Developer Financing with Shane Lex of Anchor Loans
Proto Homes (PH): How long have you been with Anchor Loans?
Shane Lex (SL): I‘ve been with Anchor Loans for 15 years, I received a business degree from Cal State Fullerton with a concentration on real estate finance. I always had a passion for real estate and knew I wanted to be involved with it. But initially I wanted to be a professional pilot and fly full time while doing real estate on the side. I was a flight instructor out of John Wayne Airport for quite a few years, but then 9/11 happened and it turned the industry upside down. I then had the opportunity to come on board at Anchor and the rest is history.
PH: Do you still get the chance to fly at all?
SL: I keep all of my certificates current but I am not proficient, meaning I wouldn’t want to hop into a plane and fly right now. Once I get older and my work life subsidies a little bit, I hope to own a plane and get back to flying again.
PH: What is your role at Anchor Loans?
SL: Vice President of Loan Originations, my time is spent on business development, so a lot of client outreach, investor relations, and overseeing the expansion of Anchor’s origination pipeline. We lend to new construction clients and also to fix n flips, we typically fund over $100 million per month with activity in 47 states plus DC. I also participate in multiple internal company committees focused on growth and improving overall operations.
PH: Who is a typical Anchor Loans client?
SL: Generally it’s the clients that have experience whether it is with fix and flips or new construction. We only lend to entities such as LLCs and corporations that are established by experienced investors. With fix and flip, we are generally looking for experience, decent cash reserves, and the ability to service the loan. With new construction we look at net worth, actual new construction projects sold, and the client’s liquidity position. Again just an overview, we are generally looking for clients that have some experience that want to grow their business through leverage with Anchor.
PH: Why do people choose Anchor over other lenders and options?
SL: One main reason is the longevity that we have had in this space. We’ve been around for 22 years now, and so we have a lot of credibility in hard money lending whereas a lot of the competitors have only been around post great recession. We have had a lot of time to learn how to streamline our process. Our timelines are very fast, we close deals in 7-10 days and provide exceptional ongoing customer service. This is all we do, lending to real estate investors and developers. We have built our company around being process and customer focused.
PH: If an experienced investor comes to you what are the current rates and terms?
SL: With Proto Homes we are mainly working in California, so I will give you the California terms. We can lend up to 85% of the total cost of the project, and our rates range from 8.5% to 9%, and 1.75 to 2 points for an 18 month loan.
PH: What is the process like when a new client contacts you?
SL: So, first we will get them qualified in one of our tiers. We place our clients into a specific tier determined by experience and financials. That’s why I had given that range with interest rates and points, because that’s really dependent on the tier that they fall in. Once the client tier is determined we would move into deal specifics, such as the local market, purchase price, construction amount, building type, and any other pertinent information.
PH: You use the term “hard money lender”, what does that mean?
SL: Hard money lenders are different from a conventional bank. The way we are licensed here in California, we do not have the same regulations that the banks have. There is a lot less red tape with Anchor Loans. The funds for our loans come from high net worth accredited investors, institutional investors such as our majority owner Wafra Capital, and lines from traditional banks. Overall it’s asset based lending with less red tape, higher leverage, and fast funding.
PH: So what is the advantage of working with Anchor Loans compared to a traditional lender?
SL: Flexibility and speed. With less red tape it is easier to qualify. Speed is really important in this game, if you want the best deals you have to be able to close quickly. Try to get funding from a bank, it’s going to take a minimum of 30-45 days, probably longer in this environment. Often the banks won’t even lend for investors buying tear downs, Anchor Loans can come in to bridge that gap.
PH: Do clients come to you for the land acquisition, the construction loan, or both?
SL: So, there are two scenarios where they can come to us for both. One, there is an existing structure they’re planning on tearing down, then we can provide them with both the acquisition and construction funds to start. If there is no existing structure and it is just a vacant lot, there would have to be approved plans and permits in place in order for us to lend on that acquisition. For a vacant lot with no plans they would have to pay cash for the land, or get a land loan, and once they get approved for the permits Anchor could provide a construction loan.
PH: What market trends are you seeing?
SL: Overall we’re getting feedback from investors and developers that the real estate market is very robust. We’re hearing about a lot of markets being seller’s markets, demand is being driven by record low mortgage rates and also very low inventory. We are hitting record highs this year in many markets. Of course, there are going to be submarkets and micro markets that may not be as robust, but in general we are seeing a positive outlook for the market.
Another trend we are seeing is an increase in demand for single family homes in suburban areas and even secondary markets. Individuals and families are looking at outlying areas away from the downtown regions. With the pandemic these areas may feel safer and considering that a lot of people can work from home now they have less concern about long commutes.
PH: Are you a real estate investor outside of your work at Anchor Loans?
SL: Yes. I have a fair amount of experience on the fix and flip side. I also have my own personal rental portfolio that I have developed throughout the years. My entire portfolio is here in California.
PH: What are some common mistakes you see investors and developers making?
SL: I would say growing too quickly, not recognizing that scaled growth is important. They leverage themselves too much to the point where they can’t handle managing projects and managing the debt. Especially if you’re doing bigger projects because, as we’ve seen what’s happened post COVID, when things change and it takes longer to get the permits, or other things of that nature, if you’re carrying a lot of debt and overleveraging yourself you won’t make it. I think that intelligent growth is extremely important. Everyone wants to grow their business but it is best to grow slow and steady.
PH: What is your experience working with Proto Homes?
SL: We’ve had an exceptional relationship with Proto Homes. We’ve been a partner on both directly developing projects and as a lender. We are true believers in the Proto product. The main advantages I see with prefab technology like Proto Homes are the speed to build as well as lower construction costs. If you are able to leverage your deals with a partner like Anchor Loans, get the deal done faster, and save cost on the build your potential return on investment is going to be much higher.
PH: Can you talk about the draw schedule for a Proto client that is working with Anchor Loans?
SL: We look at the Prefab Loan exactly the same as regular stick built financing. As far as the structure and the terms it is all the same. The main difference is that the first portion of the draw schedule we will be paid Proto directly because the house is being designed, permitted, and then built in the factory. Once the components are delivered on site, and the developer takes over, we’re going to be releasing the draws to the developer.
PH: Thank you for your time today Shane, any closing advice for someone new to real estate investing?
SL: I would say finding a mentor is the best way to start. Learning from someone with long term experience and knowledge is essential. Your ultimate goal should be to develop a team around you to help scale your busines. That is my advice for everyone, surround yourself with experienced professionals and learn from them and translate it in your own business.
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