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Inside LBC Capital: Private Lending in a Slower Real Estate Market · Private Lending Insights

• [00:00:00] Rocky Butani: Welcome to Private Lending Insights. I'm your host, Rocky Butani. In this episode, I interviewed Boris Dorfman, fund manager and partner at LBC Capital, a private lending company based in the Los Angeles area that's been in business for over 15 years. We talked a lot about the economic environment that's making things challenging for real estate investors and for private lenders in 2026. [00:00:22] We talked about some of the transactions they've been funding the past 12 months, their lending guidelines, and a little bit about their company history. I hope you find this episode to be insightful. Here's my interview with Boris Dorfman. Boris, thanks for joining me for this episode of Private Lending Insights. [00:00:38] How's the summer of 2026 treating you and LBC Capital? [00:00:43] Boris Dorfman: Uh, thank you for having me, Rocky. The summer is a little bit warm, and, uh, but it's treating us well. [00:00:52] Rocky Butani: All right. So y- you've, uh, [00:00:54] you've got a big, a social media presence. You put out a lot of good content, and, and a lot of what I've seen from you is as you talk about, uh, the economy in general, sometimes California-specific, sometimes national. [00:01:06] I, uh, recently read this article that you, uh, wrote or contributed to for the, uh, the Key Crew Journal, and, uh, you had some interesting points about the state of private lending and, and, uh, how it's, how private lending is slowing, uh, at, at least over the last six months. Uh, tell us a little bit more about your thoughts from that, uh, particular piece. [00:01:28] Boris Dorfman: So, well, number one, uh, it's no secret right now there's not enough transactions in the market, in the real estate market. Um, it's seasonal political instability, uh, emergence of non-QM. We all loved it, uh, when Dodd-Frank came, uh, after 2008, and the banks could not do anything, uh, other than, um, uh, full docu- uh, full documentation loans, right? [00:02:00] So now the real estate market is very slow for many different reasons. It's not falling. Uh, there's no defaults like in 2008, but people are just not transacting. You have political instability, and you have higher interest rates. Uh, sometimes adjusting to new normal takes a little bit more than couple of months or couple of years. [00:02:24] So that's what, uh, we're seeing as a company. Obviously, you go to conferences, you talk to a lot of people. "Ah, things are great." And, you know, things are great, you just have to work a lot harder, a lot more. You have to spend a lot more on marketing, and you really need to be a little bit more shrewd with competition and, uh, sometimes a little bit more, uh, bendable, um, on your guidelines, on your rates. [00:02:56] Uh, either one, never on both. [00:03:00] Rocky Butani: And as far as the, the low transaction volume, you know, interest rates have been high for a little bit. I mean, they've... for the last two, three years, interest rates have been high. Yeah, they're not coming down yet, but, but yet even with high interest rates, there was still a lot of transaction volume in the past two or three years. [00:03:17] What's different at this particular time? [00:03:20] Boris Dorfman: Five most dangerous words in investing, "This time will be different." Uh, this time is different, right? So, uh, one, uh, that- Cap rate and interest rate divergence has caught up, right? People are, uh, people are saying, you know, why? Normally interest rates go up, cap rates go up proportionally. [00:03:47] It hasn't happened, right? So everybody wants to, uh, wants to sell their real estate holdings, but the same people want to buy. They want to sell high, they want to in Cal- you know, in Southern California, prime markets, everybody wants to buy at six and a half cap and sell it at four and a half, five cap today, right? [00:04:06] Same people. So one, you have this, uh, economic divergence. Uh, two, a lot of people thought, uh, okay, so the rates have been up, the Fed is gonna start lowering, inflation is gonna hit the target, rates are gonna come down, right? It's not happening. It hasn't happened, and you have a lot of uncert- uncertainty and you have a lot of political instability. [00:04:30] And, uh, markets and market makers on Wall Street and us, we all know how to deal with bad market and bad economy. But unknown is very... not a good friend of any markets, right? You don't know what's happening tomorrow. You don't know how your, uh, credit lines are gonna behave as far as interest rates tomorrow. [00:04:55] You don't know what rate, uh, what markets are gonna do. So this unknown really makes, uh, big money worried, and, uh, small money follows. People retire, they're thinking, "Yeah, I don't know. Stock market's overvalued. Uh, gold is overvalued." I don't know. Like, there's no certainty. Gold went up for, you know, two years from 1,500 to 4,500, right? [00:05:22] Uh, uh, Bitcoin, uh, is Bitcoin. It's not really an asset or... You know, it, it's, it's a game that has a place, in my mind, that has a place in a portfolio. So, uh, you know, real estate be- also became more efficient. Uh, when people are rehabbing, they're building ground-up, the margins are a lot tighter. You have a lot more players. [00:05:49] Uh, interest rates are higher. So the margins are really slim. I see developers are losing money on project most. So, so where do you invest today? So really, th- this is my take. It's, it's really something's gotta give and, and it's gonna show us the direction. [00:06:07] Rocky Butani: And do you see the market, uh, being in this sort of state of, of uncertainty for, uh, for quite some time, or do you think it's, it's gonna sort of figure itself out and, uh, and sort itself out in the next several months or maybe