Chris Holden: Keeping Your Investments On Track
With real estate, deals can be complex, and sometimes projects don’t progress the way they’re intended. So when a deal starts straying off course on the RealtyShares platform, our hard working asset management team steps in to help.
I have a stellar team with decades of combined experience to guide projects and determine viable solutions when delays occur. In this way, we can keep both sponsors and investors as happy as possible throughout draw inspections, workout sessions and other stages in the borrowing process.
Here are some instances when trouble tends to arise, and how we respond.
Occasionally, a problem occurs during the loan draw process of a renovation. As VP of Residential Debt Kelly McDonald explained previously, during the draw process, the sponsor will submit to us and a vendor information that shows a portion of the work has been completed. The vendor will then send an inspector to go line item by line item through the budget and take pictures of the work to determine whether it has actually been completed. If it has been done, the inspector will recommend the borrower be approved for further fund distributions.
But about 30 percent of the time, issues arise — either the amount of money requested is too much and the renovator isn’t entitled to it, or we must hold back a certain percentage of the loan and inform the borrower why we’ve done so. For instance, if only 80 percent of the work has been done, as determined by the inspector, then they’ll only get 80 percent of the payment back.
Other times, when we inform the sponsor that we have reason to believe that some work is incomplete, we’ll invite them to resubmit later when the work has been done. To help protect our investors, we are monitoring work being done and keeping them well-informed of renovations, while communicating clearly with sponsors throughout a draw inspection process.
On our debt side, most sponsor payments are paid on time and in full. But sometimes a payment is late. In the first 21 days a payment is delayed, it stays in our servicing department while they try to collect the payment. Once 21 days pass, asset management takes over.
We will increase the frequency of our sponsor interaction from a couple times per week to a couple times per day — very intense. We find out why that payment is late: is there the sale of another house that needs to close before the sponsor has funds? Is the property itself still being finished? These calls help us ascertain the condition of the property and the borrower’s financial health.
This intermediate process lasts until 45 late-days have passed, at which point we’ll typically begin the foreclosure process regardless of what is happening on the borrower’s end, and continue that process if the borrower’s plan of repayment is no longer considered viable. Our goal is to maximize the return on capital for the investors, even as the project experiences difficulties.
Asset Management makes a difference
I think real estate is an “experience” business, and the technology we bring to the table amplifies our ability, gained through years of experience, to manage assets. Therefore, we can handle the volume and complexity of the deals on our platform thanks to the unmatched experience of my team.
Asset management analyst Augi Health has previously done draws for a home builder, so he’s worked through many of the situations we’ve seen in the draw process and brings a great base of knowledge to his duties. Also on the team is Ken Wun, who handles equity. He was previously a portfolio manager of 1,400 units of similar loan types, so this type of work is well within his wheelhouse. And I’ve been in the real estate business for 30 years, working out more than $250 million of problem loans and managing a bridge loan portfolio of over $1.6B, so I have a broad range of experience in this business as well.
We hope that in the future, we can continue to leverage technology to spot problems with a project earlier and make communication channels clearer. This technological innovation, combined with real estate knowledge and acumen to succeed, makes our asset management process efficient and reliable for both sponsors and investors.