GI101: Financing Your Commercial Real Estate Projects with Blake Janover

GI101: Financing Your Commercial Real Estate Projects with Blake Janover

Blake Janover has more than 15 years of experience in real estate capital markets. Blake has overseen the underwriting and origination of billions of dollars of commercial, multifamily, and residential real estate loans and has advised on many billions of dollars more.

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Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Blake Janover. He has more than 15 years of experience in real estate capital markets. Blake has overseen the underwriting and origination of billions of dollars of commercial, multifamily, and residential real estate loans and has advised on many billions of dollars more. So thank you so much for being on the show, Blake.

Blake:
Thank you for having me.

Charles:
So give us a little background on yourself prior to starting your current firm.

Blake:
Sure. So you know, I don’t want to bore you, but I’ve got, I suppose, more than 15 years experience in the space. And I, I’ve always kind of been at the cross section of real estate finance and technology. When I was there initially, this was in the very early two thousands. So, so technologies were very nascent around residential and commercial property finance since then things have evolved. And I’ve kind of tried to be a part of that the whole way. So originally may original, start was as, I mean really beginnings. I was a residential mortgage broker and then I kind of grew within the company, opened up my own residential mortgage brokerage became a direct lender, got into commercial and kind of went through this whole path in my very early twenties. And it’s just kind of, it’s kind of been a part of my like entrepreneurship with real estate finance and technology. This is just kind of like, this is I’m in this weird place and this is kind of who I am and I’ve been there for a long time and I’m going to be there for a long time. More.

Charles:
Nice. Okay. Well, what is your current from Janover Ventures do and how do you differentiate yourself from other brokers and lenders?

Blake:
I’m so glad you asked. So think of us kind of like, like rocket mortgage, but for commercial real estate for multifamily. Except when I think rocket mortgage, which is a Quicken company, they make loans. And instead of us making loans, we’re kind of matching borrowers and lenders kind of like Tinder, but you don’t, you don’t get laid I think, oh, you might have to, you might have to edit that part out. But I it’s, it’s people go through our folks, go through our portal, borrowers can go into our portal and they have this interaction with a really, really friendly user environment. And we intelligently match them to the right lender and we help make the process a little less painful. So we’re, we, we just started this in 2019 and we tripled revenue in 2020, and we did just shy of a couple of hundred million dollars of originations. And we have, we don’t have a Salesforce, you know it’s, it’s all technology driven.

Charles:
I was looking on your website and you guys really cover, I mean, all aspects of commercial multifamily investing. So is there anything that you guys really focus on or is it just pretty much almost any type of property can be brought through to your system and you guys can find a lender for it?

Blake:
Can you property can come through and we can find a lender for it? I would say that right now because we’re, we’re small. We can’t be the best at everything. So we’re the best, like the best, best right now at stabilized multi-family property over a million and probably multifamily construction over 5 million. But that being said we did everything from $20 million single tenant office construction loans last year through a hundred thousand dollar SBA seven, a loans. So we’re really trying to build a platform that unifies the supply and demand for commercial property finance and make this easier for everybody to transact.

Charles:
Do you guys work with foreign investors or is that on the horizon? If you don’t already

Blake:
We have programs that catered to foreign investors. I just had a really cool call with a buddy of mine. That’s going to go run a, a FinTech that focuses on foreign investors. So I hope that we’ll be having some cool API connection with them somehow in the not too distant future. Yeah.

Charles:
It’s an underserved population of people and investors that are interested in coming here and finding it very difficult or very expensive or both to get involved.

Blake:
Yeah. And a lot of them have to physically be here to do it, and it shouldn’t be that painful. We’re it’s 2021, I think. And you should be able to verify identity and digitally sign. So expect these things on on the horizon.

Charles:
So what does, how does the, I mean, it’s gotten a loan before. I mean, they know how cumbersome it is and the bureaucracy that goes with it, and I know you’ve kind of coined this phrase, I believe, frictionless financing. So can you describe to us the difference in the process let’s say of going to a traditional mortgage broker or lender or working through your firm?

