July 28, 2025 • 38 mins
In this episode of our series called Know Your Speakers, Chris Seveney is joined by Kevin Kim, partner at Geraci LLP and one of the leading legal minds in the private lending industry. Kevin leads the firm's corporate and securities practice, helping lenders structure funds, stay compliant, and scale responsibly. With deep experience across Regulation D, Regulation A+, licensing, and M&A, Kevin’s firm has advised hundreds of funds from mom-and-pop startups to billion-dollar platforms.
In this conversation, Kevin shares the most common mistakes new fund managers make, how to think like an institutional operator, and why raising capital is about more than just legal docs—it’s about trust, transparency, and preparation. He also gives a behind-the-scenes look at what to expect as a speaker at the 2025 Paper Trail Conference and the critical conversations happening around fund formation, compliance, and market dynamics.
🎟 Join Kevin and other top speakers live in Chandler, AZ, September 18–20.
Reserve your spot at papertrailconference.com
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:45):
On today's episode, I had theprivilege to speak to Kevin Kim,
a leading authority insecurities law and fund formation
within the private lending space.
Kevin, who leads a corporatesecurities practice with Drossi and
if you haven't heard ofDrossi, they provide a ton of content
out there on the web, online,they host conferences, and he has
(01:12):
in his team structuredhundreds of private placement memorandums
and other investment vehiclesfrom mortgage fund to debt offerings
syndications.
He's been recognized as aneducator and one of the lead instructors
for their certified fundmanagement course.
We had the privilege to talkto Kevin about the Paper Trail Conference,
(01:35):
what he's going to be talkingabout September 18th to 20th in Chandler,
Arizona.
And again this we're trying toget to let people know who the speakers
are we're bringing to thisawesome event.
So hope you enjoy this episode.
Hey Kevin, how are you doing today?
(01:55):
Fantastic.
So pretty little crazy story Iwas telling Kevin before we hopped
on today of being in themortgage in the note space, you see
some interesting things and ohyeah, Kevin, who's joining us today,
who is an attorney and whydon't you tell us a little bit about,
you know, what you're doingtoday and what got you into becoming
(02:16):
an attorney.
Yeah.
So I am a partner at Drossi llp.
We are the nation's largestlaw firm dedicated to private lending.
We focus in the world of, asyou can call it, non bank real estate
finance.
We work with small and largeoperators from local mom and pop
operations all the way up tothe institutions and some quasi banks.
(02:38):
And our role is that of counsel.
Right.
So we are their transactionalattorney, we are their compliance
attorney.
We are in California, thelitigation attorneys.
And we live and breathe allthings private lending, hard money
lending, private moneylending, however you want to call
it.
Right.
We do a lot more work inresidential than we do in commercial
(03:00):
and that's just by virtue ofthe growth of that sector.
I lead the firm's corporateand securities practice.
So I'm a securities attorneyby training and I do private offerings
and crowdfunding and fintechwork and then a little bit of corporate
M and A and a lot of licensingwork as well for private lenders.
(03:23):
And so we are activelyinvolved in forming new lenders and
helping them set up theirfunds or their capital raising opportunities
to build balance sheet strategies.
We also advise them on bigpicture strategy and then we also
get them licensed.
Right.
So if they need a license in acertain state, we'll walk them through
that, we'll apply for it ontheir behalf.
And then we also handle anykind of like M and A.
(03:44):
Usually on the sell side.
Our clients are typically theones selling, but once in a while,
once in a while we'llrepresent a buyer.
As for me, I joined the firmback in 14.
Funny story, I'm actually athird generation banker, so my father
was a banker, his father was abanker in Korea.
And I followed in theirfootsteps and worked in banking for
(04:08):
a little while after collegeand did not enjoy the world of banking,
but did definitely enjoy beinga loan officer and enjoyed underwriting
and understanding how realestate works and how loans work.
It really, it was really eye opening.
I got it relatively easily andI think it's probably genetic.
Right.
So, and then I went to lawschool and found myself excelling
(04:33):
in the world of corporate law,finance law and M and A and securities
transactions and securities law.
And so I ended up during mytime in law school and I, I worked
at the sec, the sba.
So a lot of this kind offinance related, investment related
jobs during law school.
(04:54):
I was actually going to gowork for the SEC, but I graduated
during 2009, so that kind ofkilled the opportunity right there.
So that wasn't fun.
And you know, for a year just,you know, did whatever I could to
pay the bills, worked outboutique shops doing litigation for
a little while, figured, youknow what, there's no jobs but litigation
jobs, might as well learn litigation.
(05:15):
Hated it and ended up workingat a small boutique, working with
international, mostly Asianbanks and their US counterparties.
And so that was a very nicesegment of my career.
Then I had my own office for alittle while.
I joined Ross as a contract attorney.
And then they got busy and oneof the partners was retiring and
(05:40):
so he happened to be my boss.
Right.
So he was retiring andeffectively took over the practice.
And here we are today.
And thanks to the efforts ofmy partners, our wonderful marketing
team, particularly the effortsof people like Nima Dakmandan and
Melissa Morrell and Dennis andRuby, we've really been able to entrench
(06:04):
ourselves in the world that isprivate lending.
Right.
So both residential and commercial.
And we find ourselves being, Iwould say like 97% of our client
list is in that arena.
Right.
We have a handful of clientswho are real estate developers because
I do securities work as wellon that side of the house, but it's
(06:27):
mostly lenders.
And so by virtue of that, I'vebecome quite well versed in the world
of fund formation for theselenders across the industry and across
sizes.
Right.
Like you Know, you can be abrand new emerging manager and you
could be managing $5 billionat, you know, the kind of depends
(06:47):
on who they are, but they areall kind of on our client list and
we work with them just the same.
And so it's been really greatto watch both the industry grow at
all levels, but it's also beenreally great to see our clients grow.
And I've been really honoredto be a part of that.
And one of the things I thinkthat's very rare about your firm
is, I'll use the term, it's aone stop shop.
