Episode Transcript
[00:00:00] Speaker A: Welcome to a place to Call home. I'm your host, Ed O. Bridgman, electrical engineer, developer and founder of EOB Consulting. Today I'm exploring how innovative RV destinations are redefining modern living. You're watching now Media Television.
Hello, my name is Ed Bridgman. I'm the owner of EOB Consulting, also Homestead RV Community, the most technologically advanced RV destination in the world. And your host of EOBC podcast here today with a good friend of mine, David Nayer. Thank you for being with me, David.
[00:00:38] Speaker B: Thanks for having me, Ed. And Happy New Year.
[00:00:40] Speaker A: Happy New Year to you. And please tell everyone who you work for and what you do. And I consider you an industry expert in your field of banking. But tell. Tell the rest of the world what it is that you do.
[00:01:00] Speaker B: Happy to. Well, I work for a company called 44 Business Capital, which is a division of Beacon Bank. And Beacon bank is actually a newly formed entity which combined two banks, Berkshire bank and Brookline Bank. And we are a $24 billion Northeast Regional and we're publicly traded. The ticker is BBT Boyboy Tom.
And we do all kinds of your traditional banking services and lending and, you know, both on the commercial and retail sides.
[00:01:44] Speaker A: So I have personal experience working with you.
David actually funded my original loan with Homestead RV Community, allowing me to develop Homestead RV Community.
That was about six years ago because we'll be open now for five years in a couple of months.
So we must have started that loan process at least six years ago, maybe a little more.
[00:02:14] Speaker B: Yeah, it certainly was before COVID And I gotta tell you, that was an exciting project that was ground up construction of an RV destination in Alabama.
And we're, you know, as I mentioned, a Northeast regional bank. So we had to do some.
We had to get, you know, we had to download your knowledge, Ed, of everything that had been in your head. And I know that you had been working on this project for many years before we even met.
We had to download your knowledge to make sure we understood everything that you wanted to do.
And it was fun watching what was a piece of vacant land become this just beautiful, beautiful RV destination where your customers are enjoying it today. And we were just happy to be part of your. Your project.
[00:03:12] Speaker A: Well, not just part of it, but David Nair and Berkshire bank at the time was an important, intricate, absolutely essential part.
Homestead RV Community would not have happened. And I can say that with a lot of confidence because I went to 22 banks, I spoke with 22 different investors. I talked to people about giving them equity, lots of Equity in exchange for helping me get started. And I was new to.
I never owned an RV destination before I was an RV consultant, but I had never owned one myself before. I currently I am the only RV consultant who outdoor hospitality consultant that owns an RV destination. It is extremely difficult to do and David trusted me. I'm not 100 certain how I won him over, but David put his faith in me and we worked on it together for almost a year I think before we, we got it all finalized. But, but David, through Berkshire bank funded Homestead RV community. Thank you.
[00:04:33] Speaker B: Yeah, you know, thank you Ed. I.
It kind of goes to show that in the banking industry one size doesn't fit all.
There's banks that have different appetites for different. Whether it's a certain industry or the stage that the business is in. In your case it was a startup with construction and we happen to be comfortable with that.
But not just that we were comfortable with you, Ed, because your business plan was top notch.
You knew the direction of the company there wasn't of the business and what you needed to do to get it up and running and through the ramp up period and through to profitability.
And it was apparent within your business plan when we looked at it. So that's where our credit team was willing to make the bet and the bet was on you and we bet on our clients and then we, we put, you know, our support into place to make sure that you, you can get up and running. So you know, that was a. Even though, you know, through, through construction you've got, you know, all kinds of curveballs and you know, things that, that come up during, during the process.
It was a pleasure and like I said before, seeing your vision come to fruition and from the renderings of the property to the actuality and I had the good fortune of coming down and seeing the property. It was just beyond my expectations.
And we really enjoyed working with you on that project.
[00:06:30] Speaker A: Well, obviously I enjoyed working with you. To be clear.
We had a year long process of getting the loan ready and done and then I had almost a year of development and then a year later I was hosting the investor introductory conference that I do each year. And that was the first time that you and I shook hands. That was the first time that we had seen each other was during the investor introductory conference a year after we were open. You guys went through with the whole loan without ever shaking hands or actually physically walking on the property.
[00:07:15] Speaker B: You know what's interesting about that? And I was, you know, when you think about kind of where our Industry has been and where it's going towards, and maybe Covid pushed us in that direction. But it used to be that banks and lenders, especially banks, primarily funded clients that are in their same state, their region, maybe even their, their town or county.
And technology has changed that, you know, both in meeting clients as well as analyzing a business, a geography and, you know, an industry.