Blake:
Yeah. I’m taking notes right now. So I, so I don’t forget anything. So you said I coined frictionless financing and I want to say that I did, but I stole that like all my good ideas there borrowed it iterated upon, but I was at anecdotally I was at the, I think it was the first leveraging FinTech to grow and compete or FinTech innovation at Harvard business school. And one of my favorite takeaways was that that the role of a FinTech is to reduce frictions and finance. So I just, I, I grabbed that from a professor that was way smarter than me and I, and I reuse it. So what’s, what’s the difference. I feel like I feel like a group great way to, to, to address it might be, might be in this friction framework. So I really wanted to solve for a problem that I had experienced many times as an advisor and intermediary and, and even as a GP and a sponsor, right? So here’s what happens. I have a deal myself, I either call a broker or I call a bunch of banks and then I have the same conversation, 15 times over, nobody remembers what anybody else said. There’s 45 disparate emails going around. I suspended a T 12 to one person. They edited and submitted it to someone else. And, and then, and then the appraiser calls back and the PCA guy calls back and he says, Hey, I need a T 12. And this guy needs a T 12 and there’s 12 T twelves floating around. And, and I don’t know what, it’s not, it shouldn’t be like that. Right. And I’m asked the same question 20 times. And if, and if I’m an individual talking to multiple banks, now I’m asking the same question. I’m answering the same question multiple times. So the first thing that we’re addressing is how do we, how do we make this less brain damage? So we’ve got something that’s kind of like a digital processor, a digital originator. We internally we call it IQ too, but it’s, it’s a simple FinTech portal and it, and it’s, it’s like a Q and a and document collection based on highly contingent and dynamic inputs is, is kind of what’s next in the chain. So when I was, when I was active as an intermediary individually has the spaceship landed? No, that’s okay. When I was very active as well, intermediary, I used to tell the story of, Hey, you know, you need my, my big brain and all my experience because it’s intuition and there’s an art to this. And maybe there is, but what I’ve found is that a lot of our intuition is very basic. If this, then that flows. So if somebody tells me I’m a foreign investor, I know intuitively that I need to find out what your experience is. What’s your net worth? What’s your liquidity, what’s your US-based liquidity. What’s your US-based portfolio? Who are you going to use as a property manager? If you tell me that the property is at 80% physical occupancy, I need to find out what the economic occupancy is. If you, if you, and, and this is getting further into our development, we’re not here yet. But if you, if, if you submit a trailing 12 months, month by month, P and L and the RNM is high relative to the market, because eventually we’re going to be pulling API APIs through pulling on Yardi’s API and, and on Reonomy perhaps in places like that, we’ll know what the, what the market R and M is. And we can say, Hey, do you have a CapEx built into our RNM over here? Because you actually have to break that out, but these aren’t, this isn’t, this isn’t intuition. This is experience and, and data in aggregate. And I feel like, like, I’m like, I’m intuiting these things, but really it’s just, if this, then that, and we’re trying to build that into a beautiful user interface and make it as painless as possible. That was long winded. You should stop asking me questions.

Charles:
No, it’s fine. That’s perfect. Because it’s a, it’s definitely something that I’ve had before is, especially with smaller properties when I’m getting loan amounts under a million dollars, and I’m not going agency debt route, and you’re working with local banks, and it’s the same thing, a small banks and credit unions where you are you’re, you’re talking to so many different people and you’re trying to find a specific product from them and see if they offer it. And it’s very difficult because you get a lot of apples and oranges. Like I’ve spoken to people before and say Hey, yeah, we’re a direct lender. And then I spoke to a, another lender, like a week later and they go, oh, we already have your Zen. And I said, who submitted it? And they go, oh, it was this guy. He’s a broker. And I go and I contact them. They go, I thought you were a direct lender. And they go, we are just not on this property type well information that been helpful to me for a Smith’s you, but you keep on going back and forth through all this. And then if you get to a bank, one of my last times refinancing a property, I was dealing with it. And they put me with someone that had never done that type of property before. They’d never done this commercial property before that I had like done a refinancing for it. So it’s, you know, you’re, it’s not the most, it’s not frictionless, let’s say. Right. And it’s, it’s definitely something that I think when you’re getting more into agency debt, it becomes a little bit more streamlined maybe because it’s easier to get those loans, but I feel on the smaller properties it’s in, I mean, it’s just like a nightmare trying to get financing. If you have a specific idea of, I want a 10 year term or a 15 year term, and I want 25 plus year amortization and all these things, and to, to do apples, to apples where they’re telling you all, this is the rate, well, what’s the spread? What index are you using? So then I can really compare my different offerings and it literally takes you days to do it. And unless you have a broker and with a broker, you usually have to fill a lot of stuff yourself. I mean, it’s, it’s you’re just utilizing a contact that they have. So if I was getting, like working with a credit union or commercial bank, right, I’m going to start this relationship hopefully months before I actually need the money. How does it work with your company? When did someone reach out to you?