(07:09):
And what I mean by that is youmentioned you've got formation, you
can get the licensing which,you know, there's certain states
you need to be licensed inthis if you're going to raise money.
Kevin can write your 506B or Cor whatever type of offering that
you want to go in.
If you're looking for then to,you know, start originating loans
and you're looking for thedocuments, Nema and that team can
(07:31):
then originally get all thedocuments written and handle the
closings for you.
And basically you don't haveto go outside of that.
I'm aware of your firm.
To get something done withinthe space, you kind of got all the
bases covered.
Correct?
We try, we tried our best,especially transactionally speaking.
We tried to be all things.
(07:53):
When it comes to thetransaction size, the only area probably
can't help with is like, youknow, national foreclosure.
Yeah, we're working on that.
But we can't do it yet.
And we haven't solved theproblem of like tax.
Right.
We just can't.
We didn't found that it'sbetter to use CPAs than to bring
on a tax attorney partner.
Because there's tax attorneys.
(08:13):
You think I'm expensive?
They can be really pricey andthey don't really give you the best
answer.
So, you know, I find the CPAstuff is also some of the areas that,
you know, it's very importantto all clients.
I do joke, you know, again,attorneys keep me afloat.
And you know, I always jokewith an attorney and especially a
tax attorney.
When you ask a question, theinitial response is always, it depends.
(08:36):
You know, it depends.
And tax attorneys are really,you know, interesting in regards
to certain things.
And I can see why, because taxlaws are, and you know, the IRS code
is not black and white ascompared to, you know, other types
of, you know, I'll say, youknow, real estate law, you know,
(08:59):
has, you know, a lot of case law.
Behind it in those states.
So.
So as you mentioned, you know,you handle a lot on the, you know,
security side of things, youknow, with the investors and so forth,
and writing some of theseofferings for them when somebody
comes to you.
(09:20):
And again, you're an attorneyand, you know, I'll say you don't
provide any types of financialadvice or anything, but what are
some of the, you know, commonmistakes or things that you try and
get people on the right pathfor when they want to go out and
start raising money?
Because I know again, we raisemoney going from, hey, I'm writing
(09:41):
some private loans to raisingcapital, goes from being a lender
to running a business.
And it's also know, different.
What are some of the thingsthat you see that.
Yeah, you know, you try andwithout getting too granular.
I think the biggest flaw thatwe find is that people think that,
like you said, right, the ideaof, like, I funded a few loans, therefore
(10:04):
I'm a lender, right?
I'm like, let's hold on.
There is a difference betweensomeone that invests in loans that
originated by somebody elseand serviced by somebody else versus
someone that is in the activetrader business of originating loans,
servicing loans, dealing withborrower requests, marketing the
business and really trying toscale it, right?
(10:24):
And that's where we find thebest performers, right?
The clients who come to us andsay, all right, I think I want to
raise some money.
It's those people that arekind of a little bit more ready,
right?
And what I find is also peopleunderestimate how hard raising capital
is, right?
And it's not the easiest thingin the world because you're really
(10:45):
trying to build multiplelayers of trust, but you're also
building multiple layers of raw.
Consider financial aptitudeand conveying that aptitude to the
investor, right?
And you have to understand howto look at it from two lenses, right?
Both on the lending side ofyour business, but also effectively
wealth management.
Right?
And you really have to.
You're not an advisor, but youhave to act as a fiduciary in that
(11:07):
respect.
And so there's a lot of hatsyou have to wear.
You have to have a certain setof skills to be very good at raising
capital and have a certain network.
And it's not the easiest thing.
I don't think it's the mostchallenging thing.
I actually think it's muchharder to scale private lending business.
But at the same time, manypeople out there underestimate, you
(11:28):
know, how much work it is.
And they also underestimate,like, the tools they need, unfortunately,
in the private sector, ofraising capital, there's just too
many, I would call them, lowcost providers and gurus out there
that kind of just like drop adoc set with you and say, all right,
have fun, go, go do the thing, right?
And you're trying to savemoney, but in reality, you, because
(11:51):
you chose to save money on, onlegal accounting and all the other
pieces, you may have putyourself in a situation where like,
you make a mistake because youdidn't know any better, right?
And lo and behold, now you'rein trouble with the regulator or
you're in trouble with yourinvestors, or you're in trouble with
something else.
Who knows?
Right?
And so, you know, one of thethings we always tell people is like,
(12:11):
this is not an arena you wantto cut corners in, particularly because
the SEC is right there.
Right.
And they're no slouches.
Right.
And same thing with your locallending regulator.
Right.
And so these kind of thingsand the IRS too, Right.
So there's a lot of that kindof stuff that I see a lot of.
Thankfully, the growth of theindustry and the increase in sophistication,
(12:34):
people have been able toreally, I would say professionalize
their businesses,institutionalize their businesses,
and that's having a reallygood effect on the industry.
So yeah, I think, you know,looking back, you know, the JOBS
act has had a very big benefitto, you know, the private lending
space in regards to raising capital.
That's huge.
(12:54):
But as you mentioned, there'stoo many gurus out there who I think
make it sound like it's soeasy to raise capital and you can
do it with no money and like,hey, I can go get a offering docs
put together for like 2500bucks or something like that.
And you know, I've read somethat I've seen that I just scratch
my head of like, who wrote these?
(13:15):
Because there weren't eventerms in there for what the returns
were for the investor or howyou redeemed or how long your money
had to stay in.
And you know, and, and it puts.
You in a weird position, right.
Because every investor's worried.
Yeah, everyone's.
It's a trust issue.
Are you a Ponzi scheme or areyou not?
Right.
And so a hundred percent.
And the interesting part aboutour industry is a lot of the investors
(13:38):
in our industry, LPsparticularly have investments in
other strategies.
And so if you come to thetable with documents and packages
and systems and processes anda business that looks like amateur
hour, right, you're not goingto be able to raise the money that
those guys, your competitors,have been able to.
