Alisha Hill Koontz, Executive Vice President at A10 Capital, joined us on the podcast to discuss real estate through the eyes of a balance sheet lender.
Alisha is responsible for originating commercial real estate loans. Additionally, she specializes in financing assets purchased through on-line auction platforms.
Alisha has over 10 years of experience in finance and lending. Prior to joining A10 Capital, Alisha was an institutional advisor for Clearwater Advisors, developing new business for their fixed income, corporate cash asset management group, as well as Clearwater Analytics SAAS solutions. Earlier in her career, she provided wealth management solutions and originated commercial and residential loans for The Private Bank at Wells Fargo. She offered specialized resort lending, equities, fixed income, and insurance solutions to her clients.
RealCrowd - All opinions expressed by Adam, Tyler and Podcast guests, are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.
Adam Hooper - Hey Tyler!
Tyler Stewart - Hey Adam, how are you today?
Adam Hooper - Tyler I'm doing pretty well. Who's joins us in the studio today?
Tyler Stewart - Adam, today we have Alicia Hill, Executive Vice President at A10 Capital.
Adam Hooper - Yeah, so we finally got a lender in the studio!
Tyler Stewart - We did, we wanted to do this for a while. Lenders have a unique take on the real estate process. Sometimes in line with, sometimes kind of opposed with the sponsors and investors. In this case, aligned, more aligned.
Adam Hooper - Yeah, yeah.
Tyler Stewart - And so it's going to be a fun listen for investors as they listen to Alicia describe her process. Investors can take notes and this might be some good guidelines for the investors as they're going through deals as well.
Adam Hooper - Some learning opportunities.
Tyler Stewart - Absolutely.
Adam Hooper - I talked about different kinds of loan types, what the diligence process looks like for a lender, talked about some markets, tried to get the crystal ball out, I don't know that she's really into the crystal ball thing, but I tried.
Tyler Stewart - A little more about the real time, what's happening right now versus what's going to happen in the future.
Adam Hooper - Overall, it's just a great overview of what the world looks like through the eyes of a lender. And as always, listeners, if you have any questions or comments, anybody you want us to talk to, or topics you want us to cover, please send us an email to firstname.lastname@example.org.
RealCrowd - This podcast is brought to you by RealCrowd, the leader in online real estate investing. Visit realcrowd.com to learn more about how we provide our members with direct access to commercial real estate investments. Don't forget to subscribe to the podcast on iTunes, Google Music, or SoundCloud. RealCrowd, invest smarter.
Adam Hooper - And here we are.
Alisha Hill - Here we are.
Adam Hooper - With Alicia.
Alisha Hill - Hello!
Adam Hooper - From Boise.
Alisha Hill - I am from Boise, yes.
Adam Hooper - Thank you for joining us today.
Alisha Hill - Thank you for having me Adam, I'm delighted to be here.
Adam Hooper - Yeah, we've been talking about this for a while, we've been talking about a lot of things for a while, and I think we haven't had an episode on the lenders perspective, so hopefully you can help share that with our listeners.
Alisha Hill - I'm happy to.
Adam Hooper - Before you do that though, let's tell us about A10, how you got started there, how you got into the real estate business, and give us a little bit of a rundown.
Alisha Hill - Sure, well, I got my start in the real estate finance gig back at Wells Fargo. I worked for the Private Wealth Group for them right after school, and it was a great experience, but I left the Private Wealth Group not really wanting to be in lending again after that. I went to work for an institutional finance group, which I really enjoyed, and they were, interestingly enough, in the same building as A10 Capital, and every time I would meet the people on the elevator, I was just intrigued with the folks and I got to know a little bit more about them and realized that they were doing nonrecourse lending, right after the recession had hit. I was surprised that they were lending at all, because no one really was lending at that time, and that they were doing nonrecourse lending was even more intriguing so, I just knew that, the person who had thought of that was either really smart, or really lucky, and I think it was a little bit of both. And I just wanted to be part of that, and they were nice enough to give me a job, and I've been there for about five years, a little over five years now.
Adam Hooper - Good. And then for listeners out there, we'll get into this deeper, but recourse versus nonrecourse means?
Alisha Hill - Recourse versus nonrecourse, great question, Adam, and that's sort of the crux of our business. Recourse loans mean that you pledge your personal net worth to a loan. So if things go south, you're on the hook for it. A nonrecourse loan means that if things don't go as planned, which sometimes in real estate, they don't, that means that you hand back the keys as long as you don't do anything super dishonest, we're not going to go after your net worth. That's perfectly safe.
Adam Hooper - And then for investors out there, coming in through RealCrowd, they're usually not the General Partner, they're on the limited partnership side so they're even somewhat protected even if it were a recourse loan. Typically, the general partner, the manager is going to be signing off for that recourse, right?
Alisha Hill - Typically so.
Adam Hooper - Do you ever see situations where limited partner investors would have any exposure to recourse like that? Is that usually stopped at the manager level?
Alisha Hill - That's a great question, Adam, and usually it is stopped at the manager level, but to that point, for those listening that might be on that level, you are the one taking all the downside risk. Recourse can be, not only is it good for the people that are on the line of the sponsor, but it's an alignment of interest. A nonrecourse lender, especially when like A10, that is a balance sheet lender, is not looking to loan to own. We're not looking to take that property back. We're looking to align ourselves with debt that's going to be conducive to a sponsor's business plan so that if things don't go as planned, we're there as almost partners to help you work through that. But the most important part is on the front end of that, in structuring that loan to make sure that it fits well with what you're planning to do. Not with what a lender might need to do as far as selling off into maybe a REMIC (Real Estate Mortgage Investment Conduit) trust or something like that.
Adam Hooper - Sure. Your initial attraction was nonrecourse so close after the meltdown. Has the business changed since then? How does it look today versus post... meltdown... kind of situation? Is it still same nonrecourse, is it matured? Are there different lines, what's the core business now?
Alisha Hill - Great question, Adam. A10 has been very receptive to a dynamic market. We've been very adaptive as far as things changing. In the beginning of our business when things were still very shady, we were kind of the first lenders to jump in that pool. That's really been our M.O. is when people stop lending, we look for those opportunities. Our business is really focused on a lot of note acquisitions. Those properties that are maybe coming right out of special servicing that hadn't quite gone through a foreclosure process. We did a ton of those. And we focused a lot on bridge lending as the market was recovering which really helped those investors to get their properties stabilized with the good bridge loan that had term and perhaps funding for good news facilities. As the market started to recover, we changed our business model along with that. We still kept our core business of note financing and bridge debt, but we also added balance sheet perm platform which is really unusual. It took us a long time to figure out how to do it right, but we actually can execute a long term, fixed rate permanent mortgage with bells and whistles such as long rate lock, flexible pre-pay, assumability. It's simply a breeze and also modification within the loan term because, all because, we hold that loan on our balance sheet.
