Reed Myers on Private Lending, Mortgage Funds, and Predictable Returns

Steven Weinstock (0:00) Hello and welcome back to another episode of The Wealth Clock with Steven Weinstock. I'm your host and I've been in real estate 25 years, started purchasing single family homes, multi-family. Now I run a fund in order to buy private debt and credit. For today we have Reed Myers here. He's gonna tell us a little about himself, but we do have a sponsor. The sponsor is Cable NOI, that spells C-A-B-L-E like cable TV, NOI, Net Operating Income, cablenoi.com. Cable NOI helps apartment owners with 20 units or more generate new income from cable and internet providers like Spectrum, Charter, AT&T, and Verizon. There is no wiring required, no cost to the owner, and no interaction with tenants. Cable NOI negotiates directly with the cable providers and pays owners a per door fee, sometimes up to $250 per unit, plus an ongoing revenue share. Okay. Today I am happy to introduce Reed Myers, principal of Myers Investment Group and Myers Capital Hawaii. Reed, thank you very much for coming on. Reed Myers (1:20) Yeah, thanks for having us, Steven. Appreciate it. Steven Weinstock (1:26) Okay, so we just met. I don't know really much about your personal background, but based on your company or one of your company's names, Hawaii, I'm going to guess you are based in Hawaii. Reed Myers (1:38) That's right. Yep. Honolulu. Steven Weinstock (1:42) Okay. So I'm here in New York. I'm in Brooklyn, New York, and we've had below freezing temperatures the last three weeks. So I'm sort of a little jealous of you right now. Reed, first of all, tell me how you got into real estate in the first place. Reed Myers (2:05) Yeah, sure. Outside of college, I basically decided kind of my upperclassmen years I wanted to get into real estate in some way, shape or form, so I really just started drafting real honest letters, almost willing to work for free just so I could gain experience. I sent out letters to a lot of the top developers in the area I grew up in, which is upstate South Carolina, and I was fortunate enough to get some job offers that way and ended up working for a real estate investment trust for the chairman of that company, helping him on a lot of deals doing investor relations, analysis, pro forma, things like that. Myers Capital is actually a family company. I helped when I was in high school, I hated it, didn't really understand it. We're a mortgage company started in 1998 and I was just doing a lot of file pushing and grunt work. So I was like, okay, I want to get into real estate, but I don't want to do mortgages. I kind of tried to go my own path. That worked for a while up until basically right before the recession, capital started drying up. A lot of our deals just got put on ice. So I actually came back to my family company, thinking it would be temporary. As an adult, after having the background working for the REIT, I really started enjoying it a whole lot more. I started at the bottom, taking loan apps, processing loans, underwriting. Eventually I got my mortgage license, this was post Dodd-Frank, when everybody was getting out of the industry and I was getting into it. Steven Weinstock (4:40) What aspect of the mortgage business were you in at that time? Reed Myers (4:48) At that time originally Myers Capital started purely as a commercial real estate lender. We would bank some of our loans, we would have correspondent lines. Over the years it started organically, we started getting a lot of requests from our own clients saying, hey, can you do my home too. So we made a decision that we shouldn't be leaving all that on the table and we should try to help our clients full service. That's when we started doing residential lending as well. Steven Weinstock (5:35) So on the bridge loans you keep on the books, those would be higher interest rates, shorter terms, three months to 18, 24 months, and you guys would enjoy that 10% plus interest rate, plus points and fees. Reed Myers (5:55) Very cool, very cool. Steven Weinstock (6:00) Tell me about Myers Capital Hawaii. Is this a separate company? Reed Myers (6:08) Myers Capital is basically where you go to borrow money, it's borrower facing. As I started getting some success in South Carolina, I'm actually from Hawaii, I was born here, I wanted to move back here in my later 20s. I moved back here about 15, 16 years ago, opened up a branch, started from nothing, no clients, no relationships, and grew from there. In the meantime my father retired and I started trying to manage both of it from Honolulu. What really helped was we had all our long term clients and relationships throughout the East Coast, mid-Atlantic and Southeast. As technology improved we ended up shutting down our brick and mortar office locations in Virginia and the Carolinas, and now our only actual office is in Honolulu, but we still do a lot of business on the East Coast. Steven Weinstock (8:00) Are you guys involved at all in the ownership aspect of real estate, or strictly lending and brokering? Reed Myers (8:12) Mostly just in our family. Occasionally we might do a JV with investors, but it's not a material part of our consistent business. We're busy constantly on the sales and marketing side, always trying to get new borrowers, new investors. It's about keeping in touch, being top of mind with clients, past clients, always promoting. We spend a lot of time drafting curated bespoke emails, not just here's a rate, let me close your