What used to be kind of in quotes, know your customer, it still holds, and you can still have the personal touch. And we had countless, you know, zoom and online meetings and calls, but you can do it across state lines. So, you know, this Northeast, you know, regional bank was able to, to fund your project in Alabama.
And we fund projects in all 50 states and, and, and, and other regions as well, so U.S. territories.
So it's, it's interesting the, the, the, you know, what's happened over the last five or ten years with still feeling confident and comfortable with a business that may not be right in your backyard.
[00:08:48] Speaker A: And I do want to focus more on that. I want to circle back to that because my clients are all over the United States.
And you're in a position to help clients that are not only in the Northeast, but obviously in the south, where Mobile, Alabama is. But you're able to help clients all over the place. And I certainly want to talk about that. But, but right now I'd like to explain that we broke ground. We. We got our loan funded on March 9, night 2020.
And the reason why that's funny is because March 12, Covid was announced in 2020, and all of a sudden, the world was different just three days after we were funded. And so I remember that I was called by my general contractor and by my primary subcontractor, who was the, the dirt mover, who was. I was spending over a million dollars with the person who was going to scrape off the organics. And we actually raised the property two and a half feet. And so, you know, we were, we were spending a lot of money with him, and he called us and said, everybody is, Everybody's pulling their jobs. Every. Everybody is canceling their jobs, and what are you going to do? And I said, I've got my funding. You know, Berkshire is supporting me, David is on my team, and we are ready to move forward. And he said, thank goodness he. He could stay in business. He gave us 40 dump trucks assigned to Homestead for 28 days. That's all.
40 drivers with 40 dump trucks, two excavators, two huge bulldozers, a water truck.
All this equipment was just assigned to Homestead because All of his other jobs had gotten pulled, but I had my funding and we were ready to move forward. So it was amazing to see the
[00:11:10] Speaker B: progress so quickly, you know, and as we kind of rehash that timing or that time period, I remember having multiple conversations with you. And not only was there concern about kind of the construction during that period, but what was going to happen when you got your certificate of occupancy and could open your doors, you know, and open your. Open your gate to.
To your visitors.
And I remember having those conversations. And, you know, certainly we couldn't. We couldn't change things that, you know, were happening in the world. But, you know, I'll throw a question back at you.
How did you feel at that time with this major, major.
The pandemic happening, knowing that you were going to be opening your doors?
And what actually happened with the pandemic? Was there wind at your back with RVers and people coming to your site?
[00:12:16] Speaker A: Well, it's very easy five years later to look back and say I was brilliant or something. And I anticipated the RV industry exploding as it did.
But the truth of the matter is, in 2020, there was some hesitation.
Obviously, the future was unknown and how Covid was going to play an important role in the rest of our lives. I mean, was this going to be the apocalypse? Was people going to be dying in the streets?
That was unknown in March of 2020.
But as a. After a few months and we realized that most people were recovering from this pandemic, and because of the new way people were working from home or remotely, the RV industry just blew up and grew fantastically. It was a great position to be in at the right time.
We actually opened in March of 2021. We got our certificate of occupancy.
By October, we were paying all of our bills from the income generated at Homestead RV Community.
And in December of 2021, so just eight or so months after opening, we hit 100 occupancy at Homestead RV Community.
We have never not been able to pay our monthly bills from the revenue stream that was generated during that month since October of 2021.
So we've been making nothing but profit since then, and we're very, very happy. We're. We're getting ready to expand. As a matter of fact, we've been talking about that for a little while. So we're getting ready to expand. So, yes, it was certainly successful for me, being in the right place at the right time.
[00:14:31] Speaker B: Excellent.
[00:14:34] Speaker A: We'll be right back with more insight into designing communities that combine freedom profitability and purpose than stay tuned.
And we're back. I'm Ed O. Bridgman and this is a place to call home on NOW Media Television. Let's continue this conversation.
So now I want to circle back.
How can you and your new bank entity support my clients around the nation?
What are, how can we help? How can, how can you help us?
[00:15:12] Speaker B: Yeah. Well, I think maybe a quick overview of what we do and the products that we offer could help.
So we make loans to small businesses and the group that I'm part of within the bank is primarily government guaranteed loans. So that's SBA and USDA loans. And both loan products are available for U.S. citizens.
And the U.S. government has created just a fantastic product or products through SBA and usda. And I'll talk about SBA primarily. But for a quick primer of SBA loans, the lender or the bank, in my case, the bank makes the loan and we apply for a guarantee from the U.S. government. And I'll tell you that through my travels and talking to bankers, you know, some of which are in Canada and other countries, the SBA program is the envy.