let's say the next two quarters? [00:06:25] Boris Dorfman: I don't think so. Uh, I don't, I don't... Uh, I think it's gonna take longer than that. It's very difficult to s- to see for myself or for most analysts the direction of interest rates. Uh, uh, as of right now, it looks like they've been, uh, they're gonna be, uh, treading water or, or be higher. Uh, um, uh, yeah, I don't think we'll get any certainty in the next 12 months. [00:06:54] I think we're gonna be kind of level. So I think interest rate is the biggest one, the biggest contributor to, um, uh, to moving real estate market, right? Uh, and another thing, don't forget, in residential, uh, y- you know, you don't see a lot of activity because people are sitting in their 3%, 4% mortgages So your natural cycle just for regular consumer families, why they move? [00:07:24] They want something bigger, their kids switch schools, or they want something smaller, they're about to retire. They're changing their beachfront mansion in Palisades to a full service, uh, high-rise. But, uh, in today's market, uh, if they're sitting on 3% interest rates, uh, to buy something, uh, even if you can afford and switch it to 6, 6.5% interest rate, uh, it's difficult. [00:07:54] Also, a lot of these people, they do have money, so they'll buy whatever they want to buy, a replacement property, and they will retain. Why not retain your $2 million house that you can rent for 20 grand and your mortgage payment is $5,000 on that 2.75% mortgage? So these low interest rate mortgages need to cycle. [00:08:17] In commercial it's a little different because a lot of these rates adjust. Uh, you know, average five, seven-year products in commercial, so. But, uh, yeah, interest rate is the biggest, uh, mover, and political stability, which I don't think we're gonna get in any time in our lifetime. I hope I'm wrong. [00:08:39] Rocky Butani: You mentioned commercial real estate. [00:08:41] Uh, so whatever's happening residential real estate, that makes sense. That's, that's... There's not enough activity, there's not enough people selling because, uh, because they have low interest rates. In, in commercial real estate, you mentioned the divergence of cap rates and interest rates. Um, but, but it... So it- is commercial real estate, uh, still sort of in this state of limbo and, and not as much activity? [00:09:06] Boris Dorfman: Yes, but it becomes more a... You know, few years ago, anything was bought by anybody. Today, we're getting back to the basics, location, location, location. Uh, office market has, uh, uh, tanked successfully, and now there is a clear understanding. There's opportunist defines, there are opportunists coming in, buying office space. [00:09:33] Uh, you know, analysts coming in saying, "Okay, in this market, uh, uh, you know, whatever Marcus & Millichap of this world or CBRE, you know, like we're gonna, people are gonna come back to work, people..." So you, you get people that understand, you get certain type of understanding, right? Uh, but, uh, as far as transaction volume, no Like what we're used to seeing, you get a little bit more clarity on asset types, on location. [00:10:00] But, uh, no, you don't, you don't get volume investing. You know, if, uh, you know, somebody drops $500 million in your checking account today, what do you do with it? Or how long it's gonna take you to figure out the locations and within real estate industry, locations of the, uh, asset classes. And realistically, that's what a lot of, uh, funds have. [00:10:26] They have abundant funds that... And they do, uh, lend banking, right? Like they're not looking for, uh, s- you know, they need to place the money. I mean, obviously everybody's looking for yield, everybody's looking for long-term investing, but sometimes when you need to place the money, you need to place the money. [00:10:46] Rocky Butani: Is what's happening now just that, that people have to bring more equity into those deals and, and they're not gonna be getting, you know, 75, 80% LTV to acquire properties or to refinance? [00:10:59] Boris Dorfman: Right. So you get less leverage, you get less return, and you get higher regulations. You know, California every day, I mean, they're putting a nail in their real estate investors' coffin every... [00:11:11] At least in LA County. Uh, every new legislature is against real estate investor. I mean, I don't wanna get political, uh, but, uh, you know, California some-- a lot of people are investors, real estate investors are leaving because why? Even if the cap rates are there, you know. Yesterday you could take, uh, two months deposit, uh, from a renter on a multifamily. [00:11:38] Today it's one month, right? Uh, evictions take longer. Consumer protections are more and more every day. They allow the consumers, or it's on a ballot, they, they allow tenants to organize into HOAs kinda, uh, communes within the building and demand certain things, you know? Like, uh, I... Yeah, it's basically you have, uh... [00:12:10] Yeah, this is California, but I'm sure a lot of the states are the same. They're, they're slowly, uh, reducing property rights, uh, increasing, uh, rights of the tenants and, uh, making it so at some point the investor will say even if the return is there, which today is not 'cause California is still sexy, you know. [00:12:34] No offense, but, you know, who wants to invest in Nebraska or... You know, California has always been sexy, right? Like you, you'll take less, uh, cap rate, less return, but you're in California, plus big money, uh, you know. So again, no offense to Omaha, Nebraska, but, uh, um... And there's money in there. California has always been sexy. [00:13:00] So a, a lot of, uh, investors that have been here, and I know people like that have been investing second generation, at some point, you know, they, they just ask yourself question why? You know. You slowly divest and you move to other asset types or other