Adam Hooper - Right, you have the flexibility to change it as necessary.
Alisha Hill - Absolutely.
Adam Hooper - And there's a lot of terms in there that we'll dig in on but primarily, balance sheet lending. How might that differ from a non... I mean, let's just start, what is balance sheet lending? And what are the other ways of lending? For listeners out there as they're looking at these different opportunities.
Alisha Hill - Good question. Balance sheet lending means that the lender uses their own sources of capital to deploy the loan and we don't sell the risk off. We don't sell that loan off. We keep it on our balance sheet. And that's important because we have to make sure that our interests are aligned with the owners, as far as making sure that we're making a good risk, we're betting on a good risk, and a good credit. The way that can differ is in the bank or CMBS world. A lot of those times, those loans are originated and, I'm sure you've all experienced it, shortly after, it's sold to a disinterested third party or into a REMIC trust. Not only do you have, you have lost the connection with the person who actually originated the loan, they no longer have a vested interest in that loan. And a lot of times the servicing is also sold off. You really have no connection with the person who originated that loan. At A10, we actually keep that servicing in house and so the person who originated, underwrote your loan has also the ability to go in and service a property. If there's something that comes up, and there's always that comes up in the middle of a real estate transaction or after it's funded. They can speak to that intelligently. They've been to the property. They understand you. They understand the asset.
Adam Hooper - Real estate is very much still a relationship business and that can be tough. I know a lot of groups that we've worked with. You have a loan underwriter that you work with. They make the loan, and then, yeah, you're talking to a whole different group of people at multiple different companies that are providing those services rather than having that relationship with someone that's flexible enough to help work out when things inevitably will go wrong in one way or another.
Alisha Hill - Yeah and that can be frustrating and expensive.
Adam Hooper - Yeah.
Alisha Hill - We don't actually charge servicing at A10 Capital which is unusual. You don't have to dial 1-800 number and get the next person in line who knows nothing about you. You get a person who understands you and your property.
Adam Hooper - And so, as a balance sheet lender, you guys have to have a balance sheet, right?
Alisha Hill - We do, yes!
Adam Hooper - How does that differ from, like, Wells Fargo or a bank where clearly we know where their capital comes from? How is A10 capitalized from a balance sheet standpoint? Cause you got to have the money to make the loans from somewhere.
Alisha Hill - We do. It's pretty hard to get a lending business started without any capital. It's certainly evolved over the years. I would say we have a pretty impressive lineup these days. We are backed by BlackRock which I'm sure most of our listeners are familiar with. They're the world's largest asset manager with more than 5.9 trillion assets under management.
Adam Hooper - That's a fair amount.
Alisha Hill - It's a fair amount. KKR is also one of our capital partners. They're a leading global investment firm with 148 billion assets under management. One of our longest partners is HIG Capital. It's a global private equity firm. They've been with us for quite a long time and have been a wonderful partner.
Adam Hooper - Similar to how investors on RealCrowd come in as a limited partner, essentially, in these individual real estate deals, that's similar to what these institutions have done for A10. It's here's the capital, we believe in the team, believe in the vision, the underwriting process, and the strategy, Here's a bucket of money and go make loans with it.
Alisha Hill - Exactly, and we have a lot of capital to deploy. So we're excited.
Adam Hooper - Good. Well let's talk a little bit about the market.
Alisha Hill - Sure!
Adam Hooper - Put your prognostication hat on.
Alisha Hill - The fun part, yeah.
Adam Hooper - So you guys are based in Boise, but you lend nationally?
Alisha Hill - We do. We are based in Boise. It's been a very effective way to have a low cost of doing business and a high quality of life for a lot of our engineers and our credit and legal team as well. We have origination offices set up throughout the U.S. for boots on the ground which is really nice. A little bit about how we're set up.
Adam Hooper - And you do lend all across the nation. Are there markets you won't go into? Or markets you're focusing more on right now?
Alisha Hill - We will lend nationwide. We have really no sensitivity to geographic concentration. We like primary and secondary markets. As far as markets we don't go into, there really aren't any. We're looking for opportunities in primary markets. That's where we get the bulk of our requests, but good secondary markets, we have a large appetite for those right now.
Adam Hooper - Okay, and now we're, what, call it nine years into this recovery. How much more room does it have? What's the lender's take on where we're at in the market cycle and how things have played out, and again with this tax bill that's passed, have you seen any feedback from that? What do you see in 2018, going forward?
Alisha Hill - Great questions. I'll try to attack those. First and foremost, there are a lot of markets that still have a little bit of juice in them. There are markets that haven't quite realized the full economic... the full macroeconomic growth that the rest of the market has and there's still room in those. To touch on the tax implications, I personally, toward the beginning of the year, did see an impact on that as people are trying to figure out how this is going to affect their strategy moving forward. And then largely, I think interest rates have a huge effect on the market. As interest rates rise, that will have an effect on transactional volume. There's no way around that. We've also seen that. But we've seen things speed up again as we're moving into the last part of the first quarter. Most people have gotten comfortable with where things are now, they've kind of gotten their tax thing figured out as much as they possibly can.
Adam Hooper - Sure.
Alisha Hill - There's certainly things that will need to go to court, but for the most part they're back in, they're actively investing, and we're continuing to see things grow.
Adam Hooper - Yeah, and so interest rates rising, are we seeing more of that? We've kind of been saying, for the last, I don't know how many years, they have to go up. Are they starting to finally go up?
Alisha Hill - They have.
Adam Hooper - Appreciably, or just starting?
Alisha Hill - They have gone up. They have gone up, I would say significantly, to the point where we're starting to have to be a little bit cautious on debt yields and debt service coverage ratios as the interest rates have started to push. Investors are probably going to have to be capped on what they can spend on properties as interest rates rise. It just, it will affect things. It will affect volume.
Adam Hooper - Could you dive a bit into debt yields and debt service coverage?
Alisha Hill - Debt yield is your cash flow divided by your property value.
Adam Hooper - Which is essentially what a equity investor would look at, cap rate, that's a lender's equivalent of a cap rate essentially.
Alisha Hill - Essentially. It's a good determination of risk and a lender will typically want to see that in the 9% range. That service coverage ratio is exactly the way it sounds, just how much coverage you have on the income of the property. Usually it's on the net cash flow, the property that most lenders are looking at versus what you have to pay for the actual loan.
