Today’s guest is Vernon Beckford
Vernon is the CEO of Diversified Lending Solutions, a capital advisory firm that offers loans to small to medium-sized real estate companies. He has 15 years of experience in investment management and a background in tech and commercial real estate.
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Introduction [00:00:00]
Guest’s background [00:00:37]
Similarities and differences between distressed mortgages and today’s market [00:07:45]
Poor Underwriting and Quiet Pain in the Market [00:08:48]
Types of Deals and Alternative Sources of Capital [00:11:01]
Lending on Earnest Money Deposits and Risk Mitigation [00:13:54]
Reducing Risk [00:18:27]
Unnecessary Information [00:19:18]
Contact Information [00:22:03]
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Connect with Vernon:
Linkedin: https://www.linkedin.com/in/vernon-beckford-77ba17/
Web: https://www.dlsloans.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
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Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Vernon Beckford ([00:00:00]) – I, I think there’s a lot of quiet pain in the market. There are a lot of folks, I think, especially within the syndicator community, that didn’t overcapitalize their deals. So if you’re now in a position where you’re going back to a lender and they’re saying, Hey, we need to b you to buy new interest rate cap, but we need you to replenish an interest reserve, and you don’t have millions of dollars just sitting on, on the sidelines, that becomes a very, very difficult conversation.
Intro ([00:00:24]) – Welcome to the How to Scale commercial real Estate show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:37]) – Vernon Beckford is the c e o of Diversified Lending Solutions, a capital advisory firm that offers loans to small and medium sized real estate companies. Vernon, welcome to the show.
Vernon Beckford ([00:00:48]) – Great to be here, Sam. Thanks for having me.
Sam Wilson ([00:00:49]) – Absolutely. Vernon, there are three questions I ask every guest who comes in the show in 90 seconds or less. Can you tell me where did you start? Where are you now, and how did you get there?
Vernon Beckford ([00:00:57]) – Sure. Where did I start? Uh, I started, uh, in investment banking. Um, in, you know, in, in, in how I got there. Uh, I was studying entrepreneurship in high school. That motivated me to apply to Columbia University where, uh, I graduated. And during that process, uh, I fell in love with the idea of learning about business and banking seemed like a great place for me to, uh, cut my teeth.
Sam Wilson ([00:01:27]) – That’s awesome. And have you been in the banking sector from I guess that point all the way until now?
Vernon Beckford ([00:01:33]) – No. So I was fortunate or, or unfortunate enough to, to go through the great financial crisis. So when I came out, the market was as hot as you could a minute, and walking around as a banker was the coolest thing you could be doing in New York City. Um, and then, uh, you know, by 2008, uh, when the market exploded, I’m still relatively young in my career. Uh, and, and, and that kind of set everything on a different trajectory. So had I been a little bit earlier, a little bit later, I may have stayed, but that was really one of the, uh, the pivot points. And from that point, um, I did a whole host of things in commercial real estate, but that was, that was the first chapter.
Sam Wilson ([00:02:12]) – Got it. What’d you move into in commercial real estate and how did you discover opportunity in the midst of the 2008, 2009 crisis?
Vernon Beckford ([00:02:20]) – Su it’s such a good question. So at the time, uh, and it, it, it’s, you know, it, you look back and it was a crazy time. There were so many loans that had exploded, right? Yeah. That there was an instant overnight opportunity, which was how do you work out these loans? How do you potentially buy them? How do you re use that as a way to get into real estate? So I started a company that basically helped large investors evaluate these large pools of defaulted mortgages. And as you’d imagine, there was, uh, a lot of distress. And so I learned a ton. And that was a really, actually, actually fun time because you have to be creative to think about how you can actually spot the opportunity in those investments. I then got hired off by a company called CW Capital, which is one of the largest, uh, special servicers in the country. And special servicers do what? They take these defaulted loans and they figure out a way to work them through the system. So even though I left working at a bank, uh, my role was still very much in the financial service industry and in the capital markets. And then it just developed from there.
Sam Wilson ([00:03:27]) – Man, that’s really, really cool. So you figured out a way to evaluate the stressed mortgages. I’d love maybe, you know, as we get into more of this show, hear kind of how you’ve taken that experience and you’re comparing some of those markers that you saw in those defaulted mortgages to the things you’re looking at today
Vernon Beckford ([00:03:46]) – And see if there’s
Sam Wilson ([00:03:46]) – Sure. Any correlation on that front. But what was the next step? I mean, now you’re, now you’re lending to medium, small to medium sized real estate, um, companies. Yep. So what, what is that business today and what, and why, I guess, you know, did you see, did you see the opportunity in this?