geographies, so. [00:13:17] Rocky Butani: Wouldn't that cause an uptick in transaction volume where, where people are just looking to offload these assets 'cause they don't wanna deal with the regulatory environment? [00:13:28] Boris Dorfman: I have not seen, uh... And, you know, people like that, they sell them slowly one by one. They, you know, if you have 20 apartment buildings, you're not listing 20 apartment buildings. Plus the decision-making process, it's not the, you know, it's like, uh, staying in a bad marriage, you know? It's like you think about it for a few years, then you think about it for some more, then you're ready to pull the plug, then you go to a psychologist and then, yeah. [00:13:55] So, so these are the thoughts that a lot of people have. Some people are quicker on the trigger, but y- And the question is when you sell real estate, the question is always like, "Okay, what's next?" Like, what do you do? So you need to have a, you, you need to have a exit or replacement strategy right away so it's not like an overnight thing. [00:14:15] Okay, like I decide to divest from California or, or, uh, but, you know, where am I gonna invest? Like, what's the next step? [00:14:23] Rocky Butani: Sure. Makes sense. Well, l- let's talk a little bit more about the lending side of, of these trends. Uh, are, [00:14:29] are there any particular trends in terms of private lending that you're seeing in California, um, to offer loans to, to real estate investors? [00:14:39] Boris Dorfman: The biggest positive trend for us in California, the quality of the borrower is much better. You don't have, you know, just people tr- trying to become developers or builders overnight or real estate investors overnight, right? So the quality, uh, and the expertise of the borrower is a lot better, uh, maybe because the-- we adjusted as a company. [00:15:09] But no, I think the whole market... You don't-- You know, when the market was going up, like every grandma would tell their friend that, "Hey, I just... You know, Johnny, my realtor, just found me a place and, you know, I put some lipstick on it and I made 100,000 overnight." It's not happening. And the margins are so small, so like only best of the best. [00:15:30] You know, if you're a contractor for 20 years and you decide to develop something, you're still not a developer. It's still your first project. You know how to build. You don't know, uh... You know, developers are visionaries, so it's still not the same. So quality of the borrowers, their expertise, their FICO scores, uh, it's better. [00:15:52] Uh, this is for us, like, uh, I see... So this is one of the trends. Uh, I guess myself, I've been one of the pioneers and some of the peers there, uh, we are going to other states. Some of us do, uh, as lenders, uh, for diversification reasons, for, uh, more favorable, uh, legislative, uh, reasons. And I guess we're not afraid, uh, as much. [00:16:21] I mean, why not go to o- other states? I mean, you can control a, a lot of things, you know. If you feel comfortable in California up to 75 LTV, you're not sure how things are in other states, so, you know, start off with 50. So, so lending out of state and, um, so these are out of positive trends. Uh, negative trends is, uh, the rush for the most part is not there anymore. [00:16:54] You don't have seven offers on the same property where if you don't close by Friday, you're not getting more than three-day extension, right? So somebody back in the days, you negotiate a contract, you go to the bank, the bank, uh, gives you a no 11th hour, you know, at the 11th hour, that's when private lenders comes in. [00:17:15] Today, people get 30-day extension and they go to another bank or they go to us. So, uh, and, uh, same thing with extensions, right? Like a lot of times some of the lenders in our industry they'd be... That was their business strategy is like, oh, when you extend, uh, you know, that's when they charge fees or like that's really... [00:17:38] You know, they go in very inexpensive, but when it comes time to, uh, to extend, they get really aggressive. Uh, everybody has a different business strategy. Today, people are sitting in a lot of capital and say, "Hey, if I get paid off, like I have to look for a new loan, so let me, let me extend the guy for, you know, cheaper or free or depending," right? [00:18:04] Rocky Butani: Sure. Makes sense. But it, it seems like the, the lenders that have been reluctant to continue to extend, the, maybe they're, they're more of the institutional lenders that they just need to get that loan off their books. Um, uh, have, have you seen any benefits from that where, where, where maybe you're, you're taking out, uh, a, a, a deal where the borrower just needs more time, um, and their, their current lender is, is more of an institutional-backed lender that, uh, that just doesn't care to extend but it's an opportunity for you? [00:18:38] Boris Dorfman: So that happens too, it's just it doesn't happen as much as the market dictates if, uh, if you ask me. So yeah, uh, it's always has been there, and yes, we may see a little bit of, of this today, right? Adjustables are adjusting. Uh, most commercial loans have a yearly or semi-annual reviews. The ratios don't work as much at seven and a half as they did at four and a half percent rates. [00:19:05] But, uh, the banks are... From what I see, they're more willing to, uh, work with clients than, uh, their paperwork says, right? Like, you don't wanna throw everybody in default. And on the other hand, uh, I've seen, uh... I've given out LOIs to the borrowers where a s- bank or private lender is really, uh, on their neck to, to refinance, and the minute I give them, uh, terms in writing, they take it back to their bank and they're saying, "Hmm, wait a minute. [00:19:44] Let me, let me extend you for a year and, uh, and we'll see what happens." Like, why not, right? Like you, uh, you, you gotta keep, uh, the