Adam Hooper - So then again, that's the ratio between your net income at the property and how much you're paying on debt service.
Alisha Hill - Net income or net cash flow, depends on how you, most investors will look at it from that income perspective, most lenders will look at it from a net cash flow.
Adam Hooper - Yeah I think that's something--
Alisha Hill - Before it does serve us
Adam Hooper - We want to pick apart later is, how from the diligence side and financial side, again most of our listeners are looking at this as equity investors in the world, but I think that there's a lot that they can learn from a lenders perspective which is historically a little bit more conservative than what a sponsor might be selling on the equity side.
Alisha Hill - That's an interesting point, Adam, and I'd kind of like to talk about that for a second because a balance sheet lender will look at things very similarly to how an equity investor might look at things. I'm a big fan of aligned interests will be the driving factor of a good outcome for all parties. I'm a big believer in that. And if you're looking at the way that an equity investor is looking at this investment, they want to get their capital back, obviously, and they want a return on their capital. A balance sheet lender is very similar. We want to get paid and we want to have a certain ROI from that. I think if you're looking at that, you're really going to want to underwrite, as a lender, the same way that an equity partner will. You'll want a full due diligence on your property.
Adam Hooper - Well that's, again, from the broker's world, there's usually three different cash flow models, right. There's the one that the broker gives to the sponsor that's buying the property. There's the one that the sponsor does, that they sell to their investors. And then there's the one the lender does. So you're saying, in a balance sheet lending environment, what the sponsor's underwriting is more closely tied to what the lender might underwrite versus a CMBS. Again, that's going to be a different look entirely than a balance sheet lender.
Alisha Hill - I couldn't have said it better myself.
Adam Hooper - Thanks.
Alisha Hill - We really, in fact, that is how we underwrite. We look for sponsors that have a lot of experience and a good track record in what they've done. We take their underwriting and we run with it. Then we use third party reports to help substantiate these numbers. And so, we rely highly on what our sponsor is telling us. And then, ya know, we verify.
Adam Hooper - Yeah, so trust but verify.
Tyler Stewart - From an A10 Capital perspective, it really is a partnership with a sponsor then?
Alisha Hill - Absolutely, yeah. Absolutely, it's a partnership.
Adam Hooper - At the expense of maybe getting a little bit nerdy, from a cost of capital standpoint from the borrower, you guys have a balance and sheet and you've told your institutional backers, this is the deal we're going to do. This is the profile. These are the returns that we're going to try to generate. Very different market today than it was five, six years ago, even two, three years ago. It'll be a very different market in 2020 than it is today. You have this bucket of capital that you've, not promised, but have targeted as a specific return for to your LP investors. How does your cost of capital change, or does it, based on the market? I mean, a bank and a CMBS, they have to be much more dynamic in how they price loans because they're selling them, reselling them to institutional investors typically. How does that give you an edge or a difference in terms of what you can do from a cost of capital standpoint by already having that capital raised and not being beholden to reselling those loans out to other buyers?
Alisha Hill - That's an interesting point. We do have an added advantage in that we have fixed cost of capital.
Adam Hooper - Right.
Alisha Hill - For the most part. That capital stays affordable because we make good loans. In fact, the proof is in the pudding that we're aligned with our sponsors because today, we don't actually have a loan loss on our books which is very unusual.
Adam Hooper - Wow, that's great.
Alisha Hill - It is unusual, but it helps. A10 has a good reputation for making good loans to good sponsors and to make sure that we structure this debt so that it's conducive to them being successful. That's part of keeping a low cost of funds, to being able to execute in the market that way.
Tyler Stewart - When I was at, I forget the exact number, it was a guy we used to work with. He was at Mason and some other institutional lenders historically. I think when he was going through credit school and underwriting school, basically one bad loan can wipe out all the profits from, like 20 good loans. So that's--
Alisha Hill - Indeed.
Tyler Stewart - Really important not to make bad loans.
Alisha Hill - It's very important. I mean, I would say that we are conservative in our approach, but not necessarily for the sake of being conservative, but for the sake of making sure that we're making good bets.
Adam Hooper - Yeah.
Alisha Hill - We can certainly get creative and do things outside of the box that a lot of lenders could never dream of doing but we're going to make sure that our capital is safe.
Adam Hooper - Okay, and so we kind of side-stepped there, but where are we at in 2018? How are we lookin' this year? Is it cautiously optimistic? Are we going to see more volume, less volume, what's the take on that?
Alisha Hill - I guess we'll have to see. I'm not going to punt that, but I think we're going to have to see what happens with interest rates, if they continue to rise. There's a lot of factors with the Federal Reserve are going to be implementing in the next little while that may or may not continue to affect rates. We're just going to have to see. Deals are harder to come by for sponsors. They're having to really stretch to win the deal. I think a lot of smart investors are not willing to pay more than what that property is worth. I think we're just going to have to see.
Adam Hooper - I guess that echoes what we've been hearing from a lot of guests we've had on the podcast and sponsors that we work with. It is getting harder to find deals. I guess groups that you're working with, are they just not doing as many deals? Are they going into other markets? Are they modifying how they might capitalize a deal to get more deals done? What are some other solutions out there as we get to a market where deals are maybe a little bit, prices are little bit higher than you want to pay? Maybe the economics don't make sense if we see more rising interest rates, how can that volume stay up?
Alisha Hill - I am seeing a lot more creative plays. Definitely going into secondary markets that may not have reached their peak prices yet. Definitely, some of my most successful sponsors are looking at things in a different way. There's a lot of pressures on retail, for instance, right now. E-commerce is really changing utilization of that asset class. People are focusing more on getting tenants in there that are more of an experiential type tenant. They're adapting in ways that I think are very interesting. The fact that they've got to compete on a different level. It's not just go out and put the best bid. They're actually having to look at uses as well. We're seeing a lot of growth in the self-storage area. We recently launched a single family residential platform at A10 capital that does portfolio lending for residential. A lot of people are moving into that as well to supplement their commercial business. We're seeing a lot of adaptation that I think is very smart.
Adam Hooper - And are you seeing it more, again sounds like what we just talked about, more product type and then also geographically too?
Alisha Hill - Product and geographically.
Adam Hooper - Are there any markets that you guys are trying to avoid?
Alisha Hill - There aren't--
Adam Hooper - Right now, no?
Alisha Hill - No, we are actively seeking deals in all primary and secondary markets right now. If there is a market that looks like it might be getting into trouble, we're very sensitive to a market's general reliance on a single sector. Like Houston and the oil and gas industry for instance. Or Detroit and the automotive industry. If there's a market where it's important to exercise caution, most lenders have already figured that out. Most investors have already figured that out. And so it's important to not treat all asset classes the same, per say. Houston's probably good example of that. When the oil and gas market plummeted, the office sector was affected egregiously. But the multi-family sector was relatively insulated from that because of a good tenant base. So we actively are lending on multi-family assets in the Houston area.
