Read the full February edition of Originate Report here.
Capital Fund 1 – Providing Value in the Grand Canyon State and Beyond
Capital Fund 1, a private money lender dedicated to the real estate industry, knows the value of reliability, honesty, accountability, and customer service reaped from decades of experience. Originate Report sat down with Principal and President, Noah Brocious, to discuss the origins of Capital Fund 1’s values, expanding their offices outside the realm of the group’s Arizona home base, and the continuation of service throughout the uncertainty of COVID-19.
Noah, who was born and raised in Arizona, wasn’t always focused on real estate, although he has always been innately driven to succeed. A basketball player at California Lutheran University, he studied business with an emphasis in finance. He credits his time on the court, though, as the impetus that instilled within him the skills necessary to help usher Capital Fund 1 to become the company it is today. Through the years, Noah has drawn many parallels between his time playing basketball and the real estate sphere.
“I think the name of the game is discipline,” he said. “You always have to work a little bit harder than the next person on the court or to make the team. When you know the game, the discipline aspect comes into play, and that relates to the time management components of working on multiple real estate transactions at once. When I was [in school] I had to study, attend classes, and play basketball and that forced me to learn time management; I couldn’t play video games all day when I had to be at the library!”
Another attribute that carried over from the sports realm, Noah mentioned, is knowing when a path (or a play) does not work. Case in point, Noah tried his hand at selling insurance upon graduation, which he quickly learned did not spark the passion he has since found in real estate.
On the heels of the 2008 financial crisis, Noah, along with Michael C. Anderson, the founder of Capital Fund 1, sought capital from friends and family, developed systems and procedures and best practices, and formed the company that exists today.
Speaking to the various products offered by Capital Fund 1, Noah said one competitive advantage of the group is its ability to work on a wide variety of real estate transactions in the group’s primary market, Arizona.
“Arizona has a number of attributes that make it a great location for a wide variety of real estate transactions,” he said. “One specific statute allows for a trustee sale buyer to put down a $10,000 cash deposit on a property when they are the winning bidder and return the next day with the rest of the funds. This is a positive because it opens foreclosure auction properties us up to a larger buyer pool giving us a larger pool of investors to lend to.”
“We work with everyone from the developer to the investor. From fix and flip properties and single-family residential rentals, to working with people on bridge loans until our partners can secure lower interest rate financing, Capital Fund 1 has seen it all,” said Noah. “We work with ground-up construction, spec homes, and land and commercial properties as well – in fact, we have also worked with multifamily developments of five to 50 units. One of the many things that separate us from other the players in this field is our ability to adapt to different transaction types and deal structures to best serve our clients.”
When considering a new project, Noah said it is of the utmost importance to assess current market conditions. If he had known, for example, about the impending housing crisis in 2008, he would have been leerier of single-family homes. Today, with the COVID-19 pandemic questioning the future of in-person office work, Noah said Capital Fund 1 is being ‘more conservative’ when considering office and retail spaces.
This strategic thinking, Noah said, puts Capital Fund 1 in a position far-removed from the naïve and discombobulated thought processes that often plague small to mid-sized real estate operations.
“We take great pride in our organization’s abilities, which are systematized to a degree that outshines a lot of the lenders we compete with. We have 22 full-time employees now, and although most of our competitors are smaller shops, there was a point in time where we were there, too. We have since weathered the storm, grown, and prospered, and we continue to do so,” he said. “We’re organized into different departments, and everyone has their own role, but at the same time, we often communicate between departments to create a more holistic picture of any given deal.”
The reason behind this inter-departmental communication, he said, is because of the fast-paced nature of the real estate sphere – a pace that has only increased during the internet age.
“We keep everything in-house, and we administer our fund with complete autonomy,” Noah said. “This allows us to keep everything tight and moving quickly; we’re not relying on third parties, which we like, and it serves as a competitive advantage for us as well. We can close within 24 hours if the deal requires that kind of expediency. We have lines of credit in place that allow us to move on a deal that may have a barrier to entry for others in the space. Nothing kills a hard money lender faster than the [lack of an ability] to lend because of capital constraints.”
One aspect of the team in place at Capital Fund 1 that contributes to the group’s success is the variety of experience and insight amongst staff members. “I am blessed to have a great team and partners. Kevin Highmark manages our Sales and Marketing team, and Tyler Larson manages the Underwriting, Default, Loan Draw, and REO aspect of the business. Additionally, our founder and CEO, Mike Anderson, has participated in many different aspects of real estate throughout his career, but we also have 3 other senior partners who have a ton of applicable experience in their careers. Mike Lofton is the owner of Loftco, Inc., a framing contractor, Dean Bloxom was a founder of iMortgage a conventional mortgage shop that merged with Loan Depot, and Buddy Satterfield was the former AZ President of Shea Homes.
In the aftermath of the 2008 housing crisis, an abundance of distressed assets meant focusing on other deal structures, such as fix and flip properties. Based on the collective backgrounds of the leadership team, Capital Fund 1 recognized the opportunity and immediately began to cater to the fix and flip market.
“There were always people doing fix and flips, but after the Great Recession, our team really had to expand segments of the operation that may have seemed obscure in previous years. Of course, this was accelerated by factors like HGTV, which really brought ‘rehabbing’ a home into the spotlight,” he said. “With that said, our team did an excellent job of marketing our services to investors that were finding deals and capitalizing on the inventory that came after the downturn. Real estate is always changing, and I think we’re seeing that now with COVID and are responding to that by expanding our operations to different areas of the country.”