loan, but here's how we helped a real estate investor solve this challenge, here's the unique structure we brought to it. We have a whole small marketing team, a marketing manager, SEO in-house, and now a software engineer helping us automate a lot of these things, bringing AI into it. Steven Weinstock (10:05) When investors come to you, what kind of properties do they own? What kind of properties won't you lend on? Reed Myers (10:20) Heavy industrial we won't do. I run a debt fund basically, these are the loans we bank and keep on our books. What differentiates us is we lend in quite a few states, about 44 states depending on the asset class. All from Hawaii, maybe a good 70% of our business is away. We'll do all your basic food groups, one to four units, multifamily, commercial properties, mixed use, special use, light industrial. We'll also lend in Hawaii where a lot of the value is in the land, an average single family home on Oahu is about a million, 1.1, and a good 70, sometimes 80% of that value is all in the land. So in Hawaii specifically, where we're very familiar with the markets, we'll get more creative, we'll lend on raw land in certain situations. On the mainland we'll get creative with horizontal development projects, small subdivisions, special use. I sized up a deal yesterday that was a hotel golf course in Virginia. We looked at senior care home facilities too. Occasionally we'll do some second lien and mezzanine financing. Steven Weinstock (13:10) Any states you would not lend in, no matter what? Reed Myers (13:18) Yeah, typically the ones that require a license if you're going to direct lend. We don't lend in Alaska, California, Nevada, Arizona, North and South Dakota, Wyoming and Montana. These are more licensing issues, not necessarily the market itself. New York, honestly, I'm not too familiar with, we're very cautious there. Steven Weinstock (14:20) What else are you doing besides lending, keeping money on the balance sheet? Are you raising money from debt funds, family offices? Reed Myers (14:35) Mostly individuals. We work with a lot of our investors, our LPs are actually old clients, people we have relationships with. We have a fund that we manage. We also do first trustees, or we call them direct investments, so you can actually own the whole note, the whole mortgage itself, or a fraction of it. We'll still manage everything, we'll originate it, we'll do the underwriting. We usually come to our pool of investors after we've already lent the borrower the money, so it's something we've already put our money behind. We have no problem keeping the loan on our books, it's just now we're opening it up to our pool of capital investors and they can participate if it's appropriate for them. Steven Weinstock (16:40) I run a mortgage fund too, I got into it by mistake honestly. My background is owning property, managing it, hoping for the big pop, maybe selling it, refinancing. Over the last couple years where equity deals didn't really pencil in, I'd get involved in first position liens. Somebody putting together a million dollar mortgage, I had a hundred grand sitting around, I would contribute to that. I really enjoyed it, especially compared to dealing with property management, code enforcement, tenants, renovations. I'm not getting that big pop when a property doubles or triples in value, but I have a predefined interest rate, typically a 12 to 18 month deal, and the rates I'm getting are in the 10 to 15% range with monthly payments. Reed Myers (18:30) On the residential side we're not keeping those on our books, we're selling to agencies or intermediaries. Steven Weinstock (18:45) So you're buying notes that are already performing, or are these NPLs? Reed Myers (18:55) No, definitely not NPLs, that's a great business but not one we're in. These are notes where the broker will approve it and it hasn't funded yet, and they'll reach out to their group of people, private equity funds, to buy it. Once in a while I'm coming in a week or two after it funded, but most of the time before it funded. A lot of times I'm wiring funds to the title company for closing. These are 65% loan to value, always investors, not homeowners. A lot of them have construction holdbacks. Steven Weinstock (21:00) My goal with my fund is always performing loans too, in New Jersey, loans at a million dollars or less, typically one to fours, a great LTV, 65% or lower. Reed Myers (21:25) My goal is to never foreclose on the borrower, although we set ourselves up where we have the deed in lieu of foreclosure ready if needed. Since these are investors, not homeowners, the foreclosure process is a bit easier. For the most part, even when someone is late or stops paying, they're in touch with us, usually a sale or refinance that's just taking longer. If it's a 12 month loan, the ones that get into trouble we usually get paid off in 14, 15 months, and we recoup any late fees at closing. Steven Weinstock (25:40) Tell our audience how they can reach out to you. Reed Myers (25:50) Anybody looking to borrow money should go to MyersCapitalHawaii.com. If you're interested in passive mortgage investments, how that works and how it might benefit your portfolio, check out Myers Investment Group's website, PassiveReturn.com. Steven Weinstock (27:10) Reed, thank you very much for coming on. This has been another episode of The Wealth Clock with Steven Weinstock. Please like, share, subscribe. Reed Myers (27:30) Thanks, Steven. Appreciate you having us.