Adam Hooper - You can have a market that one sector might not be as favorable, but other sectors might be. You said this single sector, is that primarily employment thing that you're looking at?
Alisha Hill - Mostly it would be an employment thing. It mostly would be employment impact but there could be other areas of the economy that... Typically it's what drives income in that area. I think it's important that you don't have a knee jerk reaction to these events because, just how A10 got started was by not having a knee jerk reaction. It was by being thoughtful, strategic, and critical about how to implement something where everyone else is losing their head. So if a market is having trouble, that's really the time where you start seeking opportunity.
Adam Hooper - Opportunity, right yeah. So what makes a good market for a lender right now?
Alisha Hill - We want to understand that there's job growth in the market. There's something sustainable that's keeping people there. Commercial real estate is all about having places to do things in and so we want to make sure that there are people to do things in those places. That's really what we're looking for is a sustainable economic driver.
Adam Hooper - Okay and we'll talk a little bit on due diligence here in a bit, but if you had to rank the market, the property, and the sponsor in terms of order of importance to the lender, how would you put those three?
Alisha Hill - Good one. Definitely as an asset based lender, it's the property. It's the real estate. Real estate first. If the real estate is a no go, there's nothing that can help that.
Adam Hooper - No amount of good management...
Alisha Hill - There's no coming back can solve bad real estate. It's definitely the property, and then I would say, the market and then the sponsor. Not that we, we don't want bad sponsors, but.
Adam Hooper - Sure.
Alisha Hill - If a sponsor is... If they've shown that they are adept in these types of transactions, there's a lot that we can overcome from a sponsor deficiency with good real estate and a good market. There's a lot of things that we have dealt with, like bankruptcies and give backs in a way that a lot of banks could never touch.
Adam Hooper - Again, with the emphasis on that relationship side, right? And being able to have a more connected relationship with that borrower, looking longer term versus just, let me just get this loan out the door and resell it.
Alisha Hill - Yeah, we don't do that. We absolutely have to have our, this is a relationship. It's a long term relationship because we hold that loan on our balance sheet. But the property and the market is probably first and foremost.
Adam Hooper - Should we talk about types of loans?
Alisha Hill - Sure.
Adam Hooper - We've mentioned a couple.
Alisha Hill - Yeah, you bet.
Adam Hooper - We kind of went over recourse, nonrecourse. I think that should be fairly clear. A10's big start bridge loans.
Alisha Hill - Big start was in bridge loans.
Adam Hooper - What's a bridge loan?
Alisha Hill - A bridge loan is a shorter term loan that's typically an interest only financing so that... the sponsor can, can really focus on getting it stabilized. It's typically an un-stabilized, whether it's vacancy or a rehab project or even a shorter term hold. But a bridge loan is typically a three to five year financing with options and good news facilities.
Adam Hooper - What's a good news facility?
Alisha Hill - That's a good question, Adam. A good news facility is facilities, or monies, that are set aside by a lender to help with lease up of the property for tenant improvements, leasing commissions, and even improvements that a sponsor may want to make on the property such as capex.
Adam Hooper - If I buy a building and it's 70% occupied, and I need another million dollars to go in and renovate those spaces to try to attract a tenant, I can either capitalize that up front with equity or through this good news money from a lender.
Alisha Hill - Yeah, and the good news money is typically less expensive than capitalizing with equity. Not only because of the interest rate, but because you don't actually pay on those until you draw them down, typically in a bridge loan.
Adam Hooper - And then is there... a ratio or a maximum amount of, like how much of good news can you finance?
Alisha Hill - We typically finance good news at the same basis in which we finance the acquisition, but we have programs that finance up to 100% of it.
Adam Hooper - Okay, so if I've got a 65% loan to value going in and I need a million dollars to retrofit a space, I can get maybe $650,000 from that credit facility, 350k has to come from, hopefully, a capex reserve that I've funded up front.
Alisha Hill - Sure, yeah, that's a typical structure but there are, ya know, if we're doing lower leverage, we could finance more of the TILC facilities or of the capex. It really depends on what the sponsor needs. We're happy to structure.
Adam Hooper - So at all times...
Alisha Hill - Yeah, that's really the secret sauce with A10. There's so many lending institutions out there. It would be hard to beat A10's ability to creatively structure around what a sponsor would need.
Tyler Stewart - A bridge loan is really to help a sponsor execute a strategy. What do you need to see from the sponsor in the form of their strategy to get it on board with their strategy?
Alisha Hill - A good performa, Tyler. A very good performa. That's really, in our world, that's our lending application. A good performa goes a long way in us having faith in the sponsor's ability to execute a business plan. There's so many calls I'm on with sponsors, "Well I guess we'll just see how it goes." It doesn't give us a lot of confidence that you'll be able to execute. We want to understand that you know what the market leasing assumptions are going to look like. We want to know that you've inspected the property and know what potential capex items are going to come about. A performa is really the key in getting a good bridge loan.
Adam Hooper - In most of the deals that we see on RealCrowd, do have a value add component to it? I think that's, again, typically where you'd see a bridge loan. Going from there, do you guys have, let's talk bridge to perm.
Alisha Hill - Absolutely.
Adam Hooper - What does that mean?
Alisha Hill - Well it's just exactly what it means, what it sounds like, Adam. You take that bridge loan and once that property is stabilized we can roll that right into a perm loan. Most lenders, especially among the agency side will want to see some seasoning. We don't necessarily need that. We can just, we can roll it right to a fixed rate permanent loan as soon as that's stabilized.
Adam Hooper - So bridge loan is not a fixed rate?
Alisha Hill - Actually most of the time, Adam, it is a fixed rate product. We have a floating rate product, but in this interest rate environment, it helps so much to be able to mitigate some of that interest rate risk with a fixed rate product. We've mostly been doing fixed rate bridge loans.
Adam Hooper - And floating rate, again, for listeners, as simple as it can be, is a rate that just changes?
Alisha Hill - It's a rate that's fixed over a particular index and it changes. It changes all the time. They're a little bit risky in an interest rate environment that rates are rising.
Adam Hooper - Yeah, and so you would price that loan with a spread over some index.
Alisha Hill - Exactly, usually over swaps of a corresponding swap rate. We would fix that loan and that gives the investor some peace of mind that they have a fixed cost of capital for the time that they'll need to renovate that property and get it up to market stabilization.