Vernon Beckford ([00:04:03]) – Yeah, so, so in the midst of me doing all of the very big corporate stuff, I, I, I noticed what I felt to be a really troubling trend, which was every time I wanted to go off and do a small deal by myself or with my buddies and get financing or funding, it felt like it was like moving mountains. It, it was always, uh, an issue. And as I went through my corporate background and was working on these big financings, I mean, after the distress, I worked at a big investment shop and we were doing all this really cool stuff, but it was always involved in really big transac transactions that helped big firms get bigger. Right? And it felt like once you went back to the small balance space, those opportunities and that transparency wasn’t there. The pricing was, was all over the place. There were a bunch of sketchy actors you never knew really who you should be transacting with. So I launched the company Diversified Lending Solutions along my business partner. Cause we wanted to bring that institutional quality to what is just a much more fragmented space and help small operators get the financing they need to grow so that they can be institutional 10, 15 years from now.
Sam Wilson ([00:05:12]) – Right, right. I mean, I’ve heard it said a hundred times over that, you know, the, the, uh, the bigger, the bigger deals are just as, just as much and or easier. Um, I guess on the work side of things, uh, you know, as it is the, the really small ones, like you can do a 50 million deal and instead it’s the same end or less work than a $500,000 deal.
Vernon Beckford ([00:05:30]) – Yes. And what I, what I would say is what drives me nuts is where you see, uh, a hardworking, smart, industrious entrepreneur who is just bootstrapping their way one deal at a time to get a little bit bigger. And you said if that person had the right support financially to help them grow faster, there’s no reason they couldn’t own exponentially more. Right. Whether that be from going from two to four units to buying their 2050 a 200 unit multifamily.
Sam Wilson ([00:05:59]) – I, I would, I would imagine from just a size of the pie, um, perspective that the reason that big institutions do big deals is cuz there’s a lot of money to be made on ’em. And the reasons they don’t do small deals is cuz there’s not a lot of money to be made on ’em. How do you overcome that challenge?
Vernon Beckford ([00:06:17]) – Absolutely. So that’s spot on. So the way you overcome that obstacle is you have to get as big as you can, as quickly as you can. Mm-hmm. . So for folks, I think the mentality is typically I’m not, I’m not experienced enough yet to do a bigger deal or I don’t have enough capital to do a bigger deal, as opposed to are there ways that we can reframe or reposition you to make you attractive to a capital source that will provide you with capital to do a bigger deal. And so from our vantage point, our goal is not to help small guys stay small. Our goal is to help someone who’s small, but has all the right endowments to do bigger deals faster.
Sam Wilson ([00:06:56]) – Got it. I like that. I like that, uh, that, that niche you found. Cuz it is, I mean as you know, I’m, I’m preaching to the, to the man that already knows, but you know that there’s a need there. Uh, I’ve experienced it certainly, uh, starting out where it’s like, oh my gosh, like this seems impossible. Some of these smaller balanced, smaller balanced loans and, and they are, they’re just as much work, uh, as some of the bigger stuff that we have. Let’s go back to your experience then with that in mind. Looking at the distressed mortgages that, sorry, I’m a hands talker. Um, looking at, at the distress for those you’re watching on YouTube, they can’t, you know, you, you know what I’m talking about, but if you’re listening, you have no idea. Um, but evaluating those distressed mortgages in the, in kind of the markers in the, in the, the hallmarks of why those went into distress compared to what you’re seeing today. Any, any, any correlation there?
Vernon Beckford ([00:07:45]) – Well, the core there, there are a couple very strong similarity and a couple big, you know, um, um, complete binary opposites. What makes them similar? Well, um, if there’s stress to the cash flows, right, that’s a early indicator that there may be some distress. In today’s market, what’s driving the stress has been the rapid increase of in interest rates. And so interest rates have gone up so fast, right? That they haven’t been able to, they being an operator increase their NOI enough to offset the fact that their borrowing costs are so high and now that their borrowing costs are so high, if they need to go and refinance that property, they’re not gonna get nearly as much debt on the property as they would’ve in the past, which means now they need potentially fresh equity to bring the table. That’s a lot of what’s driving the distress here in in, in the great financial, uh, crisis.