You know, bankers and borrowers are amazed by the SBA program and I'll tell you why.
The program is essentially zero subsidy, which means that your and my tax dollars do not pay for the program. So in that regard, it has been bipartisan for over 70 years and supported by both sides of the aisle. Because really what happens is if you want a loan, and in your case you receive an SBA loan as part of the loan package, there was an SBA guarantee fee, and that guarantee fee goes into the sba, into the administration of the program and towards a loan loss reserve.
So in that regard, it's pay to play. So those who are utilizing the program pay into it and it supports the program instead of canvassing the entire citizenship of the United States for tax dollars.
So it's an amazing program.
And what that allows lenders to do, because they're getting that guarantee from the government, it's typically on a percentage of the loan amount.
It allows lenders to get more aggressive on loans they may not have done or definitely wouldn't have done conventionally.
So again, it may be the industry, it may be the loan type, it may be, in your case, it was startup and construction. We're basing the repayment of the loan on your projections so that that is available to all U.S. citizens.
And it's again, it's just a fantastic program and we're happy to be a part of that program, we are a preferred lender, which means that we underwrite, approve, close and fund the loans.
We do have to use prudent lending practices as well. So we may apply credit parameters across our loans, which are in addition to the parameters and the standard operating procedures that the SBA requires us to adhere to.
[00:19:04] Speaker A: Okay. So in layman's terms, if I were to default on my loan, not be able to make my payments, the United States government would make some of my payment for me.
Well,
[00:19:21] Speaker B: if you were to default on your loan, there may be certain things we can do to try. And you felt that there's still, and you. And we felt there's still a viable business there.
We may be able to make certain accommodations to help you get through a difficult period. And that is also a great aspect of SBA loans where there may be a deferment period or we can extend the term or amortization of your loan.
But ultimately, if the loan failed, yes, the government would come in after we've tried to recoup our collateral or as we're looking to recoup our collateral, and they would, they would fund on the guaranteed percentage of the loan. So that, that kind of safeguards us as the lender and again, it allows us to get more aggressive and lend to business, you know, certainly viable businesses and, you know, great businesses that, that may not be able to get a conventional loan.
[00:20:24] Speaker A: Okay, I don't want to dwell on the negative part very long, but there is a, not a penalty but a pay to play. You, There's a, there's a percentage of the loan that goes towards the SBA portion to help the SBA with their administrative cost and in the event that there is a loan someplace that fails. Right.
So do you have any idea what the percentage of loans that have to use the, that fail safe? Do you have any idea how many.
[00:21:05] Speaker B: Yeah, so there's the SBA tracks, you know, by industry, by NAICS code. They, they, they track failure and charge off rates through FOIA request, Freedom of Information Act. You can see all, all failure and charge off rates.
I don't want to speak out of turn, but it's typically pretty low. We have seen an increase, increase of defaults over the last couple years as we've seen rates increase.
So now that we're in a kind of a rate cut environment, that's certainly alleviating some of the pain for, for some of our borrowers. But yeah, the there, there is that that metric is tracked on, on the kind of the failure rate of, of Loans within the, the SBA loan pool.
[00:22:12] Speaker A: Yep.
So I assume as the failure rate increases, the scrutiny used to determine who we're going to give money to increases.
But as we are now coming into a interest rate reduction period, hopefully there will be fewer loans that fail and hopefully that will allow banks to be a little bit more aggressive and fund even more loans that they might not have funded last year.
[00:22:51] Speaker B: Yeah, look, I think there's always this natural progression of credit tightening and loosening cycles and there's a lot of components that go into, you know, credit tightening or loosening, you know, certainly default rates is one of them. Other, you know, other kind of economic influencing, you know, influences will, will go into, into those cycles.
SBA is somewhat counter cyclical in that as credit tightens and banks and lenders are less willing to make conventional loans, SBA is, is there to, to help. Now that doesn't mean that we'll, we wouldn't also tighten our credit box to make sure that we're making good, sound loans.
But it's more likely that a deal would be SBA kind of an SBA have an SBA focus in a credit tightening cycle because banks and lenders are less willing to take full balance sheet risk with a conventional loan.
[00:24:06] Speaker A: I didn't preempt you with this question and you may not have the answer off the top of your head. I apologize. But do you have any idea what the fail rate is for my outdoor hospitality industry, RV parks in particular? Do you just happen to know that or is that an unfair question?
[00:24:29] Speaker B: I don't have that information offhand, but I, I can certainly get that for you and, and you can, you can share it with your, your clients.