(14:00):
Right.
And there's a finite universethat you can play with, play in,
and that's going to be likeyour immediate network.
And that's really as far asyou can get with it, you know.
Yeah.
And one of the things thatI've, you know, seen with, you know,
some people that I talk withwho have attempted and unfortunately
weren't successful, and we'vetalked with some of the lessons learned
is, you know, when they tryand do, I'll call it, you know, a
(14:22):
debt fund and, you know, lendmoney is, you know, they may go raise
$2 million, and a lot of timesthey overshoot the returns they provide
to their investors.
Because what they forget tomention is or, or account for is
just because you've got $2million, that doesn't mean you're
going to have a loan perfectlythat fits that 2 million, because
(14:42):
you still need operating costsand everything else.
And, you know, you need to putmoney in holding and some of these
other avenues and so forth.
So, you know, if you'recharging a borrower, let's just say
you're doing a private loan at10%, you know, that doesn't mean
that it's like, oh, I'll givemy investor 9% and I'll, I'll take
1% off the top.
Work like that, you know, AndI think people find out the hard.
(15:05):
I mean, that's one of the funassumptions, right.
You're going to be fullydeployed at all times.
But the flip side of that isyou're going to be, you're not going
to be able to raise enoughmoney to satisfy your incoming demand.
Right.
On the loan side.
But on top of all of that, ifyou don't have a grasp, if you're
only understanding what you'redoing in your strategy at the given
time from rates and pointsstandpoint, you're far from understanding
(15:28):
what you're going to do inthree years as you build a business.
You have to understand, like,hey, once you get to that point,
that, that hopefully you'recompeting with bigger shops, meaning
that you have to, you have tounderstand what the rates are.
Yeah.
What we've, what we've noticedis a lot of people come like, oh,
I'm in California, I'm doing14 and three, okay.
That means you're doing very,very narrow stuff, like a narrow
(15:49):
market for what you're doing.
And if you're going to scale,right, if you're really going to
scale, you have to assume thatyou're going to be offering a 10
and 10 and 2.
That's what everyone else inCalifornia is offering.
Yep.
So you better understand thatyour fund has to look like, has to
have those assumptions in mind.
Right.
And that's one of the flaws isthat, you know, a lot of attorneys
don't act as a consultantwalking the client through certain
(16:12):
assumptions and they just dowhat they're told.
And unfortunately that ends upwith situation where the client's
now offering 12% in aCalifornia market.
They're doing 10% loans.
So I mean, 10%.
I know a year, year and a halfago I had people talking about like
in the San Diego area, theywere like start.
Some people are like nine.
And yeah, in 2019, we, we.
(16:35):
The average fix and flip ratein California was eight and a half
percent.
Right.
In one point.
At one point it got soaggressive here that was eight and
a half and one.
It got better over time, butyou know, it.
Yeah, it gets reallycompetitive here.
Right.
And that goes for Texas,particularly the major metros.
That goes for, you know, the Miami.
Miami, you know, day market.
(16:58):
A lot of the major metros arevery competitive.
Yeah.
Because there's what's, youknow, there's a lot more people out
there and there's been a lotof money, it seems, pushed into this
space.
And I know a lot of peopleright now talk about other, you know,
asset classes like sellerfinancing and other types of in there,
(17:18):
like, oh, that's a, you know,I don't know, a $3 billion or forget
whatever size industry they say.
And I'm like, yeah, that's not.
Private lending is just offthe charts right now in regards to,
you know, probably 10x that Ithink, or I forget way more than
I think.
We're estimating 10, 10 to $12billion institutional capital flowing
in this year, fiscal year 25.
(17:39):
And overall market size, ifyou factor in DSCR is now in the
trillions.
Right.
So it's.
Yeah, it's a huge marketcompared to where it was in 2018,
2019, where those pockets, youknow, the seller financing, the consumer
bridge product, the EMDfinancing, the gap funding, these
random kind of like, I guessyou can call them fringe transactions
(18:00):
that you have that happen inthe market.
They're fine for kind of like,you know, I guess you can call them
smaller shops.
But the challenging issue isthere's no scale to it.
There's a reason for that.
Right.
You know, professionalborrowers don't do those things.
Yeah.
I was going to say, you know,if you're doing emd.
To me, it's like you might aswell just be, you know, call yourself
Capital One or Chase becausethat's really your credit card at
(18:21):
that point in time.
Credit card.
You're literally a credit card.
Yeah, yeah, but.
And yeah, to try and scalethat would be extremely challenging.
Now is so, you know, we talkedabout, you know, kind of the offerings
and the raising the capitaland you know, scaling along those
lines.
(18:42):
And have you seen anything oryou know, that can lead to roadblocks
in the future, whether it'sadditional estate licensing on private
lenders Because I know stateson a residential side because we
also.
Oh yeah, a little bit in thathave gotten very ornery and you know,
(19:03):
trying to protect moreborrowers as well as, you know, the
SEC in regards to or evenstate regulators in regards to offering
docs and with, you know, multifamily has taken a little bit of
a beating over the last fewyears and you know, getting better,
much better.
Yeah.
But you know, some people,again unfortunately what I see a
(19:26):
lot of times is hey, look, adeal's gone bad and people just assume
that oh, it's fraud and theytry and file something or whatnot
where the deal went bad.
So, you know, sometimes, youknow, and I live outside of Washington
D.C.
so it almost feels like a yoyo sometimes of when something happens
they just go to an extreme tocreate something, you know, to protect
(19:47):
it.
But it's just overblown andjust curious if you know, if you
can see think that will be putmore restrictions on the space and
certain things that might get restricted.
For example, like defaultinterest rates or anything like that.
Well, yeah, so there arecertain states you to watch out for
that kind of stuff for.
Right.
So in California is a good example.
California has that hansuredecision that did.
(20:09):
That did technically eliminatethe ability to charge default interest
before maturity.