Adam Hooper - And so then after you, if you were doing a bridge to perm, you get in on the bridge loan. You stabilize a property. You've executed your business plan. You convert it to permanent financing. What is the, is there a rate difference there? Is there a amortization, interest only difference there? What is the kind of core differentiators between that permanent facility versus the bridge loan?
Alisha Hill - A permanent loan is obviously going to be a lower cost product since it's less risk than a bridge loan. And that will typically be anywhere from a seven to 10 year term. There's interest only that can be involved in loans and on the permanent side, but for the most part it will have a 25 or 30 year amortization. The most interesting thing, from an A10 perspective. There's a lot of options for permanent loans but if a permanent loan is sold off into some sort of a syndicate or a REMIC trust, it's a static loan. There are no changes that are going to be made and from what I've heard, assumability is an act of congress if you want to sell that property and get that loan assumed. But at A10, since that loan's on our balance sheet, we can open up that loan file and allow for release provisions. We can allow for earn outs. We can allow for loan assumptions that are just a breeze. As long as that's an accretive decisions for the lender, why wouldn't we do that. Why wouldn't we put the sponsor in a better position. That is a differentiator in our business that is incredibly beneficial to a sponsor.
Adam Hooper - Yeah, it sounds like the flexibility of having that relationship and the ability to modify those is a huge difference from something that would get syndicated in a CMBS pool.
Alisha Hill - I think so.
Adam Hooper - Do you guys originate permanent loans from the get go? Or is it mostly bridge to perm?
Alisha Hill - They're both. We originate a lot of permanent loans from the get go on properties that are being acquired, that are stabilized. We're not seeing as many value on properties in this market but we do structure them as bridge to perm. Every single time, why not. They can pay them off if they want to or they can go right to permanent.
Adam Hooper - What percentage of loans would you say are bridge versus permanent out of the gate? Or are permanent loans from the start maybe not necessarily a forte of A10? Are there other sources of capital if you're just purely looking for a permanent loan that's maybe more down the middle? Or is that something you guys do as well?
Alisha Hill - We are equally focused on bridge and perm. Our originations are split down the middle in its percentage. We offer an incredibly, an incredibly competitive perm product. I would say that it's a newer product. We've only been doing it a few years but as we're educating the market, most are seeing this as an incredible opportunity to have flexibility within our business plan.
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Adam Hooper - I know a lot of our listeners, well we don't on RealCrowd do any single family resi products. You guys do have a single family residential loan product.
Alisha Hill - We do.
Adam Hooper - What does that look like?
Alisha Hill - It's really interesting product type and it's something that, again, is relatively new to A10. It allows investors to purchase or refinance a block of residential products or a block of residential homes into one single loan that's nonrecourse. In the past, a lot of these investors have had to go to several different banks, keep up on a number of different loans. That's just very arduous. A10 is doing this along with very few competitors in the market and we're seeing a large amount of growth in that area.
Adam Hooper - Good, and is that geographically constrained or is that pretty much all over as well?
Alisha Hill - We are geographically constrained only by licensure. We're getting the rest of the states up and running but we plan to be doing that in all 50 states.
Adam Hooper - What, just out curiosity, what does that look like in terms of loan to value, loan to cost? Terms, how does that look?
Alisha Hill - Very similar our bridge and perm products. It's in the 65% to 70% range with opportunities to stretch for higher LTDs.
Adam Hooper - Good, and then note purchase loans?
Alisha Hill - Note purchase loans. It's very interesting to think that a balance sheet lender could finance a piece of paper but that is actually what we do. They're best suited to those investors that are looking to get timely access to a fee simple interest in the property. We're not looking to finance lenders, but we're looking to finance those people that can execute on, say, an auction, a note purchase, or directly from a special servicer. They just don't want to deal with the foreclosure process. We finance the note as if it were the same as a bridge loan with a definite focus on the underlying asset. And then once they roll that to a fee simple interest, we simply roll it right into a bridge loan.
Adam Hooper - That would be for a manager that has an opportunity for an asset that's not going to make it. It's not going to work out. So they buy the underlying debt on that with the intent to foreclose or go through that process and actually take ownership
Alisha Hill - Exactly.
Adam Hooper - through that debt instrument versus just buying the property.
Alisha Hill - Exactly and typically we would want someone that is going to be working with a relatively cooperative sponsor that is willing, they're just kind of done with the asset. They're either wanting to give the keys back or do some sort of DN ... and it helps if it's in a state where foreclosures are relatively unconstrained.
Adam Hooper - Non-judicial
Alisha Hill - Yeah, non-judicial state, exactly.
Adam Hooper - Which I think we've talked about, we did, yeah. We've talked about that before, yeah. Any other loans that you guys do that we should talk about? Or that investors might see when they're looking at projects out there.
Alisha Hill - No, but stay tuned.
Adam Hooper - Ahhh.
Alisha Hill - You never know when A10's going to roll out something new. We tend to adapt to how the market's changing. So, who knows.
Adam Hooper - Without asking what you're alluding to, are you alluding to something?
Alisha Hill - No, I'm not, but I'm just saying that A10 is very adaptive to what the market does so a year from now we could be doing something that I couldn't have even conceived today. Certainly the case.
Adam Hooper - That is, we've talked about it on the show for a while now that this, again we've even mentioned earlier, this is pretty late in the recovery. As that dynamic changes, what terms of loans or what structure of loans could you change that might be a little bit more dynamic? Outside of a bridge. They're fairly standardized loans, right? What kind of leverage can you pull as you're looking at different loan products?
Alisha Hill - Well so we're looking at different loan products. I mean, there's a lot of other loan products out there that A10 doesn't participate in right now. We like to say that we're involved in the entire life cycle of a property but that's a property that's already built. There's loans out there that are great for development. We don't participate in that right now. We don't participate in hospitality loans. Right now that's a completely different market sector. There are a number of ways in which a lender could adapt to a changing marketplace and as the supply becomes constrained, the only way to really get around that is to build new product. You never know, you never know what can happen.
Adam Hooper - Then, again this is maybe getting nerdier than necessary, but as a balance sheet lender that has, again, institutional capital partners, what does that approval process look like? If it's outside of the strategy that they've kind of bought into originally, do you have full autonomy to come up with new products or do you need approvals from your balance sheet providers to do new products?
Alisha Hill - Well it would be definitely a collaboration.
Adam Hooper - Sure.
Alisha Hill - And probably a different bucket of money if we were to do something new. There's really nothing on the horizon but I will say, again, that A10 continues to bring things online that the market is demanding.
Adam Hooper - Yeah, good. That's a pretty good overview of the loan types. Is there anything that we didn't cover there with those strategies that you want to talk about?