[00:24:38] Speaker A: Okay, that would be interesting to know. Okay, so let's, let's shift now to more positive aspect part of it. But, so let's say one of my clients, I, I introduce you and I've done this in the past. I've introduced you to clients of mine who have good projects that I have done a feasibility analysis on and I think they're going to have a good return and it's a solid investment. So I'll introduce them to you.
What are some of the next steps that that would, that the two of you would go through in order and, and give me an idea of the time frame and the steps. What's the process?
[00:25:20] Speaker B: Yeah, so I always like starting with an introductory call and to make sure I understand the vision, the project.
It's a time to ask certain somewhat leading questions to make sure it's SBA eligible or USDA eligible.
I try and understand the goals of the client and make sure that we're going to be able to, you know, offer the right product.
Um, and if we can, we certainly would make recommendations on, you know, other funding sources if, if they're available.
But that, that call is really important just to get to know each other, understand where they're at in their process.
They may be not even, they may not even have, you know, when we first talked to you, you already owned the land for years.
So and you would, you know, you would already done architectural and engineering. And so you are way ahead of a lot of clients. And, and prospective borrowers that we speak with.
Sometimes they're, you know, this is just a kind of a dream for them. They, you know, they, they're, you know, they're, they don't have land picked out, they haven't negotiated. So it's, that conversation is very different from, you know, someone further along where they may have done the architectural, geotechnical engineering on the property. And we could say, okay, that's, now we can start talking numbers. What are your project costs look like?
And we can give guidance on certain things that we're looking for within a business plan, within projections, within understanding the overall project. Now we also like having a discussion around things that we layer into the financing package that are very important. For instance, and I'll just give an example, a construction contingency.
A lot of borrowers who haven't been involved in commercial construction don't think of a fail safe and lenders do. We always think, what's, what could go wrong and how do we solve for that and how do we solve for that upfront? And one of the ways we do that is through construction contingency. It used to be 10 or 15% of the hard cost of construction. Now we're actually including a 25% construction contingency. And what I mean by contingency is it's a bucket of funds to use if something in the project goes sideways.
Maybe the general contractor didn't budget for a certain item, maybe we start digging in the ground and there's some geotechnical issues that were unearthed that we need to handle. Literally.
Literally.
And so we have this bucket of funds that we could utilize.
When we run into problems like that, it may be that Ed Bridgman, you know, wants a $15 tile instead of a $7 tile in the community center. And we can say, you know what, construction is going great.
We've got this bucket of funds. If you want to use some extra dollars, then, yeah, let's go, let's, let's do it. And we've got that extra bucket of funds now at the end of the day. And in your case, we didn't use all of the construction contingency, so we actually ended up capping down your loan. So you weren't paying interest on that money.
So that's just one example of kind of an early discussion to have to say. Here's some protections that we're going to put in place for you. Here's some, some things to think about as you're putting your plans together for this property. And I, I think hopefully it's, it's helpful for your clients and, and our prospective clients as they're, they're going through the process of developing their, their project.
[00:29:51] Speaker A: Well, absolutely.
So they would contact you, you would have this opening discussion, you would have further discussions and drill down so that you understood the scope of their project or their vision of their project.
And then there's obviously some forms to start filling out that your team provides.
What is the, some of the time frame of how, from, from the initial discussion, the initial contact till getting deep into the loan. How much time are we talking about?
[00:30:31] Speaker B: Yeah, so I like to think of the time frame in three phases. The first phase is origination. We're doing some, some, some information and document collection, enough for us to start thinking about a loan structure and to ultimately work with my credit team or our credit team to structure a loan and propose a loan to the prospective borrower. And that kind of sets the tone and understanding of what the loan could look like, will cover things like how much equity we need into a deal, you know, you know, what the loan terms and interest rates would look like. And that's phase one so that, you know, your client can understand what the loan's going to look like, what the payment's going to look like.
We certainly would want to see their projections and understand that and their business plan at that stage.
The second phase is a deeper dive, and that's the underwriting phase. That's where we're dotting I's and crossing T's, working with the client to pull in the loan documentation applications, SBA documentation, working with the GC.
Maybe they're in the bid process with GCs, getting to understand the strengths of the GCs. And we do a vetting process with GCs. If it's a construction project, we're peppering in longer lead time items so that the client can start working on those items. But the end result of the underwriting phase would be a commitment letter.
And that commitment letter is binding. It'll be conditional. There may be things that have to happen before we close the loan, but that, that is a commitment from our bank to lend. Now we may be ordering third party reports during that phase, which would be appraisals, environmental site assessments.
So we're trying to knock off our due diligence during the underwriting phase to make sure that we understand the loan.