client base. So yes, they have institutional commitments, they have securitizations, but they're... Everybody's sitting on a lot more money than, um, I recall in ever [00:20:11] Rocky Butani: That makes sense. [00:20:12] So, so maybe a good, uh, thing for real estate investors that they're not gonna be as much under pressure to, to find a different lender. They can probably work with their current lender and because there's not as much transaction volume out there, the lenders are, are being a little bit more flexible just to keep, keep the loans there and continue earning interest. [00:20:32] Boris Dorfman: Uh, uh, no, because you don't wanna make it a habit or, uh, make it your business strategy, right? Like, if something, if the market is such today, sure, yes, you have take a step back, reevaluate your options. But, you know, don't get comfortable because the different time comes and, you know, you, you don't wanna change your business strategy of being, uh, you know, uh, of doing certain things properly, right? [00:20:56] 'Cause the minute you relax ... Um, but yeah, to- uh, today absolutely, people have a lot more options. [00:21:04] Rocky Butani: Yeah. Maybe it's just a temporary phase while, while we're in this, uh, weird period of, of high interest rates and a lot of uncertainty and, and maybe things change and then, and lenders are probably watching it closely and anticipating that, uh, uh, they're not gonna continue with this extension business for, for very long. [00:21:23] Boris Dorfman: Right. And yeah, like I said, it's different for everybody because, uh, you know, some people have securitizations, some people have insurance companies' money, some people have lines of credit that are for one year, two years, three years. Some people have, you know, some lenders have 30-day evergreen lines that you have to renew every 30 days. [00:21:43] Th- this is a good time, I guess, for everybody to haggle, but as long as they don't make it their business strategy, uh, which we have borrowers like that. It's like, "Yeah, I'll take, uh, I'll negotiate the shorter term loan and I'll kick that can down the road, and six months later we'll figure out whatever," right? [00:22:02] "I'll try to squeeze you more in six months." It's, uh, yeah, uh, it's always been there. [00:22:10] Rocky Butani: And, uh, well, [00:22:11] let's talk a little bit about your lending activity 'cause you're, you know, you have a sizable fund that you manage. You're still actively lending, uh, and, and cranking out loans. Um, tell us about, uh... L- let's start in California. [00:22:24] Tell us about some of the types of deals that you've been funding over the last six months. [00:22:29] Boris Dorfman: I have $150,000 second on my desk. Lady is selling a condo, um, an investment condo. She doesn't want to wait for money for 1031. She'll be in 1031. She needs a little liquidity. It's, it's small, right? Uh, we're doing couple of construction completion, uh, high-end homes, um, right now. [00:22:57] And when I mean construction completion, I really mean construction completion. At least it has to be weather tight. So we have that. We have some developers, you know, you start running with your own money. You're like $4 or $5 million in, your property is free and clear. Uh, so we see that. Uh, we see owner/user commercial. [00:23:20] People are still buying. Uh, so we do some of that, and we also see a lot of the refinances like that, right? Like we just touched on that. Uh, you- your rate is adjusting or, uh, uh, uh, your, uh, your term is up, uh, or your financials are not there. You know, your anchor tenant moves out, the bank is calling the loan. [00:23:46] So we have some of that. And, uh, we have the, some of the Workers like at tile stores, lumber stores, warehouses, showrooms, uh, their business is not as robust as it used to be. And these are owner-user, they really have to provide their financials and they really have to stay on top of their payments. So we've seen banks, uh, uh, call some of these loans. [00:24:17] We've seen some workouts, but we've seen some... These are the things where, you know, I'd love to do it. Here's the LOI, and then the bank decided to rework this for the next couple of years. But, uh, so, so we do a lot of this. Um, uh, I see a lot of distrust in, uh, development for over the past few years. You know, like I say, I'll run with somebody that spent their own money and took the project to a certain level. [00:24:43] But I also see these people that took 90, 80% leverage, um, under residential development projects, rehab, and they run into problems. And now they're coming in, "Can you... I'm in default with Anchor," or, "They're not disbursing me anymore," or, "I need a second." And, you know, these people are... You know, they might as well just walk away. [00:25:07] They'll never turn profit. And with 10% out of pocket on this, why just stay there? [00:25:14] Rocky Butani: So it sounds like most of the deals are, are refinance situations. Are you, are you seeing any purchase transactions? [00:25:21] Boris Dorfman: We see purchase transactions. Uh, we saw a lot after the Palisades fires. People are, uh... developers get really, uh... [00:25:31] in Orange County it became really hot 'cause, uh, I guess that's, uh, very comparable to Palisades, uh, as far as prestige and location. So a lot of developers started to buy land to, uh, to build. So yeah, we see purchase transactions far in between. Um, but yeah, we s- we're still doing purchase transactions. We have a warehouse we're financing in Orange County now. [00:26:00] It's, uh, a manufacturing company's buying. They'll be renting. There's some offices renting out, and they're buying it for themselves. Um, [00:26:10] we did some multi-family buildings. Uh, we did one in Chicago. Nobody wants to lend in Illinois. I never wanted to, but, you know, 64-unit building, full rents. Um, you have two, three-year