Vernon Beckford ([00:08:48]) – A lot of what drove the distress was, I would say poor underwriting. So fundamentally, folks were looking at deals that were being extremely aggressive in their underwriting as, as to what the financial projections of the business plan were. Those plans were not sustainable. And so once it got to a point where that realization was met, of course there, there had to be some, some correction. So I think what makes this cycle a little bit different than that is that the underwriting is far better than it was in the past, right? From the point of view of the lender making the loan. But that doesn’t make it life any easier for the operator when now they took out a floating rate loan and now they’re borrowing costs of tripled. I mean, so I, I think there’s a lot of quiet pain in the market. There are a lot of folks, I think, especially within the syndicator community that didn’t overcapitalize their deals. So if you’re now in a position where you’re going back to a lender and they’re saying, Hey, we need to b you to buy new interest rate cap, but we need you to replenish an interest reserve and you don’t have millions of dollars just sitting on, on the sidelines, that becomes a very, very difficult conversation.
Sam Wilson ([00:09:55]) – Yes. Yes, it certainly does. And and do you feel like those, those, um, conversations are being had with a certain, like within a certain loan size or is it just across the board from small to large operators? Like,
Vernon Beckford ([00:10:12]) – You know, I I tell you, uh, it, it runs the gamut. It really does. I, I was talking to one sponsor, uh, that, uh, owns a, you know, 35 million asset. I was talking to another one that owns a 15 million asset. I was talking another one that owns a $5 million asset mm-hmm. , it, it really runs the spectrum because the, the mechanics of what led to the, to the disconnect are all, are all the same, right? So, so it’s just that the magnitude of the problem gets bigger, the bigger the deal you have because you’re talking with, you know, bigger numbers. Right,
Sam Wilson ([00:10:46]) – Right. Yeah. 30 versus 15, bigger, bigger numbers more, uh, more just, yeah. Bigger magnitude on that. Let’s talk then about the types of deals that you’re getting across the finish line then in today’s environment and how you guys are getting it done.
Vernon Beckford ([00:11:01]) – Sure. Yeah, that’s a great question. So it falls within a, I think three or four different types of deals. The one is, uh, traditional debt. How do we get someone a larger loan than they’ve traditionally gotten in the past? And for us that, that could be a bridge loan, that can be a new construction loan, but that’s really in helping frame the operator and the strength of their deal to a new set of lenders that they probably don’t have access to. And if they do have access to, they don’t know how to speak their language. And so there’s a disconnect that prevents them from being able to access that funding. Unfortunately, what we’ve seen in, in, in the, in the capital markets is with, you know, it feels like another bank is failing every week, but with banks going down, um, they’ve gotten more defensive.
Vernon Beckford ([00:11:48]) – And so what that’s led to is a preservation of capital, meaning I wanna get repaid on my loans. I don’t necessarily wanna put more money out. And so what was, you know, a year ago a great source of debt being the bank sector is now really, really, really difficult to get loans. I mean, those guys are not lending. And so for us, where we’ve been successful is pivoting and saying, listen, we don’t necessarily need to go banking route. We can go to other sources of capital, whether that be a life insurance company, whether that be a debt fund, finding alternative ways and alternative sources of capital when you really can’t just take anyone for granted right now. So that’s one where, where we’re, we’re, we’re getting deals done, other place we’re getting deals done is increasingly in, in restructurings in working with borrowers who are having troubles with their lenders and saying, Hey, let’s come in as an intermediary, as a third party.
Vernon Beckford ([00:12:42]) – We’re not emotionally connected to the property, we’re not looking at the lenders, the bad guy, and let’s come in and try to find a solution that doesn’t involve you either having to sell the property when you don’t want to or really getting hammered in a way that’s gonna prevent you from, from finishing your business plan. So we’ve been doing, uh, uh, more and more of that in terms of the deal, what I would say, deal formation side. Even though we started our business being a source of debt, what we realized is that folks need a lot of help before they even get to the point they need a loan. So what we started to do is make loans on earnest money deposits. So for instance, if you’ve got a property and you need to put up an earnest money to get it under control and you don’t want to ex fully exhaust your liquidity, we started making loans to, to operators to help them take down those properties. And then the, the other piece of the puzzle is to the extent, because we want you to do bigger deals than you before you needed, uh, to hit certain net worth liquidity thresholds, right? To get a loan, we’ve started to connect our clients with key principles that step into the deals to help them meet that network liquidity requirement so they can qualify for large loans.
