Conversation With: Bill Rafkin, Rafkin Lending

Throughout his career, Bill Rafkin has worked in leasing on the landlord side, leasing on the tenant side), investment sales, and financing, and has been both an investor and a developer. Now he's talking that wealth of experience—gleaned at leading commercial real estate firms like Trammell Crow Co., KDC, and Panattoni—to lead his own firm, Rafkin Lending. "It's like going 360 degrees, based upon that foundation," he said. "This is where I want to spend my time and effort, growing this business." 
Rafkin has $25 million immediately available; his goal is to build a $200 million portfolio. He's specializing in transitional financing or, as he calls it, "transformational financing—taking a project from one stage to the next." He recently stopped by D Magazine's office to talk with RealPoints about his goals for Rafkin Lending and how things are going so far. The market reaction, he said, has been positive: "When you're an investor, everybody loves you."

RealPoints: Let's get a little background first. What led you to choose a career in real estate? 
Rafkin: I was born and raised outside of Boston, went to college at Harvard, then worked on Wall Street in municipal finance. That's when I got my first taste of real estate, because the public finance department was located right next to the real estate department at First Boston Corp. (now Credit Suisse). What the real estate professionals were doing seemed very interesting to me. They were a lot more un-buttoned, a lot more swash-buckling, and a lot more spirited. So when I went back to business school at Harvard, I developed an interest in real estate, sparked by that exposure. Between years at Harvard Business School I worked for Trammell Crow Co. in Houston. At that time Trammell Crow was doing a lot of hiring from HBS, and it has just been named one of the 100 best places to work, so I was very attracted to the company. 

RP: What did you do at Trammell Crow? 
Rafkin: I was just a summer grunt until finishing up at Harvard, then I returned as a full-time employee, starting as an industrial leasing agent. I started with a guy named Bob Sulentic, who was a close friend of mine from business school. (Note: Sulentic, former president and CEO of Trammell Crow Co., now serves as president of CB Richard Ellis Group Inc.) He and I would cold-call at our competitors' industrial parks. He would start at the left end and I'd start at the right end, and we'd meet in the middle, compare notes, and go on to the next. It was a lot of fun and a great experience. I moved to Dallas in March of 1986, after being recruited as a leasing agent for their national leasing team. I spent about nine months in that group then realized that my affinity and abilities were in the finance side of things, so I joined Trammell Crow Ventures, the in-house investment sales group. I spent five-plus years, great years, developing some lifelong friends and associations. I once told Harlan (Crow), my alumni association isn't Harvard College or Harvard Business School, it's Trammell Crow Co. It was and is a great company.

RP: So why did you leave?
Rafkin: I left Trammell Crow when the company was going through massive changes, and started my own firm, doing real estate brokerage and investment work. It was called Hampshire Capital Corp. My business plan was to continue serving my close friends and partners at Trammell Crow Co., when they were leaving. When all of them left, and I left, and there was really no change, other than phone numbers. We were still performing the same functions; I was helping them raise institutional capital, helping them finance projects, helping them sell some of their holdings, and just doing all of their capital markets work and doing some development investment work. That continued from 1992 all the way up until 2003, when I joined Koll Development Co. Steve Van Amburgh (KDC's CEO) is the world's greatest salesperson, and it comes from the heart, so I relented and joined Steve and Toby (Grove, president) as a partner, focusing on acquisitions, investments, and some build-to-suits. It was five-and-a-half tremendous years. Then some old friends from Trammell Crow called. They were No. 2 and No. 3 at Panattoni Development Co., and they asked me to run the company's global capital markets group. 

RP: What was that experience like?
Rafkin: During my tenure, the company went through some major changes as a result of what was going on in the general economy and real estate in particular. By the end of 2010, Panattoni consummated a big recapitalization. They brought in Calsters, which bought basically all of their industrial properties and agreed to fund all of their activities going forward. So … there obviously was no need for a large capital markets group, and at the end of last year, I put together a business plan for Rafkin Lending. 

RP: What is your vision for the company?
Rafkin: What I discovered at Panattoni is that we had equity to invest, and all of our competitors had equity to invest, and we were all out there looking for opportunities. But once we found those opportunities there was no debt available. Banks were not lending, and insurance companies were focused solely on cash-flowing properties. So to buy value-add properties or assets that weren't generating income—there was really a dearth of capital. It became evident to me when I went out and got some proposals for financing some of our warehouse acquisitions, that there was an opportunity. I talked to a number of bankers about the new regulatory environment and what was going on with their own banks internally, and it was apparent that they would be inactive for a number of years. That fed into the opportunity. 