history. [00:26:24] Um, and, uh, you just have to ask yourself, you know, "Do I want to be in this part of Chicago?" And if the a- answer is yes, so why not? So yeah, we did, uh, we did that too. [00:26:37] Rocky Butani: I, I hear from other lenders, uh, Illinois is, is kind of a, a no zone because, uh, similar to California where it's just the, the regulations from a lender's perspective, not even, uh, the property, uh, investor related regulations, but, but just the, uh, you know, the foreclosure process and, and it's just a, a, you know, one of those tough states for, uh, for lenders to do business in. [00:27:00] And I don't know, that's, that's what I've, I've seen from a lot of lenders is, um, Illinois is, is one of those, you know, states that's very low on, on the priority list. [00:27:10] Boris Dorfman: Yes. And- You know, in theory, that's why we didn't go to other states as fast as we should have, but in theory it looks like this. But in reality, you start foreclosing in California, you know, it's supposed to be a six months process, which they prolonged it by 45 days where people can bid, not much. [00:27:32] But in reality, when people start fighting and, uh, suing and hiring attorneys, I mean, and, uh, filing complicated, the bankruptcies, so you can kick that can down the road, you know. Um, I hope our borrowers don't listen to this. And it's expensive. I mean, it's really pricey. So at the end of the day, you're sitting in Chapter 11 reorganization for three years. [00:27:57] Yes, they pay you, but they don't really pay you like a clockwork, and then every month your attorney sends an email saying, "Hey, do you want to accept the payment? Do you wanna try to kick him out of the plan? You wanna try to foreclose?" And i- the reality is, um, you know, Florida, uh, I, I heard it takes like five years to foreclose. [00:28:17] But if you do, if you do it properly, if you don't... You know, it has to be entity borrowers, for example, it's a lot quicker and... But the people are a little bit different in my experience because, I don't know, maybe in other states they don't have governor coming out on TV saying it's okay not to pay rent or mortgage, right? [00:28:38] So, uh, we service with FCI. We have this pie chart, uh, color-coded, and our performance in other states are a lot, a lot better than California. Part of it is because we're self-policing because my comfort level is not the same, but also like, uh, uh, people, every- everybody in different state is somewhat different, the mentality, the integrity, or, uh, the risk tolerance, right? [00:29:04] Like, you know, California, everybody's an entrepreneur. "I'll buy it. I'll invest it. I'll figure this out later. If I don't figure this out, I don't figure this out." You know, like I guess in other states people are more, uh, maybe less... Not as quick on a trigger and more, uh, make decisions, uh, uh, more with, uh, a- analytics and brain than, you know, uh, sheer entrepreneurial gut feeling, "Okay, let's buy this thing." [00:29:32] Rocky Butani: Interesting. Well, well, what other states are you lending in, and which other states are you excited about? [00:29:39] Boris Dorfman: Uh, you know, I love Carolinas. Uh, yeah, the trend, uh, I like Tennessee, and obviously Florida 'cause, you know, when we started, we only did Miami 'cause I say we'll do major metros around the country. But then you have Tampa. [00:29:55] 500,000 gets you a three, four-bedroom house in Tampa that's, uh, brand new from the builder, you know. Good schools, good families. Okay. Next to the beach. Yes, it's humid, but, you know, it's not... You know, sometimes California prices are stupid. [00:30:16] Rocky Butani: Right. Or even Miami is getting like that as well, right? [00:30:19] Boris Dorfman: Well, yeah, Miami has everybody from every part of the world buying properties where they live or don't live or... [00:30:27] Yeah, Miami is crazy, but, you know, th- that's another city that's sexy, right? Like, like, um, California. But yeah, like you have Sa- Sarasota, you have Tampa. Like the Florida is pretty hot now. Um, um, yeah. I used to like Washington State a few years ago, maybe not so much lately. Uh, but we'll take, you know, if it's prime of the prime. [00:30:55] We did a lot in Georgetown in DC. I mean, real estate is really, like, expensive and hot there. And, you know, that's government money, so I'm guessing that neighborhood never goes away anywhere. Um, so, um, but I'll, I'll take... I'll look at the asset, I'll look at the, um, uh, uh, uh, I'll look at, uh, the sponsor. And, yeah. [00:31:22] Uh, yeah, we'll do it. [00:31:24] Rocky Butani: And the s- the same types of loans that you mentioned earlier that you're doing in California, like the owner user commercial property purchase or refinance or the, uh, the construction completion. Are you doing those same types of loans in these other states? [00:31:39] Boris Dorfman: No, I won't do construction completion. [00:31:41] I won't do seconds. My, y- uh, yeah, I'm a little bit less adventurous. But, uh, yeah, it, uh, I'd like to see more cash flow in other states than I do in California, 'cause we kind of grew up in this industry. It's like, "Hey, nothing cash flows in California, and that's how you finance it." You know, you look at other factors. [00:32:04] Yeah, in other states, I'd like to see some cash flow. I'd like to see... Or there's always compensating factors, right? Like owner user, I'd probably be a lot more conservative. Um, but then again, I, we did finance a warehouse for a showroom, contract- contractor's showroom in Sarasota, Florida. We did it, uh, pretty aggressively. [00:32:28] But, you know, you had like almost a franchise. The guy had multiple locations, prime borrower. Guess the borrower qualifications, um, I, you know, I look at real estate, but, like, I look at the borrower, really look at the borrower. 