Blake:
So the best way is kind of when you’re ready to go, because we take out the months of back and forth with a dozen lenders, we try to remove that brain damage and match you immediately to the right lender. We’re, it’s, it’s an iterative process and we’re getting better at it. Every day. I think also I want to speak to your agency thing and I don’t want to, I don’t want to disagree. I just want to give another perspective. So not all agency lenders are created equal, and this is something that a lot of people don’t realize. So let’s say there’s the Fannie small program. Now, Fannie small releases its guidelines. I’m not going to use lender names, even though I want to, but lender a might make a Fannie Mae, a small loan for $2 million in a tertiary market at 80% LTV, less COVID reserves on a 30 year fixed to a first-time multifamily borrower. And, and at competitive pricing lender, B might not even want to touch that deal because there’s risk sharing, or they might look at that deal, but they might apply Freddy SPL terms to it because they want to, they want to apply more conservative terms to it, whatever it is. So you can have to Fannie Mae lenders that have Fannie SBL that offered two totally different programs. Then you could have a third Fannie Mae SBL lender. Who’s just recently approved with Fannie SBL and all their stuff has to get kicked up to Fanny and approved. And there’s no exceptions everything’s inside a box. And this, this just doesn’t just go for Fannie. Freddie SBL has a different products within its umbrella. One company may have at one company may not one, one bet. One lender may be more incentivized internally to do Freddie SBL than Fannie SBL. Even a Fannie has a better product, or has a product that fits that deal better. And then this goes all the way up, all the way up the product structure, it goes to Fanny dust. It goes to Freddy conventional. It goes to FHA. If you think not all Fanny lenders are created equal all FHA lenders aren’t created equal, and we just closed a $15 million HUD, two 21 D four for a public housing authority through our platform. So we’re really seeing a little bit of everything and there’s room for improvement everywhere. I really believe that we can disintermediate this really fractured commercial real estate finance economy.

Charles:
It does. You’re working with your platform, obviously connects you to the best lender right away. Does it speed up the process? Whereas usually it’s, you know, you’re half you’re a two, three weeks into something, and then there’s another document. Then there’s another document, then there’s another document. And it’s an endless thing until you’ve pretty much sent them everything and the kitchen sink. And is that, are, I mean, how is that differing with, with your platform or is it similar because it’s still the lenders kind of running the show at the end of it.

Blake:
Yeah. Right now where we are the lenders running the show at the end of it. So you have all the initial mess smoothed out, right? You got one place where you’re getting all the information in, in, in, into one spot, you’re getting matched to the right lender. And you’re qualified like initially through that. So as we’re going to work, we’re actually about to launch by the time this is live, we’ll have launched a new round, we’re raising money and we’re going to hire engineers and we’re going to continue to build out this platform because the goal is to, is to make this whole process easier from credit to appraisal, to bank processing. We really want to just get right into the meat of it and make this whole thing easier. I just closed on a residential mortgage and it was like, it was easy peasy and it should be like that for commercial too. There’s, it’s not as complex as it’s sold to be. It’s complex. There’s a lot of variables, but it’s manageable. It’s all manageable. And with technology today it should be solved for. So, so we’re working on that.

Charles:
So what should when investors are coming to you, what important factors of a real estate transaction should they be focused on when I’m taking financing? Cause you’ll have, I know when you’re getting your commercial, obviously there’s less on eyes on the borrower per se, and more on the asset compare to, with residential where it’s all about the personal person. But what does it mean? Like what, what should they be really focused on when they’re coming to you? Whether it’s complete financials, having a good credit score making sure that the property is going to service debt. I mean, is, is there anything that you see that should really be the main focus of investors when they’re reaching out to a lender?

Blake:
Well, for us, we’re really trying to create that catchall. So I’ve got bad credit and a $200,000 loan, or I’ve built a thousand units before and I’m looking for a $20 million [inaudible], but you know, it really differs per deal. So when you’re looking for financing for, let’s say a small commercial or multi-family loan under maybe $500,000, it really has very little to do with the property and a lot to do with you. Do you have good credit? I’m looking at your global cashflow, you get your tax returns. If you’re coming in on the agency side, if you’re looking for a multifamily loan over a million, then you want the cumulative net worth of the sponsorship to be greater than the loan amount. You want the cumulative liquidity of the sponsorship backing out retirement accounts to be generally greater than 10% of the loan amount. you, my personal advice is is to be surrounded by great people, right? And that’s not something that financing requires, but my personal advice is hire the right property managers hire the right lawyers bring in the right partners. And that’s, that’s the stuff that’s really important qualifying for a deal, all of these, all of these things kind of push and pull against each other. I’ve got bad credit. Okay. How’s the debt service coverage ratio. What does your other partner look like? How’s your net worth? Has your liquidity? How far are you from the property? so there’s no one thing I wish there was a