Default.
You know, that's a thing in California.
Litigation.
A product of litigation.
Yeah.
So other states don't do that.
Right.
The beautiful part aboutprivate lending is that it's commercial.
And so yeah, there arelicensing state about 10 of them.
But the rest of the market isrelatively flexible.
And there's a lot of deference.
Right.
Because it's a commercial transaction.
(20:31):
The challenging issue is likeyou put it is when.
When you start seeing thesetransactions that were poorly written
and they were actuallyconsumer loans and or the plaintiffs
able to turn it into aconsumer loan.
Which is also like one of thereasons why I tell lenders, even
if you can legally in yourhome state, you probably shouldn't
lend to an individual likeever on a residential deal.
(20:53):
And you should also befollowing our best practices when
it comes to business purpose.
Confirmation affidavits.
Yep.
Yeah, I mean we do it, we dohandwriting, right.
So that's important.
The other component is grosslyoverestimating and overusing capital
markets.
We've seen too many people getburned when Wall Street's fickle.
(21:15):
Right.
Wall street is very smart.
There a lot of Ivy League guyswork in those desks and they're very
smart.
Right.
But they're very fickle.
And so when the market takes aleft turn, for whatever reason, they're
going to pull out.
And so what I've noticed was alot of lenders were over reliant
and put all their eggs in thatbasket and they found themselves
in a world of hurt when itcame to when they pulled out.
(21:38):
Right.
Or they became more stringentand they started enforcing their
buyback clauses.
And so the, the lenders werein trouble and so many of those lenders
aren't here today.
On top of that issue, there'sprobably, you know, at, at the small
level, the challenging issueis a lot of these lenders have get
bad information out there andso they run things just kind of like
(22:01):
really fast and loose and itcomes back to haunt them.
Right.
You know, we had a clientyears and years and years ago, you
know, they didn't get the best advice.
You know, they use their localattorney and he wasn't the real estate
guy.
He didn't really know finance law.
And you know, knock on thedoor came from the Virginia state
regulator.
(22:21):
They're nice, right?
Most state regulars are prettynice, right.
There are a handful that arepretty aggressive, but you know that
it's just, it's an unwanted headache.
And it was a securities issue,lending issues, all kinds of stuff.
And, and thankfully we wereable to put it to bed.
But like a lot of times whatends up happening is they, they freak
out and then they put theirhands up and then they, they end
up signing something that theyshouldn't have signed.
(22:43):
You know, and I hate to saythis, but like it's a simple.
Where like our firm iseverywhere nowadays.
We're online, you can find us easily.
Like it's, it's easy to findan expert like us.
And that's one of the thingsthat I still am frustrated with is
like guys, you could just, youjust, you had to cut that corner,
you know what I mean?
Like, yeah, you get there arenational experts in this arena, not
(23:05):
just us, right?
Contact them.
Right?
And that's so important, youmight have a friend at a national
shop, like contact them.
Because there's a lot ofresources in our industry now.
There's really no excuse to bemaking these kind of what I call
amateur hour mistakes.
Yeah.
And what they're surprised tofind out is like, yeah, we represent
small shops, we also representlarge shops.
(23:27):
We get this misnomer aboutlike, oh, we're, we're too big for
them.
Like, no, 90% of our clientsare small businesses, like two man
shops.
Like, it's not like we don'thave two man shop clients.
Right.
So it's very smallorganizations that end up scaling
up and doing really well.
Right.
And so, you know, that's,that's part of who we are as a boutique
law firm.
And that's one of the things Ialways get frustrated, like, ah,
(23:49):
man, I wish you had called mebecause I could have walked you,
I could have walked youthrough this, this when, when it
was a question, not an action,you know.
Oh, I'm laughing right nowbecause I was on actually a call
the other day with a regulatorabout getting licensed.
And we have financial, auditedfinancials, and we submitted them
and in nmls, you know, youhave to fill out information as well.
(24:11):
And you, you know, a typicalbalance sheet has assets, liabilities
and owner equity.
And you know, we filleverything out and then we uploaded
our audited financials and youknow, our audit.
You don't have a line itemthat says, you know, one line item
that says owner equity.
It's got, you know, commonshares, you know, holders and like,
(24:31):
and it's like, okay, this plusthis and do the math.
And the regulator who'sreviewing it keeps arguing with me
that the numbers don't matchand that like I'm, and I literally
am like telling them.
And the auditing firm we useis a, I think the fifth largest company
just outside the big three orfour out of Pennsylvania.
(24:54):
And they're like questioningtheir audit.
And I'm like, we alsosubmitted this to the SEC and like,
you know, nobody elsequestions this.
And I'm like, the math, maths.
But they just, they're notgetting it.
And I'm just trying to like,explain to them.
And I'm being as polite aspossible because I also don't want
them knocking on my door.
But I'm trying to figure out,like, how can I like get to them?
(25:15):
And this is where it's likeone of these things where I'm at
the point of literally I'mgoing to, you Know, basically pick
up the phone and call you andsay, yeah, hey look, you know, can
you basically, because I knowyour services assist with licensing
and say, I'm just going tohand this over to you and it's worth
the aggravation in the cost.
And that's another thing with licensing.
Yeah.
It's like that's one of theaggravating thing because it's.
(25:35):
Yeah.
You got to speak theirlanguage sometimes.
Right.
The examiner's language.
They're not always that wellversed in the world of finance.
Yeah.
And that goes to the othertopic is like they also don't really
understand the differencebetween a business purpose residential
loan and a commercial purposeresidential loan.
Right.
They have trouble digestingthe concept.
(25:56):
And so we find ourselves insituations where the lender's getting
investigated in a state wherethey don't need a license and they're
being accused of all kinds ofthings like, I gotta prove a negative
in this situation because, youknow, and it was as simple as like,
oh, you didn't get thebusiness purpose affidavit.
Or as simple as like, oh, youdidn't do it.
Oh, come on, man.