'Cause real estate, you know, it's the people that give you a problem, right? Not real estate. [00:32:50] Rocky Butani: Yeah. And, uh, and the deals you did in DC, uh, what types of deals were those? Residential, commercial, construction? [00:32:59] Boris Dorfman: I financed a mortuary a few years ago in DC, in Georgetown. So my top producer, he was like... He s- he emailed it to me, I deleted it. He emailed it again, then he called me. I'm like, "Dude, I'm not financing mortuary." [00:33:15] And then, uh, it was a two, $2.5 million loan request. Then I, I'm like, "Okay, fine. I'll at least I'll look at it," right? So it's, it's in Georgetown. It's like prime, prime location. It's a brand-new building. The... They were there in 1950s, from 1950s, the business, but they just rebuilt a four-story, uh, facility, which can technically be anything. [00:33:40] I mean, it's a prime real estate, prime, brand-new building, uh, beautiful craftsmanship. You have financials history, and then I'm looking at this building that's, you know, prime, prime location, prime, uh, real estate. Really, you can go really aggressive on your terms because this is not a cookie cutter deal. I sent in the environmental guy. [00:34:07] He said everything's done by code, like it's brand new. Sent in, and, uh, he said, you know, the guy went in on some day of the week, says, "Hey, this place is pretty active. People are dying to get in there." And, uh, I sent an appraiser, and then I'm sitting there, I have like $150,000 loan in some desert outside of L- uh, Lancaster, Palmdale, California, and this guy's calling me trying to ask for lower rate and lower points, and I don't like the asset, I don't like the location. [00:34:41] And then I'm thinking, you know, it was like, "Boris, like, what are you doing with $150,000? You know, the guy is not taking your terms. He's not respectful. You don't like the location. You don't like... Like, there's zero pluses, right?" And then I'm sitting in this beautiful asset in DC where I can, you know, good loan size. [00:35:01] Uh, you know, the market is not there. Nobody... You know, the... They needed two years to get them through, uh, to SBA. So I'm sitting there, I'm like, "Yeah, why not?" Right? It just happened to be mortuary, you know. It's... So, uh, there is a lot of gentrifications in DCs, like some neighborhoods are close to, uh, like high-end neighborhoods, right? [00:35:29] So, uh, we did some of these. Uh, so yeah. Uh, yeah, we did good amount. Again, I'm a little bit more conservative or less adventurous in other states than I am in, uh, California, s- in Southern California. [00:35:45] Rocky Butani: What about the rest of the Northeast? Are, are there any other states that, that you like or that you've done any loans in, like New York, New Jersey, Massachusetts? [00:35:56] Boris Dorfman: No. No New York. We syndicated eight life insurance companies on a, um, office building in New York, but, uh, we wouldn't do anything with my money or investors' money, maybe institutional. And I don't understand that market very well. Like, it's very spotty. Uh, I had a condo in New York City. It was, like, 700 square feet for, like, $2.5 million. [00:36:23] It was 50 LTV. I just couldn't, I couldn't pull the trigger. Um, we sent it to New York guys. But no, we, we like, we, you know, we, we did Colorado, we did Utah, some ski resorts. Uh, so I cannot say my... Our biggest concentration is in Florida, outside of California. We do a good amount on Texas, and we have boots on the ground in Carolinas, so it's a little bit easier for us. [00:36:49] But obviously there's not as closely as much activity as California, Texas, and Florida. [00:36:56] Rocky Butani: All right. Well, well, [00:36:56] we talked a little bit about how, how this market's got a lot of uncertainty. It's, it's kind of a strange time in private lending. What's, uh, what's your maximum leverage in a lot of these deals that you're doing these days? [00:37:08] Let's say take your residential California deals or your owner user commercial, and tell us a little bit more about how you look at leverage these days. [00:37:18] Boris Dorfman: Location, location, location. Uh, that's number one. Cash flow. So, and, uh, we'll go more aggressive on purchases 'cause some people, you know, there's still an ability to buy under market. [00:37:31] When I say under market, it's probably in the market, but you're, like, 0 to 5%, not, like, 20, 30% discount. So at least you, you know, you, you're not worried about, uh, this being overvalued like we did two, three years ago when prices were skyrocketing. So we'll do up to 75% on the purchases, um, by ex- maybe some- uh, let's call it up to 75. [00:37:59] Location, location, location, probably up to 65, 70 on refis, and then it kinda goes down depending on locations, and we're 5, 10% less on LTVs in other states. [00:38:12] Rocky Butani: But on a refinance, let's, let's take a couple scenarios. Let's say it's, uh, one of those scenarios you described earlier of, uh, owner user, commercial property, loan matures, they need a little more time, um, to get their financials in order. [00:38:26] What's your max LTV on a deal like that? [00:38:30] Boris Dorfman: 60, 65. [00:38:32] Rocky Butani: Okay. And what [00:38:34] Boris Dorfman: about- And, and I wouldn't want them to, to cash out. I would want them to bring money at least for closing costs. Uh, again, 60, 65. Yeah, I'd much fe- I, I'd sleep a lot better at 50. [00:38:46] Rocky Butani: Sure. Yeah, it makes s- it makes sense. I've, I've heard a lot of lenders that just don't, uh, consider any kind of cash out. [00:38:52] It's if, if the loan's maturing, all they're doing is, is, uh, you know, providing that, that, uh, bridge until, until they get the takeout. But, but you, you throw in some cash out, you add a little bit more risk and, and, you know, inflate the leverage sort of. All right. And then- [00:39:07] Boris Dorfman: We try to underwrite for exit internally. [00:39:11] You know, somebody tells you I'll refinance it or I'll sell it, why is it not on the market? Why it's not to refinance? So we'll underwrite for exit, it has to make sense. [00:39:19] Rocky Butani: Sure. Makes sense. And then what about, uh, a construction completion? Uh, how are, how are those shaking out in terms of leverage? 