Charles:
No, it makes perfect sense. The, so really it’s having there having your team put together your outside team, your property managers, your attorneys, and if you need to have partners for the deal, that deals that you’re looking at, make sure that you have them to fill out the experience and fill out the net worth kind of portions of a, of deal before they’re coming out to you.

Blake:
I feel like, you know, this stuff better than I do. And I like that. You’re giving me the opportunity to play along. I should be asking you the question.

Charles:
Thank you very much. So what mistakes you commonly see real estate investors make

Blake:
That’s easy. I have a favorite. I have a favorite. I want to give an example. So my favorite, it’s not a favorite mistake, right? Like, I don’t want anybody to make mistakes, but this is the one that like really comes to mind. I’m John DOE my, my parents weren’t creative. And that’s my name. So they’ve named, they named me John DOE and I, and I, and I, I live in LA and I’m looking at deals. I’m looking at my first multi-family deal in my second or my third. And everything’s a two cap. I can’t make any money. There’s every S w it’s it’s miserable and I want yield. I want yield. So I go on LoopNet and I find a 14 cap in Memphis, and I think, oh gosh, I I’m a genius. And they put the deal under contract and I pull the trigger. And the mistake that I think people miss is that returns are risk adjusted. And what you see is not always what you get. So the 14 cap that Marcus and Millichap shows you maybe proforma and may not contemplate all expenses. If you find a real 14 cap you may need to wear a Teflon vest to go collect your rents. And it may not be as easy as you think. And kind of like a second order thing to contemplate is you probably are sacrifice there. There’s a push and pull. There’s a play between yield and long-term appreciation. And you may find that where yield is wanting there may be a greater opportunity for long-term appreciation, whereas where yield is generous there may be limited prospects to and that’s not in every deal, right? Gentrification happens. But it’s, it’s thinking that you’re a genius. And when, when I was kind of taught, if it looks too good to be true, sometimes it is.

Charles:
Yeah. The other thing too, is that when people looking at returns from assets, we’re exiting assets right now, and to be realistic that, well, this portion of the return is because we know what we’re doing. And this portion of it is because we’re lucky. And we purchased three years ago, or we are in the, you know, we were on the, in the water and we call it the wave coming in. It wasn’t because I’m a genius. And I think that people kind of have to break that up. When they’re looking at returns, whether it’s their properties or properties, they might be investing or operators they might invest with in the future that, you know, if it levels out in a little bit coming here, you’re, you’re not going to have that other boost to the return, you know,

Blake:
A little more, it, it, it’s, it’s a little more aggressive to contemplate cap rate compression now than it was three, four or five years ago.

Charles:
Right? No, that’s for sure. That’s, it’s a, it’s completely changed. The other thing too, about your, your Memphis property, when you think you found that 14 cap there, there’s a reason why multi-billion dollar life insurance companies are buying a four cap, a quality property in Dallas. Right? Right. And they’re not buying the 14 cap in Memphis that you felt you were a genius and found that’s been sitting on LoopNet for nine months, right?

Blake:
Here’s another one you didn’t ask, but I just, you know, you’re stuck with me on here. This one’s less funny. So this is, I found a deal and I’m going to buy it. And it’s a six cap and I’m buying it from a person that’s on the property for 40 years. It’s a $5 million deal. This person bought it for a hundred thousand dollars and they’re paying no real estate taxes. They’re paying a five grand a year. Whatever the stupid number is. It’s really important that when you get your, your offering memorandum or your dealer, your package, or whatever it is, you figure out what the millage rate is in that county. What they’re charging for taxes, you, you reach out, you confirm it and you apply that number because even if you’re a genius or a manipulator, or you’ve got connections to the Bob, and you’re able to keep the real estate taxes low, your appraiser, nobody’s going to underwrite the real estate tax number that you think that you’re going to get to, they’re going to underwrite what the, what the conservative realistic scenario is, and that’s going to, and that’s probably where you’re going to end up too. So they’re going to underwrite. So that’s going to change your debt, service coverage ratio. Your cap rate is going to change everything. And, and I see people miss that sometimes.