Alisha Hill - No, we've covered just about everything that A10 has to offer and the most important thing to take away from that is that we're very creative and very nimble. If there's something that may be outside of what you've normally done, we can take a look at it and see if it fits.
Adam Hooper - Good.
Tyler Stewart - Do you want more water?
Alisha Hill - No, I'm good.
Adam Hooper - You're good? Okay. Well then let's get into the diligence side of things. How are you guys finding opportunities? Is it existing relationships? Are you getting packages from brokers? Directly from the borrowers themselves? What does that new deal flow look like for A10?
Alisha Hill - Well, yes, to all of those things. We have really good... First of all, we have good data. We have good relationships in the market. We have relationships with awesome alternative real estate platforms like this amazing company called RealCrowd, that we sometimes see great deals from. Mortgage bankers and direct borrowers are a large part of our business but the most important part is keeping good data and having integrity within that.
Adam Hooper - Yep, and so then when you get these packages, do you guys have an internal filter as to channels that you prefer over others? Or if a deal hits a desk, it's a deal on the desk and it's going to get reviewed?
Alisha Hill - Yeah, the internal filter is sitting right here. We are these filters. That's really important because there's only so much that automation can account for and sometimes I'll see a deal and I'm like there's no way we're going to get that done. Then I look a little deeper and I'm like "Oh that's a great idea." It's important that the filters move quickly because I think the golden rule in commercial real estate finance is that a quick no is way better than a slow maybe.
Adam Hooper - Absolutely.
Alisha Hill - We have, again, boots on the ground all throughout the United States and very robust analytics at our disposal so we can move those loan applications quickly.
Tyler Stewart - What factors are you looking at for the quick no?
Alisha Hill - We look at the top 200... MSAs, so metropolitan statistical areas, as far as population, so if they're outside of that and there's no real driving force like a student housing population or good traffic drivers outside of maybe like a retail center, then that's probably a pass for us. Those really tertiary markets get a little bit outside of our comfort zone. But beyond the actual area, we're going to look at the quality of the asset. If it's below B quality, that's usually a pass. We'll look at...
Adam Hooper - The performa?
Alisha Hill - Well, on a bridge loan, definitely the performa. That's usually a little bit down the road. But we'll look at the sponsor's level of expertise. I would have definitely financed first time sponsors and that's one of my favorite things to do. But we want to make sure that they're serious and that they understand what they're doing and not just throwing things against the wall.
Tyler Stewart - Market first, B class or higher property, and then look at the sponsor?
Alisha Hill - Absolutely.
Adam Hooper - What is the biggest yes when it hits your desk?
Alisha Hill - I'm sorry, the biggest?
Adam Hooper - The biggest yes. If something comes across your desk, it's like this is absolutely, we need to dig deeper into this.
Alisha Hill - Most things that come across my desk, we will take a deeper dive into. There's very few applications I get that are just a hard no. Because we are so versatile, we can look about, we can look at a lot of things. But hard yeses are good real estate, good market, good sponsor. Very, very simple.
Adam Hooper - And so then, once you've established it's a deal that you want to take a further look at, it doesn't get thrown in the round file right away. What does that process look like? You said you have your own internal analytics and tools. How much are you relying on the sponsor provided underwriting versus doing your own? We kind of talked about the trust but verify before. Can you just kind of walk us through what that internal diligence process looks like?
Alisha Hill - Sure. It's definitely a trust and verify. We take our sponsor's due diligence and internally, we model our own... Our own valuation. We're certainly not a valuation company, so we rely heavily on third party reports to verify that data and as long as everything proves out which a lot of times it does, we're good to go. We push it through legal, who sits on the same floor as us. We fund that loan very quickly. We can actually fund a loan in under 30 days if we have a cooperative sponsor. I mean sometimes things don't go as planned. Sometimes appraisals don't come in the way that they're supposed to and what we do from there is just we work with the sponsor to make sure that we can find a mutually acceptable solution.
Adam Hooper - And you said it works through legal? That's just, are there... Outside of just contracting and papering the actual document, are there legal things that would come into play for loan underwriting?
Alisha Hill - It's mostly just loan document preparation, title, getting the loan through the ownership process from seller to buyer. That's really all that it is. Typically a sponsor will engage their own counsel to review loan docs and make sure that they're comfortable with everything and that's typically a pretty speedy process.
Adam Hooper - And at what point would a sponsor typically bring a loan to you guys or an opportunity to you guys? Is it when they're still out in the market looking? Is it after they've got it under contract? At what point do you guys usually get involved?
Alisha Hill - Again, yes to all. It really just depends. I have repeat sponsors that call me the minute they get off the phone with their investment sales broker.
Adam Hooper - Yeah.
Alisha Hill - And I'm fine to be sort of an extension of their due diligence team. It's really fun to sort of put on the investor hat. I love that. Then I have other sponsors that call me and say hey I just won this auction deal and I need to close in 30 days and they're under contract and they've already gone hard. It just really depends and I'm in the business of doing what works for them, so it works for me.
Adam Hooper - From the equity investor side versus the typical lender side, we talked about how those are fairly similar processes.
Alisha Hill - For us.
Adam Hooper - Yeah, for A10. Any comments or suggestions or red flags that you would recommend listeners look for when they're reviewing these deals at a high level.
Alisha Hill - Well, that's a great question. If something looks weird, it probably is, number one. Don't pay more for the property than it's worth. Don't invest in a property that's going to be over-levered, for sure. Use common sense when it comes to these things. If you know what you're doing, just stay on that. Some of my most successful sponsors, they really keep a cool head when it comes to that and they're disciplined in their approach to underwriting and it's really important to do that.
Adam Hooper - And so, how much of a... I know there's been, right or wrong, maybe you can tell us whether it's right or wrong. If xyz lender's going to a loan on them, it's got to be a good deal. Is there any truth to that?
Alisha Hill - I don't know that there's much truth to that. If a balance sheet lender is willing to loan on it, that's probably a good deal. I would say their underwriting is as thorough as a sponsor on the equity side. But a lot of lenders, their goal is to get that loan originated and then to sell it off. They may not have any skin in the game. I don't think that a quote from a lender is necessarily a green light to just go forward with something. You've got to do your own due diligence. That's how a lot of people got burnt in the last cycle. Cause lenders were lending on anything in pre-crisis. They were lending on just about anything that had sticks and bricks. I don't think that's a good way to underwrite.
Adam Hooper - And then how can an investor discern balance sheet versus non when they're looking at a deal? Is that a question they would ask the manager? Do they need to talk to the lender? How would they?
