Read the full Originate Report August edition here.
Providing professionally managed portfolios of real estate loans to institutional investors is what AlphaFlow does best. With offices in San Francisco and Austin, the tech-driven investment manager partners with non-bank real estate lenders around the country who provide 6 to 12-month bridge loans on single-family and small multifamily properties.
The group utilizes software and technological know-how to streamline and automate the notoriously slow-to-adapt real estate sphere, and by leading with technology and analytics, it is the first company with the tools to make the fix-and-flip industry available to investors at scale and quality. Originate Report discussed the importance of this forward-thinking mentality with AlphaFlow’s CEO, Ray Sturm.
Thinking back to the early days of AlphaFlow, Sturm said his background on Wall Street – paired with his parents’ real estate experience (Ray’s mother owned a mortgage company, and his father was a hard money lender) – informs the way he approaches business and weathers the highs and lows of real estate markets.
“When I was working with my parents, I was learning through osmosis,” he said. “I started looking at real estate from a business standpoint and realized that neither side of the equation knew how to talk to the other. I had the ability and enough experience in the startup world to get into the trenches and translate between both sides – investors and borrowers – and AlphaFlow has been built on that mindset.”
Ray said that part of what makes AlphaFlow successful – not only from a deal flow standpoint, but client solicitation and retention as well – is relentless attention to detail and complete understanding of the hours it takes to prove yourself in a crowded space.
“There’s no shortcut for building trust, and there’s no shortcut for building relationships,” he said. “We’ve got one power grid, and you trust that when the switch is flipped, the lights will turn on. Our industry, to a certain extent, doesn’t have that level of trust. If you can be there for a lender in their time of need, you establish a level of trust that allows for the facilitation of deals to be shifted more in your direction.”
In addition to trust, Ray said it is critical to understand the players in any given deal. For example, when thinking about local hard money lenders, he said that many local lenders have built their businesses off of long-term relationships and flexibility, offering what they can to borrowers in good standing. Wall Street, conversely, views transactions through a calculated lens and has less of an issue moving on if the margins are better elsewhere.
“What that means is that these cultures don’t necessarily jive with one another,” he said. “What my job is, and what I believe AlphaFlow has been successful in doing, is getting everyone in one room and having that sense of understanding across the table, even if there was distrust beforehand.”
Since the inception of AlphaFlow, Ray said he has witnessed shifts in the types of properties and deal structures that garner interest. Although he said this is natural given institutional trepidation in the aftermath of the financial crisis, he added that how lending itself is viewed has changed.
“I think what’s changed over time is that the space got more attention, and more hedge funds started to enter the space,” he said. “Lenders got more sophisticated, and if not more sophisticated then more comfortable with talking about what needed to be done, what rates needed to be achieved, and so on. What we did two years ago was flip the business on its head.”
The way AlphaFlow accomplished this, Ray said, was by shifting from an investor mindset – or a counterparty to lenders – to an extension of lenders. Another attribute of this shift, he added, was the need to think like a lender, to ‘get into the canoe with them’ and become a better partner by servicing and anticipating their needs.
“We’re continuously growing, and we just opened an office in Austin,” he said. “We’re expanding into these markets and focusing on building relationships and focusing on the technology behind those relationships because, at the end of the day, the simplest way to grow deal flow is to listen to what the market and its players want.”
If you would like to learn more about AlphaFlow, visit alphaflow.com.