(26:17):
Like we had that issue whenagain, so we have a regulation A
plus offering.
Oh yeah.
And we, when we submit every12 months you have to resubmit what's
called a, you know, yourpublic offering statement.
Again, when first, so firstyear, you know, we got qualified.
Then a year later we submit nocomments, you know, basically just
(26:40):
like rubber stamp.
Second year we get it and weget like seven pages of questions
and we're like, what is going.
My attorney is like perplexed.
And what happened was in ourupdate, we talked about more about
doing business purpose loans because.
And they interpreted abusiness purpose loan as me giving
(27:05):
somebody a loan to operate arestaurant or sell T shirts.
Even though we described itthat everything we do by real estate,
they got confused by that andbasically called like a timeout of
like, whoa, you went from areal estate company now to like a
bank essentially like, we needmore info on this.
(27:26):
And then, you know, after, youknow, we had to go back and forth
with them on it.
So it was still pretty quick.
And we actually got on thephone with them and just explained
it to them of no, theterminology business purpose means
just non owner, like an LLCinvestor who has an LLC to go buy
a rental property or.
And then after we explain thatto them, just like you said, they're
(27:47):
like, oh, now you're talkingour language, you're good.
So yeah, happens a lot withthe commission, especially there.
People forget this.
It's a.
It's a rotating door at the commission.
Right.
So, yeah, you understand, likethere are attorneys there that are
in for a year or two.
They're gone for.
They're gone for a year.
Do they come back?
Right.
So it's a.
It, it's.
It's a fun time with the commission.
(28:10):
Especially those reggae because.
So, yeah, the one thing Iwould tell anybody, and you can probably
preach to this, is if you'relooking to grow your business, understand
it takes time to a, work withyour attorney to draft your documents
if you're going to do a 506Cor whatnot.
(28:30):
Because a lot of people, youknow, you've got.
And a.
I'm just gonna use the term atemplate, per se, of what needs to
go in there.
But things like, oh, what'syour waterfall structure?
What's your redemption period?
Or do you have a death anddisability clause where somebody
could.
You know, there's a millionquestions that, when I went through
that my first attorney askedme and I was like, oh, boy, let me
(28:53):
get back to you.
So it's not just like, oh, I'mgonna hop on a phone with Kevin and
in 15 minutes he can, youknow, chat GPT and spit out the answer
until.
I wish we could, because I cancharge a lot less.
But it's.
Every deal is bespoke.
Every lender is different.
Yep.
I mean, some of the factors around.
I mean, this is one commonfactor to overlook, like leverage.
How are you going to approach leverage?
(29:14):
Are you going to obtain leverage?
If so, how?
If so, how much?
Also from who?
Right.
And it's commonly overlooked.
Right.
And another topic is like, oh,are your fees in line with market?
Like, it's not just what yourfees are going to be.
Are your fees in line withwhat your competitors are charging?
Because I can tell you, JoeSchmo down the street from you.
Right.
(29:34):
Is charging this.
Yeah.
Right.
And I could tell them thatbecause it's public knowledge, like
those guys out there who arecompeting with you in your market
are charging X, Y and Z betterbe sure that you're able to compete.
Because a lot of times whathappens is these guys think about,
like, what's good for them.
Right.
That's oftentimes a mistake.
Like, well, no, no, no, no, no.
This is a fund.
Right.
It has to be good for theinvestor too.
(29:56):
Right?
Yeah, yeah.
So that's another issue wefind ourselves in.
But yeah, I mean, it's.
Every deal is bespoke.
Every deal is Every businessplan is different, every client's
approach is different, andevery client's profile is different.
So like we, I wish we couldstandardize this.
Like we have our loan documentservices, but we can't.
And I've tried, I've tried,I've tried.
And you know, every time islike, I'm really having to massage
(30:17):
the fact patterns with theclient and explain to them, like,
here is the reaction you'regoing to get if you do this.
Here's what the market canbear if you do that.
Not really legal, but like,here's what are the implications
of doing those things.
You know, and also if, then ifyou look at again goes back to doing
business.
If you're doing business inArizona, California, you know, hey,
(30:38):
100.
Yeah, you gotta get licensedand that's good.
California.
Oh my goodness.
Yeah.
And I always get this a lotlike, oh, like I don't need a license.
Like, no, you do care whatthat guy told you on the Internet.
This is still mortgage lending.
And some states don't care,like California.
And then we have.
We find ourselves in asituation where they get the wrong
license sometimes.
Sometimes, right.
Or they put the license in thewrong place sometimes.
(31:00):
That's a big issue in California.
In Nevada too, like, oh, youhave the right license, but it's
functionally useless because Ican't get the loans into the fund
now.
So that's, that's another issue.
Right.
So I was gonna say how.
Who.
What are you originating andare using multiple entities that
you're putting different.
Because then you're licensing.
Like, how does that come intoplay regarding who's really originating
(31:21):
the loan?
And you know, so there's somany nuanced things that we could
talk all day on.
But long story short is you'vehit the nail on the head.
Use a professional.
Don't cut corners on it.
There's a cost of doingbusiness and you just have to understand
and absorb those costs.
(31:42):
And I'm sure if somebodycalled you, Kevin, and said, hey,
look, what's an approximaterange for putting together this type
of information?
You know, there's ballparknumbers that typically can be thrown
out.
And we're not, we're not superexpensive either, I think.
Right.
So we're not in the.
You're not spending 100 grandto do a fine.
You're not spending even 50grand to do a fun with me.
(32:03):
Right?
We're.
We're sub that, you know, itdepends on the transaction.
Obviously, every deal is alittle bit different, but like most
like run of the millregulation D, B or C offering.
It's going to be like, youknow, between 30 and 30 and 40.
Right.
You do a read, it's going tobe more expensive.
You do crowdfunding, reggae,it's going to be more expensive.
But aside from that, you know,your average reg defund.
(32:24):
Yeah, we're right there.