Alisha Hill - Probably both. A balance sheet lender is going to be very vocal about whether or not they're a balance sheet lender. There's a lot of people that say they're a balance sheet lender that really maybe aren't. But you can find that out pretty readily just by talking to the lender.
Adam Hooper - And then, when it comes to the actual process, you said you can close loans sometimes within 30 days?
Alisha Hill - Oh, absolutely.
Adam Hooper - That seems pretty quick.
Alisha Hill - It is quick. It really helps when everyone is in the same place and has good communication and it helps when we have a cooperative borrower.
Adam Hooper - And do you usually see much of variance from when a loan first comes in? I'm thinking from listeners' standpoint. They're seeing deals on RealCrowd. Early on, maybe the sponsor has underwritten X percent cost on the debt and then by the time it comes to close, that's changed maybe 25, 30 basis points which will affect the financials. How tight do you usually see that tolerance from initial underwriting to when the loan closes at?
Alisha Hill - A good sponsor will have that budgeted at least 10 to 25 BIPS outside of where it will land. A good investor will be conservative on that because you don't which way rates are going to go or the risk tolerance that your lender will have for that particular asset.
Adam Hooper - Yeah.
Alisha Hill - You don't know how they're going to price.
Adam Hooper - How fast are we seeing rates move right now?
Alisha Hill - Well they've leveled off a little bit in recent weeks but there was a time that they were moving rapidly. I think the market really reacted to that.
Adam Hooper - From six months ago, where are rates today?
Alisha Hill - Wider. Quite a bit wider.
Adam Hooper - Yeah.
Alisha Hill - Yeah.
Adam Hooper - Numbers?
Alisha Hill - Numbers, oh. We are seeing things probably 50 BIPS wider, I would say.
Adam Hooper - Okay.
Alisha Hill - All in.
Adam Hooper - That's pretty significant
Alisha Hill - It's significant.
Adam Hooper - Right?
Alisha Hill - Yeah, it's significant.
Adam Hooper - And so that would theoretically put a damper on total price, total value of the real estate, right?
Alisha Hill - Absolutely.
Adam Hooper - If your financing costs have gone up 50 basis points
Alisha Hill - And we see that potentially continuing? Potentially, we'll see. I have no idea. If I did, I'd...
Adam Hooper - I thought you promised to bring the crystal ball today.
Alisha Hill - Oh my heavens, I left in the car. If anyone could predict what is going to happen, they would be very lucky or wise, but there's just so many factors that come into play that it's really hard to get a good hold on a macro analysis for this. It's just, I think it's a really tough gig. Anyone who says they know what's going to happen is foolish.
Adam Hooper - Yeah, it's a tough one to tell.
Tyler Stewart - Much of what you do is wait and see and then react. When you see interest rates change, how quickly can you react to that? Is that, you wake up the next day and you have a brand new product? How quickly can you react your business to these changes?
Alisha Hill - Well interest rates are something that unfortunately we're all beholden to and it can change in a day. Rates can look different at eight in the morning and to when the closing bell rings. Rates change, that much we know. They will change. We just try to react to that as well as we can. There's just not a lot that we can do outside of bringing in spreads. They are what they are. We have to be ready to adapt to that and not make bad decisions.
Adam Hooper - What does a bad decision look like for a lender?
Alisha Hill - A bad decision looks like when everything is very, very stretched, you're pushing the numbers on all sides. If you're taking risk on one or two items, that's great. That's a good real estate risk. But when everything is stretched, you have to wonder, "Hey, which way is this going to go?" I usually call it the law of three. If there's more than three really glaring risks on a deal maybe it's not for us.
Adam Hooper - What are those different categories of risks that you would lump into those three?
Alisha Hill - A lot of it is metrics. We talked about debt service coverage and debt yield. We want to make sure that those are in line with our guidelines. We want to make sure that our LTVs are, I wouldn't say conservative, but I would say prudent. Sponsors that are looking to over-lever, we have to wonder how stretched they are. Our loans are nonrecourse, so a sponsor's net worth is not necessarily at risk; however, we would want to make sure that a sponsor is well capitalized enough to meet capital calls if things don't go as planned. That's another big one. Loan metrics, sponsor liquidity and experience. The income that the property is generating, The competition that's in the market. If we know that there's a lot of product coming online, that's certainly going to be a red flag for us as well.
Adam Hooper - Okay.
Alisha Hill - There's a lot of things.
Adam Hooper - Lot of things, I think that's a good segue if we have some time to talk about what happens when deals do go bad.
Alisha Hill - Yeah.
Adam Hooper - We've been trying to get someone on the show for a while to talk about what happens when a deal goes bad but I don't know if any sponsors want to admit that they've had these deals go bad but they go bad, right?
Alisha Hill - Deals go bad! We know this. We see things coming out of special servicing and we know that things do not always go as planned. That is the nature of our business. When loans go bad in a typical bank or CMBS scenario, it's real simple. You get sent to special servicing and they continue to monitor the loan. There's a hefty amount of fees that go into that. It's just sort of a nightmare. We have definitely had loans that have had some trouble. Our take on it is you work it out. You figure it out. Like I said before, we have to date, had no loan losses on our books. When a loan goes bad with a balance sheet lender, you have a relationship and you have a plan. You go through the plan. When they go bad with a disinterested third party, they just want their money back and they will take that property. They will either sell the note or they will foreclose.
Adam Hooper - That's where having a balance sheet lender on your side, again, alignment, relationship, strategy, to be able to be flexible and that work out, not just, "Oh okay, it's not performing. We're going to go sell it off or give us the keys,"kind of a thing.
Alisha Hill - In some cases, there's not a premium in spread for going with a balance sheet lender. In some cases, there are. I think going outside of a balance sheet lender, or especially with recourse is just not a risk you're going to be paid for if things, especially if things go wrong.
Adam Hooper - For an investor, an LP investor, in these deals what does that look like for them? Are they going to be involved in that process? Is that still squarely with the manager and the lender to try to work it out? How does the nature of the deal change as an LP investor if a deal starts to go sideways?
Alisha Hill - Largely an LP investor, their primary goal is they want to get their capital back. If things move, they're not going to get the yield that they had been promised but you have a better shot with a balance sheet lender of retaining your principle than in a special servicing situation where they're going to sell it for pennies on the dollar.
Adam Hooper - And so, communications, is the lender ever in direct communication with LPs or that's all filtered through the manager?
Alisha Hill - Oh absolutely! An LP can be part of the conversion at any time. That's a really great point, Adam, is that you'd kind of be boxed out of that in a special servicing situation. If an LP has an interest in the property and they want to talk to the asset manager, fine. Please do that at no cost. It's certainly a more friendly, handholding experience if things don't go as planned.