Although Capital Fund 1’s expansion into Texas, Colorado, and other markets was not in direct response to the pandemic, he added that the appreciation of property values in Arizona – paired with an increased presence across the Western United States – has been a welcome reprieve from the anxiety of the pandemic’s early days.
“Like everyone else, we got nervous about what was going on in the world, and rightfully so,” he said. “We as a leadership team immediately sat down and had multiple meetings and calls to just talk amongst the partners about a game plan. We had many candid conversations about our thoughts going into the pandemic, and we took stock of our assets, the assets we might have issues with, and what sort of situation we were looking at.”
As the pandemic spread across the country, Noah said Capital Fund 1 began thinking about the long-term ramifications of COVID-19 on the housing market.
“We immediately made adjustments on the loan side of our operation,” he said. “Even though there was much uncertainty in the market, March of 2020 was a record month for us. We had a very healthy pipeline in place, and we have been so fortunate to have healthy partnerships with borrowers. We funded all of the loans we were committed to, which was a huge step in continuing to establish our credibility. We perhaps erred on the conservative side with some of the adjustments we made, but that has to be done when a black swan event like this occurs.”
Noah added that these adjustments, such as requiring prepaid interest on loans and fine-tuning interest rates, could not have been possible without the strategic partnerships Capital Fund 1 has in place. These relationships reap benefits far beyond flexibility during high-stress times like the COVID-19 pandemic.
“We work with a variety of different groups, including our line of credit, and fortunately, we have a great group of investors that includes a number of high net-worth individuals,” he said. “At the beginning of this venture, of course, it was difficult to raise the necessary capital. Mike Anderson who was the one out raising money at the beginning got a lot of “no’s” but he was persistent and was able to raise capital so we could grow. We now have established a track record of reliability and attention to detail that sets us apart. We pride ourselves on our ability to provide consistent returns to our investors, and we pay our investors monthly.”
In addition to consistent returns, Noah added that Capital Fund 1 holds accountability in the highest regard, which leads to bountiful investor relations in the long run.
“One of the constraints of many of our competitors is the difficulty they have raising consistent capital,” Noah said. “We have agreements in place where we help provide capital for other private lenders if they’re in a situation where they’ve got a great loan but a lack of capital available. We continually look for the best ways to offer a robust return for the people in our network. As we have built credibility and a growing network, it has become easier to navigate the ins and outs of building a safe and sustainable portfolio. Not only do the Capital Fund 1 partners have significant skin in the game which makes our investors for comfortable, but we also require skin in the game from our borrowers which makes a safer portfolio and instills confidence in our investors.”
Establishing this track record, Noah said, is especially important in the crowded real estate space.
“We always do what we say we are going to do and deliver news, good or bad, quickly. I don’t know what the exact percentage is, but a majority of new businesses fail in the first two years,” he said. “You have to work so hard just to get a venture off the ground, and many people are under the impression that the work will continue by itself after that. That is certainly not the case. We have two types of customers at Capital Fund 1: the people who have trusted us with their funds and the people we lend to. We have to be open and honest with people – both when things are going well and when we run into kinks, because there’s no replacement for that. You can develop sophisticated models and pro forma projections to get rich on paper, but the people who are actually successful want to work with others, grow the network, and show the competition that they’ve done that.”
This attention to stakeholders from a deal’s introduction to its conclusion, Noah added, has resulted in Capital Fund 1’s expansion to different markets.
“There is always uncertainty in the market, and the current situation caused many people to reassess their position in the marketplace, but what we’ve seen is consistent inventory and healthy demand because of some national measures such as low-interest rates and a desire to move out of traditionally ‘popular’ markets.”
Noah said that the relatively low cost of buying a home in Arizona’s metro areas, (compared to other west coast markets like San Francisco or Seattle), coupled with work-from-home policies that allow professionals to conduct business remotely, are factors that have positively impacted his home state’s market.
“I think the main thing is affordability,” he said. “If someone is living in San Francisco and earning a healthy income but can work remotely, why not move somewhere where you can get more space with your money? Also, we are seeing an increased focus on what our metro areas offer, like a diversified economy, major universities, and great people.”
Speaking to the continued growth of Capital Fund 1, Noah said that it is essential to realize there are many competitors in the private money space. However, paired with this realization is a continued commitment to inject confidence and honesty into every deal, he added.
“Obviously, this space is very popular. There is competition coming in from high net-worth individuals, Wall Street, and institutional money,” he said. “There are some people who may not agree with this, but I think that competition is what makes people better. I love competition, and I love people nipping at your heels because it makes you work harder and be more innovative. With the current situation, we must keep a continued focus on what’s changing, for better or worse, in the market. I believe that challenges, though, can also be opportunities.”
Moving forward, Noah said his team is looking forward to continued expansion into emerging markets.
“The lion’s share of our portfolio is here in Arizona, but we did open an office in Denver about five months ago. We’ve learned a lot from our continued expansion, and we have our eye on other expanding markets,” he said. “We’re continuing to grow, which means that there will be a continued need for capital, but we’re working with our existing investor pool and reaching out to new partners as well.”
When thinking about what has made Capital Fund 1 successful thus far, Noah insisted it is critical to have a talented, well-rounded team in place. Noah added that he knows existing and prospective investors are in good hands as the group continues to grow.
“We have four senior partners, and we have a staff that has decades of real estate experience,” Noah said. “They know the relationships…with investors, and I think we have a strong team in place that has great chemistry and a great vibe. We all love working together, and we have fun along the way while we’re doing it. You can’t put a price on that.”
Capital Fund 1 prides itself on working directly with investors and borrowers, thus cutting the red tape and intermediaries that can often hinder a deal. To learn more about their offerings and loan types, visit www.capitalfund1.com today.