And it's not too far offbecause what's included is also my
time.
Right.
All my time's included in that.
You're not going to see aninvoice from me.
And also all like a lot of theadvisory work that you need, aside
from the legal work.
And that's there's value tothat, you know.
Yeah, it's just like you saidof asking that question of okay,
(32:44):
you want to do.
You know, you've written inthis that you're going to do only
loans and aren't, you know,San Diego or Orange county.
And you know, you're, youknow, this is what you're kind of
targeting, you know, thatdoesn't, you know, you sure, you
know, you might want to take alook at that or look at some competition
because that somebody could gospend 30,000, 40,000 and just be
(33:06):
a failed business plan andhave to go back and probably edit
the ppm, which a lot.
Yeah.
Then if you have investors inthere, then it's more challenging
to go edit, you know, addingan addenda to your PPM or.
No, it's not fun.
Yeah, I'd rather avoid that ifwe can avoid it.
And having understanding theeconomics, it's a huge value add
from our standpoint.
Yeah.
Yeah.
Because we have the data.
(33:27):
A lot of folks are like, well,prove it.
Well, here's literally, whatis it?
$5 billion of loans being doneon light knocks platform.
Here's all the RTL data thatnobody has on interest and it's like,
it's there.
You can't refute the fact thatthat market is doing 10%, not 12.
Right.
And correct me if I'm wrong, Imean, you guys host a conference
(33:51):
multiple times per year and Ithink you also publish a lot some
of that data throughout theyear on kind of what the market's
headed, where it's going.
So you can see, hey, look,what's an average DSCR or RTL fix
and flip.
And I recall like, hey, Dallasis higher than this place, but this
place is lower.
So you provide all that.
Nima does a state of themarket for APL every quarter and
(34:13):
he's doing one soon with KevinWarner from Renovo and he always
presents the data fromLightning Docs.
Right.
And it's really solid databecause the amount of users and loan
volume out of that is substantial.
And beyond that, yes, we doour webinars internally and then
we have our conferences every year.
And then Nima and I get onstage at APL every year and we do
a state of the market as wellfor the whole year.
Right.
And so, and where we're headed.
(34:33):
So yes, we have twoconferences every year.
We're having one in August inNewport Beach.
That's going to be a good one.
And then, yeah, look out forour webinars.
They're all on our website inour emails.
So sign up for our newsletterand you'll get it.
But yeah, I mean the onecoming up in a few days I think for
APL that Nima's doing andyeah, rate data, volume data, market
(34:54):
data, MSA level data.
Right.
So you'll see what markets aresuffering and there's also data on
volume.
So it's really important tosee the.
Other thing that I enjoy withif the content that you provide is,
for example, you just had oneabout is, is this still a good time
to do a reit?
Now I watch that and then.
But you also talk about othertypes of offerings and other types
(35:15):
of like hey, licenses inCalifornia or other states.
So you can also, well, youprovide a lot of what I'll call free
content.
So once you could clearly beprepared, somebody goes to talk to
you and say, hey, I've watchedall these videos, I'm trying to figure
out what I'm doing.
Like for example, we invest alot in the non performing side of
(35:37):
things.
Which when I again, this isbefore I knew you guys existed, I
spoke to attorneys like, yeah,you don't want to reap because REITs
could be passive.
And then you have to kind ofdo all this other stuff.
So he's like, don't do a reit.
There are ways.
But yeah, it's tricky whenyou're in NPL.
But like, yeah, you know, ourweb, our YouTube page has all of
our, all of our webinars, allof our interviews, all my podcast
(35:58):
episodes.
It's really easy to get in there.
YouTube, draw, CLP, it's there.
And webinars, there's a wholelist of webinars going back four
or five years.
And yeah, we've covered REITs,licensing, offshore capital raising,
fund structuring, and then wealso have the class that we teach
for apl.
So there's a lot of resourcesout there.
So especially on capitalraising and funds.
We put out a lot of contentand it's really accessible.
(36:21):
And so if you're a member ofapl, the fund manager course is really
straightforward.
If you're.
If you're not.
Our website and our YouTubepage have all the webinars on those
topics, so it's not verychallenging to absorb the information.
And I always actually send links.
Like before I do a call on aread, I'll send a webinar that I've
(36:42):
done.
That way they're prepared forthe call.
Great.
As we wrap up a thanks again,Kevin, for coming on.
If people want to reach out tolearn more about your services, what's
the best way for them to reach out?
And I know if you're watchingthis online, you can see he's got
his website link down in thecorner, but yeah, I'll let you.
Yeah, you can just email mesimple k.kimasi llp.com and find
(37:05):
us on our website.
You can also find us, find mespecifically on our podcast platform
for Lender Lounge with KevinKim a lot of ways.
Right.
You can also just Google KevinKim at drossi and you'll find me
somehow some way.
Easy to find.
You've got a good social, yougot a good online presence.
Oh, shout out to Casey andMegan on that one.
(37:26):
They do all the.
They do God's work on that one one.
I don't know anything aboutthat stuff.
So Kevin, thanks for your time today.
Appreciate it and look forwardto seeing you in a few months in
Arizona.
Looking forward to it.
Okay, great.
Thank you.
Thank you.
On today's episode, I had theprivilege to speak to Kevin Kim,
a leading authority insecurities law and fund formation
within the private lending space.
Kevin, who leads a corporatesecurities practice with Drossi and
if you haven't heard ofDrossi, they provide a ton of content
out there on the web, online,they host conferences, and he has
(01:12):
in his team structuredhundreds of private placement memorandums
and other investment vehiclesfrom mortgage fund to debt offerings
syndications.
He's been recognized as aneducator and one of the lead instructors
for their certified fundmanagement course.
We had the privilege to talkto Kevin about the Paper Trail Conference,
(01:35):
what he's going to be talkingabout September 18th to 20th in Chandler,
Arizona.
And again this we're trying toget to let people know who the speakers
are we're bringing to thisawesome event.