Adam Hooper - Yeah. Which, again, we're getting later in the cycle, right. Real estate is obviously cyclical.
Alisha Hill - It is.
Adam Hooper - That's thing, knock on wood, we haven't seen any defaults here deals at RealCrowd yet which is good. Things have been good. You would echo the caliber of sponsorship that we work with is certainly something that we take pride in. Making sure that they have the tools and capabilities to work out deals if and when they will inevitably go bad. How do you guys as a lender position yourselves at this stage in the cycle? Do you, are you looking at your underwriting tolerances? Are you looking at the risk profiles that you're taking on? Given where we're at in this recovery? How has that changed?
Alisha Hill - We're just continuing to make smart loans. We're not stretching on any of the metrics. We're making sure that the market sectors in which we are participating are sustainable and that we're just trying not to make bad decisions. There will be loan losses, I'm sure. I don't think any lender can go forever without having a loss. It's important to be prepared for that and not have our heads in the sand thinking that will never happen to us. But it's important that if we're working with sponsors who've made good decisions in the past, they'll make good decisions in the future and they'll continue to work through that with integrity. And hopefully we'll have a good outcome for everyone.
Tyler Stewart - And then from a sponsor that may have had a deal go bad in the past and you're looking at their track record, what do you want to know from that sponsor to get comfortable with doing a deal with them?
Alisha Hill - Well we've lent to a lot of people like that, Tyler. That's not necessarily a flag that says we can't ever do business with them again. However, there will be structure around that to make sure that we're aligned properly if there is a decision to be made. There will also probably be lower leverage so that we're in at a good basis and if things start to go south we're in a position to unwind.
Tyler Stewart - Got it. So a listener perspective, when they invest with a sponsor for the first time, often they may go with an investment closer to the minimum. From your perspective, loaning to a sponsor who may have had a blip in their track record, you would lower leverage as a way to get to know them and get comfortable with them.
Alisha Hill - Yeah, that's what we've typically done and with great success. A lot of people in the last cycle gave back properties. It's just what it is.
Adam Hooper - Bad deals can happen to good sponsors in the market
Alisha Hill - Absolutely, absolutely.
Adam Hooper - To that extent, ya know, it has been a really good market, right? It's been hard to lose money if you bought a deal in 2011, 12, 13? How much of track record beyond sponsors that might not have been through the last cycle. If their track record only goes back to 2011 or 12, do you guys discount that? Do you handicap that? Do you look at that differently than someone that's maybe been around since, 2004 and five?
Alisha Hill - Not necessarily. Some of the groups that we work with are younger guys that have, they've just started their careers and they are entrepreneurial. They see things with a new lens which we find refreshing. No, I wouldn't say that we handicap a lack of having gone through the last market cycle. It can certainly be helpful, but no, as long as someone knows what they're doing and has a good business plan, experience shouldn't necessarily be the only thing that we look at.
Adam Hooper - Yep.
Alisha Hill - These guys are smart. They really know what they're doing and they're adding a lot of value in the market.
Adam Hooper - Good.
Alisha Hill - And they're fun. They're really fun to work with.
Adam Hooper - We can use some new blood in the game for sure.
Alisha Hill - Well, for sure. To dovetail on that, I would say that they oftentimes see things coming before we do. We have a retail group that we work with that understood that these big boxes were not going to work forever and started doing retail centers with smaller tenants, with large drivers to really have an experiential type real estate platform. It's worked really well. I've been amazed with what these guys have been doing.
Adam Hooper - Oh yeah, we just saw the news just the other day, Toys "R" Us closing all their stores, right? That's a huge thing.
Alisha Hill - It's a huge thing.
Adam Hooper - I still want to be
Alisha Hill - I don't think it's... Do you want to still be a Toys "R" Us kid?
Adam Hooper - I do, very much so.
Alisha Hill - Don't want to grow up?
Adam Hooper - No.
Alisha Hill - I'm sad to say that it's going to be, we're going to see a lot more of that. The way that e-commerce is affecting our market will change the use of commercial real estate. It'll change the utilization of commercial real estate. So we're going to have to adapt to that. I'm just excited, actually, by what I've seen with some of these users and investors and how they've adapted to that.
Adam Hooper - On that line, are there any other, I guess, big indicators or red flags that you guys are looking out for? Things that you're watching that might be a sign of bigger things to come? Like this shift in retail. We did a podcast on it last year. Did that change, from kind of traditional brick and mortar to more experiential. Are there other indicators like that, that you guys are watching, that are coming down the line?
Alisha Hill - Well it wouldn't necessarily affect our business. I did recently listen to a keynote speaker who is doing the same thing with car dealerships. Utilizing far less real estate and it will sort of disrupt the market there and that's a huge amount of real estate that could be rendered less useful, moving forward.
Adam Hooper - Like Tesla gong to showrooms, essentially, right?
Alisha Hill - Kind of that same sort of thing. There are a number of things but again, I will echo, the most important thing is interest rates. That will be the driver as to what happens and I'm excited to see how things work out with the e-commerce world. In grocery, it's even interesting to see what they're doing in grocery. A lot of that is going to be automated. So it should be interesting. To see smaller footprints. To see more community like centers going forward. I'm excited.
Adam Hooper - Okay, any closing nuggets for today? Anything we didn't cover that you want to get in there?
Alisha Hill - We've covered a lot, Adam. I'm just so excited to be here in your offices doing this podcast with you. It's really cool what both of our companies have been able to adapt to in this market. But if I could leave any closing words of wisdom, it would be that make sure that if you're taking risk, it's risk that you're being paid for and a balance sheet lender can do a lot to help limit contingent liabilities.
Adam Hooper - Good. This whole concept of risk adjusted is something that we are very big on helping people understand. It is a challenge You're very good at that. For investors out there that don't necessarily have the experience or the knowledge to really look at things on a risk adjusted basis. That's a lot of the reasons why we're doing this podcast and we're so happy that you were able to join us today to shed some light from the lender's perspective.
Alisha Hill - Well I'm delighted to be here. Thank you again.
Adam Hooper - Absolutely. Well listeners, that's all we've got for today. As always, if you have any questions or comments, anybody you want to hear on the podcast, please send us a note to email@example.com. With that, we'll see you on the next one.
RealCrowd - This podcast is brought to you by RealCrowd, the leader in online real estate investing. Visit realcrowd.com to learn more about how we provide our members with direct access to commercial real estate investments. Don't forget to subscribe to the podcast on iTunes, Google Music, or SoundCloud. RealCrowd, invest smarter.