And then the third phase is closing.
We would, we would collect additional documentation.
You know, since we've been talking about construction, if it's a, if, you know, if it is a construction deal, we would be finalizing the GC contract, the general, you know, the contract that the client has with the GC insurance binders, you know, and preparing loan docs to get to the closing table.
So that's the third phase. And at the end of that phase, we get to a closing where we initially fund the loan. If it's a purchase of an existing facility, then we're funding for the purchase of that facility. If it's construction, then we start the construction funding, which we're not going to fund the entire loan. Now that process could take a couple months. It could take, you know, it could take six months, eight months. It really depends on where the client is in their process.
You know, construction always takes longer because we won't close without, you know, full permitting.
If it's an acquisition of a property, that could certainly happen a lot quicker because we won't have that, you know, the third party aspect of a, of a general contractor being involved.
So it really depends. You know, we also do, you know, sometimes we, you know, it may be an RV destination and there's, you know, a partner wants to buy out another partner. We can, we can look at transactions like that as well.
So it really depends on where the client is.
I think, you know, at a minimum you're looking at a several month process, you know, from that initial phase one to closing the loan and then, you know, depending on, you know, additional aspects of your transaction, you may be looking
[00:34:52] Speaker A: at longer, several months to even longer.
[00:34:57] Speaker B: Yeah, I think that's, you know, I wish it really comes down to an individual transaction, but, but yeah, the minimum, it's, you know, you're looking at a couple months process. Yeah.
[00:35:12] Speaker A: We'll be right back with more insight into designing communities that combine freedom, profitability and purpose. Stay tuned.
And we're back. I'm Ed O. Bridgman, and this is a place to call Home on NOW media television. Let's continue this conversation.
Well, one of the advantages, a huge advantage of owning Homestead RV community, being the only consultant in the United States that actually owns their own destination is my firsthand experience.
And when working with the construction loan with your. With you and your bank, I fought very hard for my general contractor because he was a good friend of mine, or so I thought at the time.
And I. We argued back and forth. He didn't really meet your desired criteria, and I fought for it. And, and I worked hard because he was a friend of mine, or I thought he was.
And looking back, I made a huge mistake.
You and your bank was smarter than I was and had more experience than I did at finding the correct general contractor. And it ended up costing me a lot, the things that I'm still paying for, because a unethical general contractor, such as the one I ended up with, can only work with unethical subcontractors.
An ethical subcontractor can't work with an unethical general contractor because they. They don't bid the job correctly. They don't. They don't want to do the work correctly.
So you end up hiring an unethical general contractor, you're going to get a whole list of unethical subcontractors who are going to create issues that you're going to have to deal with afterwards. And so I wish, looking back, that I had listened more to your sound advice and gone with a different general contractor.
The. The bank was correct. And even though I thought this guy was a friend, he turned out to be playing the long con and not doing me very well.
So it's cost me a lot to re. To fix and replace a lot of items that weren't built correctly the first time. But fortunately, Homestead has made enough money that I've been able to do that.
[00:38:07] Speaker B: Yeah, look, I think it's a. It's a tricky position to be in, in your shoes because you want to hire someone you trust. And I know that you had a relationship with this gentleman, but we just, through our experience, we've seen pretty much everything that could go wrong in a construction job. And that's why we're.
We really. We really try and vet the contractors and make sure that they are at a commercial grade, you know, level, you know, not only within their work, but from a financial capacity. And what I mean by that is when contractors want funding up front, they're not in a position.
They're not in a good position, you know, to deal with a commercial job.
Because the way our construction funding works is we will do what's called a pay application process.
The contractor has to do the work for usually a month.
Sometimes there's larger contractors that will work longer and then they submit a pay application. We will then do a site visit and make sure that they have done the work that they have said that they've done. And then we will agree to fund what they've asked for.
And that's really important because we're not in the business of funding the contractor. We're in the business of funding you as our client. And we want to make sure that, that there's no, you know, they're not, they're not cutting corners.
And that's one way to protect. Now to your point, you know, when we vet a contractor and we get pressure from a borrower that this, you know, the contractor is going to work out. You know, we try and work with, with our clients on that issue. Now when we see, you know, occasionally we'll have, and this isn't your project, but we have, you know, kind of the answer of hey, my cousin, he does really great bathroom renovations. Can he build out this 12,000 square foot facility?
And the answer is always going to be no, they're not going to be qualified just because they are good, you know, can do some tiling work within a bathroom. And I'm not trying to undercut anyone's work. You know, that's certainly, you know, important work and it takes a skill set but they just don't have the, you know, the qualifications to get a commercial project done.