Sam Wilson ([00:13:54]) – That’s really cool. I I like both of those. Let’s dig into, I, I’ve not talked to anyone, at least not recently that I can recall, uh, lending on the earnest money deposit side. How do you guys offset risk on that front without holding the bag for an operator that doesn’t get a deal closed or, I mean, that seems like, uh, you know, risky in my opinion. So how do you do that? Well,
Vernon Beckford ([00:14:17]) – Great question. So it depends, right? Depends. Cuz there’re two types of deposits. It could be either a soft earnest money or hard to the extent that it’s soft. We feel like that’s very, very easy, uh, to underwrite because as long as we have visibility to when the contract, you know, goes hard and we have, uh, you know, uh, assigned the, the money in escrow to a title company we feel comfortable with, then we feel very confident that that that’s, that’s very easy to underwrite.
Vernon Beckford ([00:14:47]) – If you’re talking about earnest money, you’re right, that’s a completely different bag because you’re now taking the first dollar risk in the deal. And so typical, right? That is very linked to the sponsor. What’s their experience? What’s their financial strength? Do they have assets at their disposal that represent some multiple to what we’re putting up in the EMD so that we have confidence that if for whatever reason they feel so confident that they want to go hard, but they actually don’t get it across the finish line, are there other assets at their disposal to help to pay back that loan? So, um, in this market, frankly, we encourage people to the extent possible to, to sign soft, you know, uh, deposits. There was a time, whatever last year where it was like everyone was like, impossible. If I, if I’m gonna get a site, I need to go hard. Now we’re in a point where the tide has shifted a little bit. Buyers should be able to recognize they have more leverage, uh, in the negotiations and really po push for soft deposits. Yeah,
Sam Wilson ([00:15:46]) – Absolutely. Absolutely. Yeah, that, that was gonna be my question is because I think I got a report the other day on the multi-family side of things, transaction volumes down like 70 or 75% year over year. Yep. Just substantial. I mean, yeah, that’s not, that’s not a 10% decrease. It’s a 70% decrease. And so that would seem that it would give people still who are confident enough to make offers a little bit more leverage. Cuz now I mean, that would indicate that for the 10 offers they were getting before, now they’re only getting two and a half on those properties at most. Exactly. Exactly. So that’s, uh, that’s really, really cool. I love hear what you’re doing in the space, how you are taking your, your kind of mission it sounds like, is to take that smaller operator and give them, uh, the ladder, if you will, to kind of climb up and do bigger deals over time. What, what are, what, what are some things, I guess as you think about that, that you would say, Hey, here’s some things that borrowers need to be doing now, some proactive things they can be doing now. So when they start to have a conversation with yourself that would help kind of expedite this process.
Vernon Beckford ([00:16:52]) – Yeah, so, so the first thing I would do right, is if you think about the process of going where you are today to where you want to go tomorrow, there are really four, I would say, critical things you need to be doing throughout the process. Um, and, and I say I smile when I say this because I know we all fall in love with our, our deals and, and we’ve decided that the best things in Slice Brett, but , first thing you, you really gotta do, and this is what we help you with, is do some real litmus testing. So take, take the blinders off that you’ve fallen in love with it, and let’s look at from the point of view of a lender or from an seed investor or a private equity firm, what are the sa the the strengths, weaknesses of this transaction?
Vernon Beckford ([00:17:36]) – And what is going to prevent somebody else from wanting to invest or support it, right? Mm-hmm. and, and answer that objectively and, and clearly so you can understand what challenges that you have. The second piece of that puzzle is what I like to call objection smoothing, address objections upfront. Everybody I find leads with why the thing is so great, and then anyone who has a brain starts digging beneath the surface. And that’s when deals fall apart, tell me what I should be afraid of and how you’re going to resolve it. Mm-hmm. , right? Because that’s giving me the sense that you know what you’re talking about and you’re not just out here buying to buy, but you have a, a philosophy, you have a strategy, and those two things come together on the deal that you’re talking about with me right now. After that, I want to focus on what I would call de-risking the deal.
