Los Angeles Hard Money: Insights from a Local Lender - Secured Capital Lending

Speaker: Sam Chivitchian, CEO, Secured Capital Lending

Sam Chivitchian: Here in Los Angeles and in Southern California, generally, the dynamics that are driving real estate investment activity really have to do with number one, I mean, obviously, LA county overpopulated and the population keeps growing as much as people are living out of state. We are a border state, right to, to Mexico. So we have millions of people coming in. So the demand for housing is always high. So because of that, real estate investors always are active here competing, the competition is very high and because of the demand for housing, because of the population growth and the lack of inventory because today, especially today with the high interest rate market, we're dealing with a real estate market where there's not enough inventory, there's not enough sellers. Nobody wants to get out of a 2-3% interest rate that they locked in in the last 8-9 years and go into a 7% or 8%. So a lot of the, the only true sellers that you're really seeing today are real estate investors who most of them need private money, hard money loans. And that's where we kind of come in and, provide them the leverage that they need. So they can leverage their cash, be able to compete on cash offers, be able to secure the investments that they're looking and to get to their goal of having a successful investment. So the demand is there, the inventory is low. And today, the dynamics is very competitive, especially now that everybody's fighting on a very few deals because of the lack of inventory

Sam Chivitchian: We're located here in Los Angeles, specifically in the San Fernando Valley. And I mean, the last 5 to 7 years, the whole San Fernando Valley has been a very hot fix and flip market. It's a very growing market. People from uh the city, urban parts are, have been moving to the Valley. There's a lot of development going on, a lot of construction to a point where it doesn't feel like the valleys, the valley anymore. It's more like it's becoming the city. And so there's a, it's a hot fix and flip market especially, you know, Encino Tarzana, Sherman Oaks, North Hollywood rents have skyrocketed because of the population growth. There's a lot of commercial development going around and so, and we're experiencing that and, obviously, we're surrounded with the San Gabriel Valley with the west side. So as the west side is getting more expensive, we're seeing a lot of people from the west side moving to the valley and investing in the valley because of they need more, more land and more place to for development since a lot of the west side is overdeveloped. So, yeah, absolutely. We're seeing a very hot again, low inventory. So there's a very high demand on these properties here in the Valley, but everything's selling quick and everything is very competitive.

Sam Chivitchian: Here and generally in California, I probably would say is probably the most competitive state with hard money lenders. There's more lenders than any other state that I know of. So it's a very competitive market. That's why the interest rates in California are significantly less than most other states in the country, in the Midwest and in the East Coast because there's just more, too much capital out there, too many lenders. So borrowers are a little bit more spoiled here in California, have more options and can pick and choose on which lenders they, they want to work with as far as competition wise. Yes, I mean, uh we, we ha you have the, the local or, or regional lenders here from California competing with a lot of the, the national blue chip type of private lenders and that competition has never ceased this last 5 to 8 years. And I think, you know, with the national lenders, obviously, they have more capital available since they're more institutionalized and might have a slight better interest rates depending on the loan product. But in general, the local lenders who've been around the block can move much quicker and be able to underwrite and get comfortable with, with values much quicker than the national lenders who have to rely mostly a lot on third party diligence and third party valuations. So again, it's a hot market, low inventory, high demand and a lot of lenders fighting for a very few amount of deals.

Sam Chivitchian: Well, I could tell you a few things what really separates us here at Secured Capital Lending from most other lenders is the main thing that I can point out is that we're not tied to one bucket of capital, right? So the way we're, we're internally capitalized our resources is most of the lenders out there have their fund or they're a trust deed investor. So they're tied to their, their capital that they have actually too. So if the deal doesn't kind of fit the box, the credit box, they're forced to pass on it where in our case, I personally manage SCL Funding, which is our internal real estate debt fund. So anything that fits the credit box of the fund, we definitely will put it through our fund and, we can go off and sell it to the secondary and recycle that money and do more volume. Also, I may been a long time trust deed investor, private investor myself. So I have a lot of trust deed partners and whenever we get deals that are more asset based or a little bit out of the box that doesn't fit the credit box of the debt fund. We a lot of times we'll put it through our trust deed partners and do a fractionalized note and, share it. This way, we have a higher closing ratio. Also, it allows us to be more flexible when it comes to appraisals or turnarounds, we can move much quicker. We can do deals based on just BPO inspections or make the appraisal a post closing condition and be able to fund deals as quick as 72 hours, as long as we have a full package. So that's really what sets us aside. Also, we can entertain types of loans that traditional private lenders don't like - 2nd trust deeds. We can look at land deals, case by case and be able to work with borrowers who have lower FICO's as long as we're comfortable with the asset and the loan-to-value. So, you know, we have multiple buckets of capital we have access to and we have the background in development and rehab. So we can underwrite deals much quicker than a lot of other lenders who don't and be able to perform. And that's what borrowers and brokers love.

Sam Chivitchian: We can entertain various loan products and private money and hard money, which include the bridge loans, with the fix and flip rehab for single family and multifamily, the ground up construction loans, we can perform on again with single family and multifamily and we can do this nationwide as long as we were under $3 million on the nationwide product. But when it comes to California, because it's local to us, we can go higher loan amounts both on the residential, single family, 1 to 4 and also the multifamily. We also entertain our asset based loans which are our hard money loans. So with those loans, we can do bailout loans for borrowers that let's say got into a financial hiccup maybe six months or a year ago, but are in a better position today as long as they have enough equity and there's a strong exit plan, we can make exceptions to those loans and kind of bail them out. so they don't go into foreclosure and have enough time to exit. We also do 2nd trust deeds for borrowers who have already have built up equity on rental properties that's producing income and again, that have a strong exit plan. And besides that, we do cross collateralized loans, which not many lenders do where we can credit equity to the borrower to the buyer when they're in an acquisition, let's say if they're short on capital because most of their cash is invested into another deal that they're pending to sell. But there's that bridge gap period that they need to capitalize because they found a new project. And so what we'll do is they'll put some money down and then we'll do an additional collateral that collateralized their additional collateral to make up for the equity. So we can do those type of loans so we can get very creative and be able to get comfortable in cases that most other national lenders cannot because they're kind of tied to that set guideline where type of underwriting, where we can, be more case specific on our underwriting, when necessary.