So hope you enjoy this episode.
Hey Kevin, how are you doing today?
(01:55):
Fantastic.
So pretty little crazy story Iwas telling Kevin before we hopped
on today of being in themortgage in the note space, you see
some interesting things and ohyeah, Kevin, who's joining us today,
who is an attorney and whydon't you tell us a little bit about,
you know, what you're doingtoday and what got you into becoming
(02:16):
an attorney.
Yeah.
So I am a partner at Drossi llp.
We are the nation's largestlaw firm dedicated to private lending.
We focus in the world of, asyou can call it, non bank real estate
finance.
We work with small and largeoperators from local mom and pop
operations all the way up tothe institutions and some quasi banks.
(02:38):
And our role is that of counsel.
Right.
So we are their transactionalattorney, we are their compliance
attorney.
We are in California, thelitigation attorneys.
And we live and breathe allthings private lending, hard money
lending, private moneylending, however you want to call
it.
Right.
We do a lot more work inresidential than we do in commercial
(03:00):
and that's just by virtue ofthe growth of that sector.
I lead the firm's corporateand securities practice.
So I'm a securities attorneyby training and I do private offerings
and crowdfunding and fintechwork and then a little bit of corporate
M and A and a lot of licensingwork as well for private lenders.
(03:23):
And so we are activelyinvolved in forming new lenders and
helping them set up theirfunds or their capital raising opportunities
to build balance sheet strategies.
We also advise them on bigpicture strategy and then we also
get them licensed.
Right.
So if they need a license in acertain state, we'll walk them through
that, we'll apply for it ontheir behalf.
And then we also handle anykind of like M and A.
(03:44):
Usually on the sell side.
Our clients are typically theones selling, but once in a while,
once in a while we'llrepresent a buyer.
As for me, I joined the firmback in 14.
Funny story, I'm actually athird generation banker, so my father
was a banker, his father was abanker in Korea.
And I followed in theirfootsteps and worked in banking for
(04:08):
a little while after collegeand did not enjoy the world of banking,
but did definitely enjoy beinga loan officer and enjoyed underwriting
and understanding how realestate works and how loans work.
It really, it was really eye opening.
I got it relatively easily andI think it's probably genetic.
Right.
So, and then I went to lawschool and found myself excelling
(04:33):
in the world of corporate law,finance law and M and A and securities
transactions and securities law.
And so I ended up during mytime in law school and I, I worked
at the sec, the sba.
So a lot of this kind offinance related, investment related
jobs during law school.
(04:54):
I was actually going to gowork for the SEC, but I graduated
during 2009, so that kind ofkilled the opportunity right there.
So that wasn't fun.
And you know, for a year just,you know, did whatever I could to
pay the bills, worked outboutique shops doing litigation for
a little while, figured, youknow what, there's no jobs but litigation
jobs, might as well learn litigation.
(05:15):
Hated it and ended up workingat a small boutique, working with
international, mostly Asianbanks and their US counterparties.
And so that was a very nicesegment of my career.
Then I had my own office for alittle while.
I joined Ross as a contract attorney.
And then they got busy and oneof the partners was retiring and
(05:40):
so he happened to be my boss.
Right.
So he was retiring andeffectively took over the practice.
And here we are today.
And thanks to the efforts ofmy partners, our wonderful marketing
team, particularly the effortsof people like Nima Dakmandan and
Melissa Morrell and Dennis andRuby, we've really been able to entrench
(06:04):
ourselves in the world that isprivate lending.
Right.
So both residential and commercial.
And we find ourselves being, Iwould say like 97% of our client
list is in that arena.
Right.
We have a handful of clientswho are real estate developers because
I do securities work as wellon that side of the house, but it's
(06:27):
mostly lenders.
And so by virtue of that, I'vebecome quite well versed in the world
of fund formation for theselenders across the industry and across
sizes.
Right.
Like you Know, you can be abrand new emerging manager and you
could be managing $5 billionat, you know, the kind of depends
(06:47):
on who they are, but they areall kind of on our client list and
we work with them just the same.
And so it's been really greatto watch both the industry grow at
all levels, but it's also beenreally great to see our clients grow.
And I've been really honoredto be a part of that.
And one of the things I thinkthat's very rare about your firm
is, I'll use the term, it's aone stop shop.
(07:09):
And what I mean by that is youmentioned you've got formation, you
can get the licensing which,you know, there's certain states
you need to be licensed inthis if you're going to raise money.
Kevin can write your 506B or Cor whatever type of offering that
you want to go in.
If you're looking for then to,you know, start originating loans
and you're looking for thedocuments, Nema and that team can
(07:31):
then originally get all thedocuments written and handle the
closings for you.
And basically you don't haveto go outside of that.
I'm aware of your firm.
To get something done withinthe space, you kind of got all the
bases covered.
Correct?
We try, we tried our best,especially transactionally speaking.
We tried to be all things.
(07:53):
When it comes to thetransaction size, the only area probably
can't help with is like, youknow, national foreclosure.
Yeah, we're working on that.
But we can't do it yet.
And we haven't solved theproblem of like tax.
Right.
We just can't.
We didn't found that it'sbetter to use CPAs than to bring
on a tax attorney partner.
Because there's tax attorneys.
(08:13):
You think I'm expensive?
They can be really pricey andthey don't really give you the best
answer.
So, you know, I find the CPAstuff is also some of the areas that,
you know, it's very importantto all clients.
I do joke, you know, again,attorneys keep me afloat.
And you know, I always jokewith an attorney and especially a
tax attorney.
When you ask a question, theinitial response is always, it depends.
(08:36):
You know, it depends.
And tax attorneys are really,you know, interesting in regards
to certain things.
And I can see why, because taxlaws are, and you know, the IRS code
is not black and white ascompared to, you know, other types
of, you know, I'll say, youknow, real estate law, you know,
(08:59):
has, you know, a lot of case law.
Behind it in those states.
So.