'Cause, uh, with a construction deal it's a little more complex. [00:39:28] You've got your completed value, you've got your as is. Um, what's, what's leverage been like for some of those California construction completion deals? [00:39:37] Boris Dorfman: We're not a construction company. We can't compete with the anchors or Kiavis and all these Wall Streeters. And like, we're really like, if you spent ton of your own money, we'll come in, we'll bridge you to finish. [00:39:47] So it's not, the LTV is not even an issue there. We're talking about, you know, three, two, three months to complete or maybe finish landscaping, hardscaping. Um, you know, your kitchen should be there or just... So we're not doing heavy completion. So, but yeah, like we're talking about... And my last draw would be when they get certificate of occupancy. [00:40:10] So I'm not even looking like your typical guys at the ARV. I'm looking at as is. If I'm taking it today, if I'm sticking a for sale sign on it today, how much would I get if I sell it within 48 hours? That's my value. So yeah, I don't want to manage like a full construction process. So that's not an issue. [00:40:30] That's really for big boys. [00:40:33] Rocky Butani: Sure. And, and what that, what that as is value, are you lending up to 65% of that? [00:40:41] Boris Dorfman: Not even for construction completion, f- 50. Yeah, uh, sometimes you, you have to take out some- somebody else's lender, right? Like, when people... I usually come in where they need... They don't need much. [00:40:52] When I have to take out, uh, somebody that already lent them purchase money, uh, I'm not the guy 'cause I won't be there on the leverage. [00:41:00] Rocky Butani: You mentioned that you do seconds. Um, uh, uh, are, are you doing a lot of seconds, and how aggressive are you on those? [00:41:08] Boris Dorfman: I'll go to 60, 65 CLTV. We will not go behind the hard money first. [00:41:14] It has to be institutional first. Uh, we do a lot of them. We do a lot of them. We do owner occupied, business purpose and owner occ. A lot of lenders won't do it. And, uh, uh, yeah, like we need high FICO score, we need sane borrowers or, you know, 100% true business purpose. But yeah, we do a good amount of it. [00:41:37] Sometimes people, like, really, you know, second is definition of a good bridge. Like, you know, you need money. You've identified a project, you need working capital. You know, y- we had clients, they sell stuff on Amazon, and you really have, like, two times a year, Christmas and something else, where they need to load up on, uh, uh, an in- an inventory. [00:41:58] So that makes perfect sense. [00:42:01] Rocky Butani: And, and since you mentioned, um, uh, credit, w- what, [00:42:04] what are your credit requirements and, um, do you have a minimum credit score, or does it just vary by deal? [00:42:11] Boris Dorfman: I'd like to see 660, 640. Obviously, low LTV, I mean, we can make exceptions. But I really... You know, over the years I learned that credit score matters, uh, and I don't want to see any explanations. [00:42:24] If you look at credit report, you can see explanations if needed, right? Like, you know, you've been a model citizen paying your bills for 10 years, getting through a divorce here or two, then again, your credit is good. Like, you see events. But then you see people, like, they've been deadbeats for the past 20 years and nothing's gonna change. [00:42:46] Nothing's gonna change. So, I prefer not to have them as clients. Again, this is really hard money. It's case by case. But we try, at least we can securitize 640 plus, between 640 and 660 as a minimum threshold. But yeah, when you see somebody with 500, mmm, I prefer not. And, you know, sometimes even if it's 20, 30 LTV, you know, the history on a credit re- just, hmm, you know, these are people that were taught not to pay their bills. [00:43:19] It's, uh, yeah, we're, we're not really only looking at score, we're looking at... But yeah, like somebody hasn't paid their, their, paid their bills for years, mmm, you know. Uh, you think they'll ever pay? Probably, yeah. It's difficult to train, teach your dog new tricks. Yeah. [00:43:40] Rocky Butani: All right. Um, uh, let's talk about loan amounts. [00:43:43] What's your minimum, your maximum loan amount, and what, what's your average these days? [00:43:50] Boris Dorfman: We average about a million. We don't have minimums. We try not to do it under 150. Uh, but it's a, it's a relationship game. You know, if you send me a deal at 150 today, maybe you'll send me a deal for 5 million tomorrow. [00:44:04] So we probably... I'd like to be between, uh, 500 to 5 million. Uh, but we'll do lesser loans and, um... But yeah, like, I feel very comfortable up to 5 million. We've done six, seven. I can put a little larger loans together b- with our money. But, uh, yeah, 500 to 5 mil is a good sweet spot. [00:44:27] Rocky Butani: Okay. Sounds good. And then the... [00:44:29] You mentioned that you're, earlier that you've, uh, you've recently done some construction completion, uh, deals in, uh, in LA or Beveri- Beverly Hills, I believe. Um, uh, you know, uh, even we see a bunch of these loan requests that come through our platform for, for these, these really big luxury homes in, in LA and Beverly Hills. [00:44:51] Uh, do you ever deal with those, and, and how do you look at those deals? [00:44:57] Boris Dorfman: Uh, well, number one, when you get something, I get it five times from five different brokers, uh, and so does everybody else in the industry. Uh, m- uh, I do have certain relationships that, uh, you