RP: So you decided to switch to the lender side? 
Rafkin: Well about a dozen years ago, while I was running Hampshire, I started a small lending business on the side with some former partners at Trammell Crow. We would make small loans, typically about $1 million and secured by land. It was a great business and I really enjoyed it. With Rafkin Lending, I have the opportunity to do it right and to do it on a much larger scale. I spent the first couple of months refining my investment thesis, making sure the investment opportunity was out there, and also talking to capital partners, as this is obviously a capital-intensive business. I found a great capital partner and we seeded it with a $25 million commitment. It's really the starter commitment to get us up and running. We officially launched on March 8, 2011.

RP: How has it gone since then? 
Rafkin: It has been a whirlwind. It was fun to put the website together—rafkinlending.com—which is oriented toward prospective borrowers. All they want to know is 1) who are you, 2) do you have money, 3) what are your terms, and 4) are you real? If you manage money and you're investing, you just see some great opportunities. What I've been doing since then is actively making personal calls on anyone who will listen to me—mortgage brokers, mortgage bankers, investment sales brokers, attorneys, bankers, title officers, friends, prospective borrowers, and my competitors. It's a close-knit group of and we've noodled into different niches; so we exchange information.

RP: So what's your target?
Rafkin: What I'm seeking are loans, bridge financing. I'm looking for real estate-secured loans, typically for one to three years. It's transitional financing, but I like to call it "transformational financing," taking a project from one stage to the next. Sometimes it's an acquisition; it's an empty warehouse where the investor wants to refurbish it and release it. And once he has executed his business plan, he will refinance me out of it or sell the property. Traditionally that money came from banks, but banks aren't lending. Or if they are lending, they're using very strict requirements. My financing is appealing because I will lend up to 70 percent of the value of the property. And we can move very quickly. We're private lenders, so we're nimble and we're not regulated; we can custom-taylor loans to meet the needs of the borrower. I'm trying to do what's best for the real estate, what's best for the sponsor. Another aspect that makes it appealing is that my lending is non-recourse, so I don't require any personal guarantees.

RP: What's your competition like?
Rafkin: It seems that everyone has a different niche. The bottom line is, you have to have capital. There are some folks out there if they find a deal they will have to scramble for money. This is the kind of business where you have to demonstrate that you've got money and can deploy it quickly. 
My money is a high coupon rate, but it's certainly cheaper than equity, and it gaps the financing that a lot of investors and developers need. 

RP: What about loan sizes and real estate sectors?
Rafkin: The loan sizes will range from $3 million to $10 million. I like to loan on improvements, whether it's warehouse, office buildings, or retail. And I will loan on land. That seems to be about one-third of the proposals I'm getting now. But the land needs to be mobilized quickly. I won't do a land inventory loan. The issue is, my coupon rate is higher than the land will appreciate in value. So the equity just gets diluted from day one.

RP: How much do you hope to place this year? 
Rafkin: My goal is minimally $25 million by the end of the year. Because this is short-term financing, between one-year and two-year loans, I'd eventually like to grow to $200 million. That is why my minimum loan is $3 million. And that's the heart of the market; demand is in that $3 million to $10 million range.

RP: Are you focusing on projects in North Texas? 
Rafkin: I'm concentrating my efforts in Texas—Dallas, Austin, and Houston. I'm seeing opportunities in other major cities from Dallas-based folks and get a lot of referrals from my Trammell Crow friends. I'll look at select markets where I have some expertise and a good support base.

RP: What kinds of opportunities are you seeing?
Rafkin: The common refrain is that this type of capital is desperately needed. I'm seeing a variety of opportunities—about one third so far have been land loans, another third are warehouse or office or retail, existing properties; and about a third are miscellaneous—a bed and breakfast in Napa, a large hotel and resort in Colorado—things that just don't fit. I'm trying to focus on opportunities where I can understand the real estate and add value to the equation.

RP: What about spec projects?
Rafkin: Yes. We're looking at spec development, mainly with apartments, as that's where there seems to be demand. We are traditionally not a construction lender, but if someone needs to close on a land site, for example, and they need a year to fully pull together their equity partnership and go through city approvals … They're really just asking for a one-year land inventory loan while they get everything else together. I'm also looking at providing necessary capitalization for vertical development and supporting the projects through construction financing. 

RP: How would you describe momentum?
Rafkin: Things are going better than expected. I'm getting a lot of calls. And that's the key—getting into the deal flow, educating folks in the business as to what type of loans fit. I'm starting to see more loans that fit. I'm also seeing submissions from very high quality borrowers. And that's a key consideration. Character is paramount in this business; collateral is secondary, but equally as important. And the ability to service the loan. That's what I look for. When you do business with good people, good things happen. 

RP: Any firm deals in the works?
Rafkin: No deals have closed yet, but we're working on closing our first one.

Stay tuned.