Charles:
Yeah, That’s the first thing I look at when you’re vetting a new investor, if they’ve readjusted that, and then you look at the rents with what they’re proposing, but the thing is the real estate taxes will tell you. And I think a lot of brokers, I’ve spoken to agree with me that you know, that’s the first thing they’ll look out on the underwriting with someone has adjusted that. And it’s a, it’s makes a huge difference. And it’s something that you know, no matter what your debt is fixed at your property taxes are not. So it’s something that will change over the years.

Blake:
I’ve never seen an offering memorandum where this sell-side broker accurately on the money estimates what the new real estate tax bill is going to be.

Charles:
No, for sure. Obviously they’re, they’re keeping it at at what they think or what it is now currently, but what do you think are your main factors that have contributed to your success Blake, as a human, just as in, you’ve been in your business with all the years and decades of experience, you have being entrepreneurial, being involved with FinTech.

Blake:
Yeah. this is going to be cliche and cheesy am I allowed to shoot? So I guess the number one contributor would be failure. I’ve had more failures than anybody I’ve ever met. I’ve had businesses blow up ideas, blow up all the time. I’m wrong all the time. I’ve run my head into many walls many times. So this failure it kind of creates humility and motivation. I’m not saying that I’m, that I’m humble. You know, it’s, but, but I, I I’d like to be, I aim to be, but it kind of like the second order consequence of the, of the continued failures has been my constant search to learn and get better and improve. So I’m I I’d like to think that I’m a voracious reader. Another way to say that is that I’m a, I’m a bookworm. I study in all my free time. I ask a lot of questions and I forget who said this, it might be mark and mark Andreessen or Ben Horowitz, but it’s, but no, maybe it was Paul Graham, but it’s something like I have strong opinions, loosely held. So I, I think I can accredit some of my success to, I have like very serious conviction towards whatever the heck I’m pointing at. But if somebody’s got like a, a materially better idea or can prove that my idea is wrong, I can pivot without even thinking. I give, I do not care at all about being right or wrong in this context. If I’m arguing with my wife, I, I care about being right or wrong, but in the context of business, I don’t care. I just want to be in the right direction.

Charles:
That’s awesome. Yeah. It’s funny. We went back to about the reading. I had a mentor before that would take off Fridays just for reading. It was very interesting. I’d never heard anybody do that before, but I’m most successful people are, are, are big readers. So that’s great.

Blake:
It’s all day. That’s literally from, from first thing that he, he could read up to four books a day, that guy did he pass one a week. I I’ve got a ways to go. Oh,

Charles:
Wow. That’s still, that’s still fantastic. I tell people to start off with 10 pages a day, that’s something you can easily do and you’ll do a book a month. So that’s fantastic. So how can our listeners learn more about you and your business?

Blake:
Well they can, you can look me up on LinkedIn. It’s Blake Jan, over J a N O V E R. And you can, you can ping me and I’ll, I’ll, I’ll talk. You, you can email [email protected]. I’ll either respond in like three seconds or three weeks. It’s so if you, if you don’t have an instant response, just understand, like it’ll be there eventually. You can visit us [email protected]. That’s not.com or.net or.co it’s, just january.ventures. And or you could just rewatch, or we listened to this podcast because this is, you know, this is it.

Charles:
Perfect. Yeah. What I’ll do is I will put those links all into the show notes, and everybody can reach out to you. So thank you so much for coming on today. Blake.

Blake:
Thank you, brother. This was a lot of fun. I hope you’ll have me again sometime. Definitely.

Charles:
Yeah. After you have those new APIs put and your what’s going on here with your next stage, we’d love to have you back on.

Blake:
I’ll be here.

Charles:
Talk to you soon. Have a great rest of your day.

Blake:
You too. Thank you.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar incorporated exclusively.

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About Blake Janover

Blake is the Founder & CEO of Janover Ventures. He has more than 15 years of experience in real estate capital markets. Blake has overseen the underwriting and origination of billions of dollars of commercial, multifamily, and residential real estate loans and has advised on many billions of dollars more. He is a member of the Forbes Real Estate Council and has been published in many industry journals and publications. Blake has nearly 20 years of experience as an entrepreneur. His work experience spans multinational corporations, cross-continent logistical infrastructure management, software engineering, and he has managed hundreds of employees across multiple countries. He most important job is as a dad and husband and he’s total bookworm, geeking out on everything from technology to economics.

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