruct that. that's somewhat foreign. It's not what you think about when you read, I'm a loan officer or I'm an account executive. It's not necessarily a philosophical match. So being in those areas helps a lot with that. People come in ready to be programmatically what you think or what they need to be to be successful in that job category. Rocky Butani (23:33) Nice. And let's come back to the loan program. the majority of your loans the past year or two have been these long-term DSCR, 30-year rental loans, and then the rest is short-term. Do you have a preference on the types of loans that you'd like to do more of, whether it's bridge or fix and flip? Do you want to get more into ground to construction? Tell us a little bit about that. Dave (24:04) That target has really moved even this year. At the beginning of 2024, I think you asked me, know, do you think your fiction flipping ground up will take off this year? And I was convinced it was gonna take off. And it's grown. You know. In contrast, I didn't think the DSCR volume was going to really grow this year because rates were kind of lifting and it was just sort of coming off Q4 of 2023 where we had another one of those little rate spikes and the opposite happened. So don't ever ask me to predict the future. I'm not any good at it. And so. If I could rub the genie bottle and make a wish, we are really interested in the ground up market. We think there's a ton of opportunity there. We like the fix and flip market. think leverages are getting a little bit out of line. In some instances, some markets. I do think time on market is making the dilemma where It's not so much that the flipper is not able to exit or not able to make a profit, but you the longer they stay in these loans, the lender kind of, I guess, is a bigger benefactor than the flipper. And I have never liked that. I've told you that for years. I mean, I think if this is a debt instrument, you know, the equity is supposed to get rich, the debt is supposed to supply that business. So, you know, I don't know what will happen with the market, but it would be neat to see fix and flip kind of get more momentum and not not higher leverages. And, you know, we're innovating a couple new products that are, we're really excited about for 2025. but I think, I think it might be exactly like last year where we're spending a lot of time thinking about ground up and fix and flip and some new products there. and it might be a big DSCR year again. Rocky Butani (26:15) And the short-term loans like the fix and flip or ground construction, do you offer those both wholesale and retail so you can work with direct borrowers and with brokers and lenders? Dave (26:29) We have been slow to adopt the short-term products in our wholesale channel. And the main reason is we just haven't built kind of a circle of knowledge where we can all speak so quickly, intelligently and efficiently with that person who's a very, you know, very specialized and smart investor. You know, they don't have a lot of time. They don't want to waste a lot of time when they get, you know, contacted and they're, they're, they're ready to go. They want to make sure they have an expert. In retail, we can kind of control that narrative. If it comes in from a broker and it's open season, you don't really know what's standing between the borrower and you in a communication environment. So I would love to do it more. think it just is the situations are a little bit different where you have to have somebody that's participating in that business versus somebody that I would share this with you. It's not uncommon for us to get a call from a broker that says, you do fix and flip. I have this client who's going to build a spec house. It's like, no, that's not a fix and flip. so I think if we could figure out how to do some education in that space for the broker community that does want to do more of that business, we'd be happy to fund it. We just haven't been very successful at it so far. Rocky Butani (28:02) And, you know, we'll get you back on in the near future to talk about your new loan programs that you're working on for 2025. but but besides your loan programs or what's happening at American Heritage Lending specifically, what are your thoughts on the private lending market in 2025? If you were to just guess as to, you know, what how things are going to be rates going to come down, volume is going to be higher, lower. What are your thoughts? Dave (28:22) Hmm. Well, at least we have the election behind us, so not who's going to win. I'm going to answer this one. We just talked about it last week or two weeks ago. I'm going to answer this one from the demand side. Every single large investor that I've talked to for 2025 has an increased mandate. If you added it all up, Rocky, the amount of loans that were done in 2024 don't even fit half of that mandate. So I believe that is going to spark some innovation. And I think we're going to have a really good year in 2025. And I don't know about the whole rate thing. And I don't really know about from which product. But I think. people are seeking these loans, they're seeking yield, there's an insatiable demand. And what I don't know now is what would kinda dislocate that? Because we've been saying that since December of 2023, when the rates were kinda spiraling, towards the very end of that month, you and I were having some conversations about all of a sudden, Every investor was gearing up for 24 and we expect a really good year. We're going to increase the amount we purchase. And now there's extra pressure because at least most of the folks I talked to They haven't yet completed their mandates for 2024. They're already talking about increasing those for 2025. anyway, follow the money is I guess one of those lessons that probably means a lot more loans for everybody in private lending. Rocky Butani (30:18) wrap from our first official interview for the Private Lending Insights podcast. We'll have Dave Orloff back in the future to talk more about loan programs. We'll get into real specifics about DSCR loans, fix and flip loans, and a variety of other topics. In the description of this podcast or video, you'll find links to American Heritage Lending's profile on LenderLink and a link to their website as well. So reach out to them directly, visit our website to learn more about their programs, and visit their website directly if you're a loan originator. Thank you for listening to this episode of Private Lending Insights. Stay tuned and I look forward to having you join us for the next one.