We've seen contractors walk off on jobs. We've seen, you know, we've seen contractors just not, not be able to complete jobs.
And we try and you know, even in those cases, you know, that's why we have the contingency. And then, then we try and go out and help with introducing new contractors that we've had success with in the past.
But it's, it's a really important aspect of a, of a new development is having the right GC and to your point about the subs, the right GC will have the right subs and, and, and the work will get done.
So but kind of to round out this point, we, we want to make sure we have the fail safe, you know, in place for your, you know, for your, your, your transaction that goes back to the contingency. It may go back to what, what's called an interest reserve. And we may factor in the GC may say, oh, I can get this job Done in three months, well, we may build in a nine month interest reserve. That reserve is, is to, to pull off of, to make your interest only payments during the construction phase.
Imagine if we didn't have that interest reserve and you as a borrower, before you open your doors for business, had to pay interest on the construction funding.
It would just, it would deplete funds for, for most, most borrowers. So there's, there's, I wouldn't call them tricks up our sleeves, but there's, there's really prudent lending practices that we, you know, we adhere to and make sure that we have not only to protect you, but to protect us.
[00:42:48] Speaker A: My point, I appreciate your example, but my point is you and the bank, even though we had never shaken hands, you were on my side.
You wanted me to be successful.
It is not in your interest for me to fail.
Whereas even though this general contractor person had befriended me for over a year and I had gotten to know his family and I thought we were good friends, he ripped me off, he lied to me and stole from me and cut corners when possible.
And had I listened more, had I allowed you and your institution to guide my process better, I would have been better off in the long run. So my point at this segment of our interview is to emphasize to my clients that the bank is truly on your side and they're, they're putting things in place like this interest reserve, for example, like this contingency portion to help the borrower keep the general contractor and thus the subcontractors doing a good job so that you have a product in the end that you can be proud of and make profit on.
And in my case, a bank that I had never even met before was more honest and, and had had my back better than this guy who had been courting me for over a year. And, and I learned my lesson the hard way. So my clients need to, to learn from me.
[00:44:48] Speaker B: Yeah, well, I appreciate you mentioning that. That's, it's, it's always great to hear that and we certainly try to, you know, we certainly try to help.
[00:44:59] Speaker A: One of the things that I have been suggesting to my clients is instead of giving one general contractor this great big project, millions of dollars of work up front, try to vet them on a smaller project first and you know, see it, it's not always possible. I understand it's not always possible. But for example, now that we've had phase one done for a while, this last year, we built an event center and we built a pool and we built a pickleball court and we, we added some amenities, a shuffleboard and stuff like that.
So I hired a general contractor and I said this is a small portion of what I'm getting ready to do.
Do this and if we still like each other when you're done with that, then I'll let you do something else. And I can tell you, even though I've dangled this carrot in front of them and said if you can build the event center, if you can build the pool, if you can build this and we're still friends, then I'm going to do phase two and I'm going to add 70 more sites. Even though I've dangled that carrot, I can tell you that at least three different general contractors, I guess they can't help themselves, have cut their nose off despite their face and have attempted to rip me off on these little projects and still think they're going to get the big project later. No.
So I've, I've done like five different projects and at least three of them, I would never hire those guys again.
Including my.
[00:46:38] Speaker B: Sounds like a smart way to go about it. So you can see if they're, if they're going to meet your litmus test.
[00:46:45] Speaker A: Exactly. It's, it's so important before you give them a multimillion dollar project to find out if this is the right person or not. And, and simply getting to know them as a friend is, is not a good enough test.
So, so we have a construction loan.
We're not paying, we're only paying interest during the construction loan. The construction can take months, maybe even up to a year or something like that to build the average RV destination.
And then once you get your certificate of occupancy, that's when you start paying principal and interest payments out of the money that's coming in from your investment.
[00:47:37] Speaker B: That's correct, yeah. Yeah. Then it'll convert to a term loan and, and then your principal and interest payments will kick in.
Now when we underwrite the loan on top of the interest reserve that we would, would factor into the loan during the construction period, we're also going to look at a level of working capital and that's to get you through.
We realize that you open your gates that, you know, there's not going to be 50 or 100 RVs that are going to drive in that first weekend.
There's going to be a ramp up period and we realize that there's going to be a burn over the, you know, over a period of time. And that's actually, we track that against your projections. You know, we look at your projections, we make sure that they're not overly aggressive or overly conservative.
And we want to make sure that you're, you know, realistic in your expectations of if you build it, they will come.
You've got a market, you've got to, you know, you've got to keep the lights on, you've got to hire people.