know, they s- send me. But, um In high-end Beverly Hills, Bel Air, I always said $1,500 a foot is the top range of what it's gonna sell for. [00:45:23] And so even these like Everything you see in the news, these ultra high-end, you see, oh, uh, we're gonna build this house. They list it at 90, they still sell it at 30, and it still becomes, depending on the layout and views, it still becomes like 1,500, maybe $1,800. Uh, I have local agents that, uh, pocket agents where they understand a certain pocket, so I rely on them for the valuation, not an appraiser, uh, at these exclusive neighborhoods. [00:45:56] And you look at the craftsmanship, uh, uh, a lot of people, they get some money and at some point, you know, like they... Market changes, materials are rising in price, and in the middle of construction say, "Oh, fuck it. Let me save some money." You can't do that, right? Like, you can't start off, uh, uh, luxury and then, you know, go buy a $300 faucet in certain neighborhoods, right? [00:46:22] So, so that's how we look at it. But, uh, yeah, rule of thumb, $1,500, uh, a foot if it's somewhat, right, like... And but yeah, like we don't do like these huge, uh... But yeah, we, we just financed something where bank lost it mid-construction. Our client came in and bought it at a steep discount, and we financed acquisition. [00:46:47] Their exit will be, um, a construction loan. But we did... We'll do, we'll do an acquisition. [00:46:55] Rocky Butani: All right. Nice. Uh, well, let's, uh, shift a little bit and talk a little bit about, uh, your company. [00:47:01] Let's talk about LBC Capital, your journey. Um, you know, the other name I've heard of reference for your company, Lending Bee. [00:47:10] Uh, tell us about how you started out in private lending and, and, uh, a, a little bit about the journey from start till today. [00:47:19] Boris Dorfman: I worked as an analyst in, uh, for a real estate developer. At the time, it was 2003. Um, a buddy of mine, like I barely knew the guy, came up to me and said, "Hey, you have a four-year degree. [00:47:33] Why don't you beco- uh, why don't you get a real estate license, broker's license?" So anyways, I did that. I wasn't planning to be in the industry. We started off as conventional mortgage brokers. That was 2003. Uh, 2008, the market crash, all these new regulations, that, uh, audits and, uh, repurchase agreements. [00:47:57] So I'm like, "Okay. Uh, well, we're gonna start doing hard money loans." And mind you, in 2008, our balance sheet internally was, um... We, we were pretty successful. We had some excess capital. We were loaning, uh, just from our balance sheet, like s- money for small projects, uh, for real estate construction completion, like small, like different loan amounts back then. [00:48:23] You know, 90,000 here, 300,000 there. So we did build a small portfolio, and then we decided we got a taste of it. And then we decided to grow, uh, in, uh, about '15, '16. So I guess in 2011, we opened a fund. So we pooled our money together, uh, and went to friends and family. That's when we opened the fund, 2011, right? [00:48:53] So yes, 2003 we were, uh, conventional lenders. 2008 we started dabbling into hard money. 2011 we created a fund. And then maybe five years ago we got some leverage and went to other states. [00:49:08] Rocky Butani: Nice. That's exactly what I was looking for. And, uh, tell us a little bit about the operation. Um, you know, do you have partners? [00:49:14] How many employees do you have at this time? [00:49:16] Boris Dorfman: I have, uh, two business partners, Alex and Vladimir. I have Michelle Long as our chief of compliance. We have some marketing team, uh, and assistants offsite, uh, outsourced. Uh, we have, uh, two top producing, uh, LOs. Uh, we have two underwriters, assistant processor. I don't know, 15 people, not to mention, uh, outsourcers. [00:49:45] Yeah, we're heavy on systems. We're extremely heavy on systems, and we have, uh, people outsource that does that, and our architect is in-house. Uh, and also, yeah, our marketing guys are, for the most part, uh, content writers marketing. Uh, they're outsourced [00:50:09] Rocky Butani: Right. And, uh, so you mentioned that you started the fund in 2011. [00:50:13] Tell us a little bit about the status of the fund as it is now, the, you know, how many, how much do you have under assets under management, and, uh, a little bit about the, the fund investment opportunity. [00:50:25] Boris Dorfman: So we have about 100 million under management. Um, we pay about 8%, uh, a year. Uh, we... There's a half a percent kicker for a million plus. [00:50:39] And this is probably one of the best vehicles, uh, in today's market, where we talked about this in the beginning, where do you invest? This is a good place to park your money. This is a good place for retirement money, and this is the good place, uh, you know, when you're in between and... But also, you know, it's not an opportunistic fund, 8%, but it's definitely capital preservation better than, you know, the bonds or your bank is paying you two and a half percent. [00:51:09] Rocky Butani: Yeah. Love it. Well, uh, Boris, I, I know you have to run soon, and, uh, uh, we're almost out of time here, so, um, uh, wanted to thank you for, for your time and, and providing all these insights, uh, about LBC Capital, about the market. Um, and, uh, yeah, thanks for your time. [00:51:27] Boris Dorfman: Thank you very much, Roshan. Thank you. [00:51:29] Rocky Butani: Yeah. No, take care. [00:51:31] Bye. And that's a wrap for this episode. LBC Capital has been listed on Private Lender Link since 2016. I put a link to their profile in the description. Take a look at their profile to learn more about their guidelines. When you reach out to them, please mention that you heard about them from Lender Link and the Private Lending Insights podcast. [00:51:51] Thank you for tuning in and listening all the way to the end.