Vernon Beckford ([00:18:27]) – How do we find a way that regardless of what the deal is, to find ways to reduce my risk, whether it be as a lender or as an investor in the project so that we’re not out here, um, exposed when we don’t have to be. Right? And then finally, I would say it’s thinking through the lens of fact filtering, meaning some people don’t share enough information, some people share too much information Hmm. And we wanna find a middle ground where you’re sharing enough information that is useful for your investors and your lender to complete the diligence they need to get, feel comfortable in the deal, but you’re not inundating them with too much that’s either irrelevant or confuses the story or by the point now that you’ve shared something, they say, oh, well really, I don’t like this deal as much as I thought I did because you’re giving me new information.
Vernon Beckford ([00:19:18]) – And we found , I’ve worked with so many folks that have gotten a deal almost to like the one yard line, and then they shared some information that was completely unnecessary and an investor was like, Nope, I’m out. And, and it was like, if we’d gotten in front of that earlier, there probably was a path to address it. So I say everything when you’re thinking about growth is through the lens of am I doing those four things? And really what our job is to take you to a lender where if you were doing a 5 million deal, we can make a justification that you can get a 20 million deal done because you, you’ve addressed all those four pieces,
Sam Wilson ([00:19:53]) – Right? I really like that. The, the last one actually came a bit as a surprise, uh, the fact filtering one, but you’re so right. Like, I, I can think of several examples in my head that we don’t have the time to share on the show, but it, it, it, there’s, it’s unnecessary. It’s like, hey, this is, this is even on call. I was on yesterday with a, uh, it was actually a monthly, it was our monthly investor update. It goes to our all entire brick and investor club. And she’s like, Hey, you know, she’s, it’s our communications director’s writing. She goes, Hey, I wanna throw this in there and that, and there I’m like, you know, that’s not necessary one because it could, it could instill a lack of confidence and really it’s irrelevant. Like in the grand scheme, it was like, it was, it was, we, we figured out what the total loss was and it was like one 10th of 1% in the last five years. And I’m like, yeah, but it sounds really terrible what you’re about to say . Like, let’s just not put that in there because it’s irrelevant. And it then makes our investors skittish for something that really has almost a non-monetary and or business relevant. So it, uh, I hear it and it, there’s those small things that you’re like, oh, we doesn’t, doesn’t, you know, we don’t need to talk about that. So it’s
Vernon Beckford ([00:21:00]) – The small things that can muddy the waters. Yeah. And, and I’m, I’m in no way saying ever, um, um, be, uh, always be transparent for sure, right? Be transparent with your lender, be transparent with your investor. But there’s a difference between being transparent and and sharing the salient information, right? And just providing, uh, data that muddies the water and confuses folks and now creates concerns unduly. Right.
Sam Wilson ([00:21:26]) – Right. And that’s it. That was it. Yeah, that was, that was that information yesterday. I’m like, that’s completely un un you’re creating, like you said, un undo concern. Is that the right way to say that? I don’t know. Either way. Vernon, this has been great, man. I love, I love those four things to think about. You’ve given us a ton to think about here on the show. I like your mission, I like the way you’re doing it. I like your background, uh, starting out in commercial real estate and banking, in, in evaluating distress mortgages, how you compare that to what you’re seeing today and kind of just what you guys are doing in the marketplace as a whole. I think it’s, it’s a much needed niche as you’re, uh, obviously very well aware. If our listeners wanna get in touch with you and learn more about you, what is the best way to do that?
Vernon Beckford ([00:22:03]) – Sure, absolutely. Visit us@dlsloans.com. You can also find me on LinkedIn. I respond to dms Vernon Beckford and reach me directly on email vernon dot beckford dls loans.com. And
Sam Wilson ([00:22:15]) – That’s DLS for Diversified Lending Solutions for those of you who are listening. So that’s, uh, you said DLS loans.com?
Vernon Beckford ([00:22:21]) – Correct.
Sam Wilson ([00:22:22]) – Fantastic. We’ll make sure we put that there in the show notes. Vernon, thank you again for coming on the show today. I certainly appreciate it.
Vernon Beckford ([00:22:28]) – Thank you, Sam.
Sam Wilson ([00:22:30]) – Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can, do me a favor and subscribe and leave us a review on Apple Podcast, Spotify, Google Podcast, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