There's a certain amount of funds you need to do that before you have enough visitors coming to your destination who are covering all those costs. So we want to have you to have enough working capital to get through that ramp up period and be able to. One aspect of your overhead is your principal and interest payments on your loans. So we expect that you'll need that working capital component within the financing package.
[00:49:31] Speaker A: We'll be right back with more insight into designing communities that combine freedom, profitability and purpose. Stay tuned.
And we're back. I'm Ed O. Bridgman and this is a place to call home on now media television provision. Let's continue this conversation.
So the borrower is going to answer questions about their projections after you open.
What's your occupancy rate going to be in the first month, second month, third month? How long is it going to be before you break even? Whether you need to, how much money do you need to market? How much money do you need to keep the lights on?
And you get that from the borrower. How important is it to you and the bank and when I say you, I mean the bank to have a third party perspective on those projections.
[00:50:30] Speaker B: It's very important, you know, we want to make sure that they're within industry standards, you know, that the borrower or the client is understanding everything that goes into running the property.
They may just not have, you know, that full detail. So you know, we rely on feasibility studies that are done.
We certainly use those as a third party, you know, third party report and within our underwriting. And your, you know, your, your feasibility studies are very important to our process.
You know, we wish more industries had these types of physic feasibility studies.
We've done some other, other projects where, where there's been feasibility studies. But you know, anytime we can, you know, if it's an acquisition, you know, of a property, we'll rely on a business valuation, you know, to ensure that our borrower is paying the right price for this business, you know, the business may be both the business operation and the, you know, the land and the, you know, the real estate. So it's very important for us we have A pretty deep, we do a pretty deep analysis within our underwriting.
We want to make sure we're, you know, we're educated on each deal that we're doing.
And you know, an RV destination in Florida may have a totally different, you know, totally different, you know, financial, you know, package than one in, you know, in Nevada. You know, it's just we, you know, so it's really important to get as much information on a deal as possible.
[00:52:35] Speaker A: Well, obviously, if it's an existing business, an existing destination, you can do an appraisal. You can look at historical income and net profit and return on investment. It's all you have history to rely on. And then you can do a feasibility analysis about what is this borrower going to do to increase the value of this property? Because obviously they're paying market value for it. So you're going to have to do something to it to increase its value.
But when it's, when you're dealing with raw land, when you're developing raw land into a business, the feasibility analysis is really about all you got. You can do a competitive analysis, but the median age of an RV destination in the United States is 40 years old. So half of them are older than 40 and half of them are younger. 77% of the RV destinations in the United States are older than 20 years old. So chances are if you're putting in a brand new one, your competitors around you are using 20 year old technology and 20 year old site designs. So it's very difficult to find a comp that will justify what it is you're trying to do with a new state of the art modern like Homestead RV Community.
There were no comps really. And there were no comps within 10 miles of me of any, well, within 100 miles of me of anybody that was doing anything like what I wanted to do.
So you have, you're really dependent upon a third party feasibility analysis, which is only as good as, as the credit you give that third party.
It's like getting a degree from some college that nobody's ever heard of.
[00:54:35] Speaker B: Right, Right.
[00:54:37] Speaker A: So it's good to have a third party feasibility analysis.
[00:54:41] Speaker B: Agreed. Agreed.
We really try and make sure that we've fully vetted a transaction and feasibility is very important to us.
[00:54:55] Speaker A: Well, you're trying to be good stewards of your company's money because if you made a few bad decisions about loans in a year, your company would have to raise their interest rates and that would make it more difficult for everybody else. So when you're a good steward for your business. You're also being a good steward for future clients that you can help. And so the more educated you become and, and your entity becomes, the better you can serve my clients. So I appreciate that.
[00:55:35] Speaker B: That's very true. And I was thinking about, you know, my comment earlier about, you know, one size doesn't fit. All for, you know, for banks and lenders. Some, you know, sometimes I'll get a client in who says, no, this, every bank should make this loan under an SBA loan. And I try and discuss that with them and say, well, that's not necessarily true. Banks and lenders have their own parameters. And one aspect of a bank's credit parameters is their own portfolio.
And if we've made bad loans within a certain industry, then we're going to be turned off to that industry. If we've made bad decisions about a certain industry or a certain deal, then it may be part of our credit process to say, okay, well we need to be careful within a certain industry and we may tighten our credit box for that specific industry.
So you're exactly right. We have to make really good decisions.
