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Bart Quillen
Age: 50
Title: COO, Stage Point Capital
Industry experience: 19 years
Following the financial crisis and the implementation of the Dodd-Frank Act, the demand for moderately-priced housing was on the rise, but contractors and investors could not secure financing quickly enough to do renovations. Seeing the void, longtime entrepreneurs and real estate veterans Whitney Quillen, Bart Quillen and Dan Schneider launched Stage Point Capital.
The fund assists local investors and contractors to meet demand in Rhode Island and Southeastern Massachusetts by renovating the area’s ample supply of old working-class housing. The fund can act on loans within 24 to 48 hours and typically lends amounts between $80,000 and $400,000, although the fund has made $1 million loans on occasion.
Since launching in 2014, Stage Point has lent more than $40 million to 120 local investors, most of whom are contractors, to help them renovate over 250 single and multifamily homes. Banker & Tradesman caught up with Bart Quillen, Stage Point Capital’s COO, to discuss the fund and its progress.
Q: How did you come up with this short-term financing idea?
A: After the Great Recession, everyone was dealing with the regulatory regimen that followed through Dodd-Frank and so on. The feedback we heard everywhere was how difficult it was to get liquidity for small companies. If people wanted to buy something, it was certainly going to take them longer than it had before, at least in those first few years after 2009. Whit started doing some formal looking around, trying to find markets near New York that would lend themselves to the practice of starting a direct, non-bank lending business.
A colleague of his who used to use to work with him when he was running a small investment bank in New York started talking about Rhode Island and Southeast Massachusetts. He wasn’t talking about Boston; he was talking about Brockton, Plymouth, Attleboro and Providence. These were smaller cities with a very, very big, dynamic base of entrepreneurial tradespeople in contractors and real estate investors, who are not just flipping houses but holding properties because they were just totally under financed and under banked.
Q: What is the housing market like in Southeastern Massachusetts and Rhode Island?
A: It’s not Boston and it’s not New York. The market has certainly gotten a little frothier since we started, because I think we all agree we’re probably later in this economic cycle. But in these smaller markets, if you look at the yield on equity, the properties were so attractive because the yields are so much more favorable than pricier markets with higher rents.
The second consideration was for the people flipping the properties. In terms of the equity and appreciation, there was certainly a lot more room when you’re talking about buying and flipping a property in Plymouth, Woonsocket, Providence and Cranston. There’s a lot more price appreciation when you’re starting at a lower base and when it hasn’t already appreciated so much. That also translates into less risk for us instead of betting on high-priced properties in high-priced markets to appreciate.
Q: Stage Point makes financing decisions in 24 to 48 hours. How are you able to do this?
A: So that’s an important distinction between our kind of lending and the traditional model of banks. We are investing in an asset model. We’re looking at the underlying value of the asset; we’re not getting into the weeds of our borrower’s credit. This makes a world of difference to our borrowers, not simply because they’re not disqualified because of a credit consideration, but also in terms of the time required to vet a property. When you do the credit, you’re relying on a third party and you have to get permission. We just look at the asset and we have boots on the ground so the same day that somebody is asking us about a property, if we need to see it, we can see it.
We typically do not need to look at properties because we have data that goes back to about 1990. We can look at what earnings power has gone into a certain neighborhood and that’s always an important consideration. I’m not trying to say we use the most sophisticated model in the world, we don’t have to, we just have to be sure we have a good idea of what the property is worth, and whether it’s overvalued or not.
Q: Do you think we will see more of this model that you’re using in the future?
A: I think there’s a lot of room for more people in these markets because there’s a large demand for this kind of product. I mean, what do borrowers value? They need a quick response. If we look at the banking sector, I don’t want to beat up on the banks because they’re just complying with a whole lot of new laws and compliance, but they are also large organizations trying to make their operations work over huge geographic areas compared to a small little business like ours. They can’t work as quickly.
They cannot meet the response for capital, not just for buying a property, but for funding construction. That’s just very hard to do even for other private lenders. There’s a huge demand there and if the market works, you’ll see more people trying to come in and supply that demand by meeting the need for quick capital and capital for construction. Now there’s some barrier to entry there because it’s riskier to deploy capital for construction, and risk is always a big part of the property.
Q: What are the company’s plans for the future?
A: There’s still huge room for us to grow. We haven’t tapped out Rhode Island, which is relatively small compared to Massachusetts, and we see opportunities in New Hampshire, Connecticut, New York, New Jersey and Pennsylvania. But our goals are to continue to grow our business locally and try to deliver the same kind of service in terms of having clear direct communication between us and our borrowers.
A reputation has formed for there being an asymmetry in information between the private lenders and less sophisticated borrowers because they’re the lender of last resort. But we are obsessed about delivering a sense of trust, communication, professionalism and a real relationship with the borrowers in an area that has traditionally been underserved. The Portuguese- and Spanish-speaking markets have been a great surprise for us. We look forward to serving these communities even more in the future. They really have a great work ethic and are entrepreneurs in their communities. That’s been our experience and when we talk about building relationships and trust and serving in these communities, those specific communities stand out.
Five Things Residential Property Investors Should Consider Before Applying for a Hard-Money Loan:
- When budgeting, think about the work you don’t know you need.
- Include your carrying costs when calculating your cash needs.
- Time is money. Be conservative about your rehab schedule.
- Think of relationships, not transactions. Follow the Golden Rule.
- Don’t rely solely on market comparables when valuing a property.