That doesn't mean that every loan, you know, is good. There may be other things that come into play, you know, on, on a reason a deal goes bad. But we certainly make sure that we're, you know, we're, we're doing what we can to make those good decisions to then, you know, we want to, we want to keep lending within, whether it's, you know, whether it's manufacturing, you know, you know, business or, you know, or industry or RV destinations or, you know, transportation, you know, it's professionals. So it's, it's really important for us to, you know, to do the proper underwriting.
[00:57:28] Speaker A: Well, to do, to that extent, you can offload some of that risk or reduce some of that risk by hiring a reputable consultant who can perform a third party feasibility analysis who you consider an expert in that industry. So that helps you reduce your risk and, and maybe fill in some of the gaps that you may not have in that industry.
[00:57:55] Speaker B: Absolutely. Agreed.
[00:57:58] Speaker A: So I have taken up a lot more of your time than I've initially intended to. I have found this discussion extremely interesting and I know my, my guest will also.
Is there anything, when you were thinking about doing this interview last couple of days, was there anything that you wanted to be certain that you had an opportunity to discuss?
[00:58:22] Speaker B: You know, it's, it's an interesting time right now for entrepreneurs and people who are taking the risk, as you did, Ed, in creating a business, developing a business.
And if you're willing to take the risk and you're willing to kind of partner with the right people, whether it's a feasibility study, whether it's a lender, the rewards can be fantastic.
There is a lot of private equity money that's chasing a lot of different industries.
I know private equity has been looking at the RV destination category and industry.
We're seeing it even down to roofers and plumbers and H Vac.
If you do it right and build a great business, then may not be something you want to own for the next 40 years. It may be, but there are exit opportunities.
We certainly like being there to partner with you, to get your business off the ground, to build it, to get it to the next level.
If you're looking at kind of phase two of your RV destination and you want to build out the next set of 50 or 100 pads, then, you know, or build that, you know, community center or, you know, other add ons, we're happy to look at that and we really enjoy that creation.
So we're happy to help. And I've really enjoyed this conversation as well. It's brought up some memories of when we were, when we were in the, you know, in the trenches, so to speak, or you know, really literally with construction and you know, it, it brings up those memories and I like obviously reconnecting with, with, with, you know, with clients and, and you know, seeing the success that you've had. So thank you for having me on. I, it's been, it's been a pleasure.
[01:00:47] Speaker A: Well, thank you for being my guest. I, it's been my pleasure. It's been my honor. Thank you very much.
I've got an unfair question for you.
What, where's the future? How, how are we looking in the next couple of years? Are we going to, is it going to be easier to loan? Is it going to be. Should we be getting our money today because we're not going to be able to get it tomorrow? It's an unfair question. You can plead the fifth. What's your thoughts about where are we headed nationally?
[01:01:22] Speaker B: You know, I wish, I wish I had that crystal ball.
We, at least within, you know, the division of the bank that I'm part of, we, we continue to lend, we see opportunities.
You know, for instance, during COVID there was a lot of banks and lenders that said, you know what, let's take a little break.
We saw that as an opportunity.
And after we supported our own customers with PPP loans, we said, you know what, let's not take A break. Let's keep going because there's still lending and borrowing needs by good borrowers, both people and businesses.
And we said we're not going to do that. We're not going to sit on the sidelines and twiddle our thumbs. We're going to keep going. So there may be bumps.
I can't tell you what those bumps will be or when they'll be.
I think we could all agree that there will be bumps no matter what.
And I think that the key is that you keep, you keep driving forward, you figure out solutions.
And I have to say the team that I'm a part of is really good at figuring out those solutions.
Whether it's on a new origination of a loan, whether it's a loan that we've made and the borrower has had some trouble and we need to figure out how to help.
That's where we, I'm just continually impressed by the team that I work with in their ability to not just shut down and to keep going and driving forward in making the best decisions we can on deals and transactions, but at the core of what we do is helping small businesses and lower mid market businesses, you know, realizing the success that they, they envisioned. So we're, we're incredibly lucky to be, you know, part of, you know, projects such as yours and, and others. And you know, it really shows my team, we love, we love what we're doing. So I don't know if that answered your question about, about where we're go, you know, what we're going to see, but you know, we're going to be lending and, and I don't know if I can speak for the whole industry, but we're, we're not going anywhere.
[01:04:13] Speaker A: Awesome. Awesome. Well, I have taken up over an hour of your time. We're going to have to break this interview up into probably three or four segments. I would like your permission to contact you in a couple of months or three or four and, and further our conversation. I know my guest, my, my listeners are going to be excited to hear more from you.
[01:04:39] Speaker B: I'd love to do that. Ed, thanks so much. I appreciate it and this was fun.
[01:04:44] Speaker A: Thank you. All right, all.
Right.