So as you mentioned, you know,you handle a lot on the, you know,
security side of things, youknow, with the investors and so forth,
and writing some of theseofferings for them when somebody
comes to you.
(09:20):
And again, you're an attorneyand, you know, I'll say you don't
provide any types of financialadvice or anything, but what are
some of the, you know, commonmistakes or things that you try and
get people on the right pathfor when they want to go out and
start raising money?
Because I know again, we raisemoney going from, hey, I'm writing
(09:41):
some private loans to raisingcapital, goes from being a lender
to running a business.
And it's also know, different.
What are some of the thingsthat you see that.
Yeah, you know, you try andwithout getting too granular.
I think the biggest flaw thatwe find is that people think that,
like you said, right, the ideaof, like, I funded a few loans, therefore
(10:04):
I'm a lender, right?
I'm like, let's hold on.
There is a difference betweensomeone that invests in loans that
originated by somebody elseand serviced by somebody else versus
someone that is in the activetrader business of originating loans,
servicing loans, dealing withborrower requests, marketing the
business and really trying toscale it, right?
(10:24):
And that's where we find thebest performers, right?
The clients who come to us andsay, all right, I think I want to
raise some money.
It's those people that arekind of a little bit more ready,
right?
And what I find is also peopleunderestimate how hard raising capital
is, right?
And it's not the easiest thingin the world because you're really
(10:45):
trying to build multiplelayers of trust, but you're also
building multiple layers of raw.
Consider financial aptitudeand conveying that aptitude to the
investor, right?
And you have to understand howto look at it from two lenses, right?
Both on the lending side ofyour business, but also effectively
wealth management.
Right?
And you really have to.
You're not an advisor, but youhave to act as a fiduciary in that
(11:07):
respect.
And so there's a lot of hatsyou have to wear.
You have to have a certain setof skills to be very good at raising
capital and have a certain network.
And it's not the easiest thing.
I don't think it's the mostchallenging thing.
I actually think it's muchharder to scale private lending business.
But at the same time, manypeople out there underestimate, you
(11:28):
know, how much work it is.
And they also underestimate,like, the tools they need, unfortunately,
in the private sector, ofraising capital, there's just too
many, I would call them, lowcost providers and gurus out there
that kind of just like drop adoc set with you and say, all right,
have fun, go, go do the thing, right?
And you're trying to savemoney, but in reality, you, because
(11:51):
you chose to save money on, onlegal accounting and all the other
pieces, you may have putyourself in a situation where like,
you make a mistake because youdidn't know any better, right?
And lo and behold, now you'rein trouble with the regulator or
you're in trouble with yourinvestors, or you're in trouble with
something else.
Who knows?
Right?
And so, you know, one of thethings we always tell people is like,
(12:11):
this is not an arena you wantto cut corners in, particularly because
the SEC is right there.
Right.
And they're no slouches.
Right.
And same thing with your locallending regulator.
Right.
And so these kind of thingsand the IRS too, Right.
So there's a lot of that kindof stuff that I see a lot of.
Thankfully, the growth of theindustry and the increase in sophistication,
(12:34):
people have been able toreally, I would say professionalize
their businesses,institutionalize their businesses,
and that's having a reallygood effect on the industry.
So yeah, I think, you know,looking back, you know, the JOBS
act has had a very big benefitto, you know, the private lending
space in regards to raising capital.
That's huge.
(12:54):
But as you mentioned, there'stoo many gurus out there who I think
make it sound like it's soeasy to raise capital and you can
do it with no money and like,hey, I can go get a offering docs
put together for like 2500bucks or something like that.
And you know, I've read somethat I've seen that I just scratch
my head of like, who wrote these?
(13:15):
Because there weren't eventerms in there for what the returns
were for the investor or howyou redeemed or how long your money
had to stay in.
And you know, and, and it puts.
You in a weird position, right.
Because every investor's worried.
Yeah, everyone's.
It's a trust issue.
Are you a Ponzi scheme or areyou not?
Right.
And so a hundred percent.
And the interesting part aboutour industry is a lot of the investors
(13:38):
in our industry, LPsparticularly have investments in
other strategies.
And so if you come to thetable with documents and packages
and systems and processes anda business that looks like amateur
hour, right, you're not goingto be able to raise the money that
those guys, your competitors,have been able to.
(14:00):
Right.
And there's a finite universethat you can play with, play in,
and that's going to be likeyour immediate network.
And that's really as far asyou can get with it, you know.
Yeah.
And one of the things thatI've, you know, seen with, you know,
some people that I talk withwho have attempted and unfortunately
weren't successful, and we'vetalked with some of the lessons learned
is, you know, when they tryand do, I'll call it, you know, a
(14:22):
debt fund and, you know, lendmoney is, you know, they may go raise
$2 million, and a lot of timesthey overshoot the returns they provide
to their investors.
Because what they forget tomention is or, or account for is
just because you've got $2million, that doesn't mean you're
going to have a loan perfectlythat fits that 2 million, because
(14:42):
you still need operating costsand everything else.
And, you know, you need to putmoney in holding and some of these
other avenues and so forth.
So, you know, if you'recharging a borrower, let's just say
you're doing a private loan at10%, you know, that doesn't mean
that it's like, oh, I'll givemy investor 9% and I'll, I'll take
1% off the top.
Work like that, you know, AndI think people find out the hard.
(15:05):
I mean, that's one of the funassumptions, right.
You're going to be fullydeployed at all times.
But the flip side of that isyou're going to be, you're not going
to be able to raise enoughmoney to satisfy your incoming demand.
Right.
On the loan side.
But on top of all of that, ifyou don't have a grasp, if you're
only understanding what you'redoing in your strategy at the given
time from rates and pointsstandpoint, you're far from understanding
(15:28):
what you're going to do inthree years as you build a business.
You have to understand, like,hey, once you get to that point,
that, that hopefully you'recompeting with bigger shops, meaning
that you have to, you have tounderstand what the rates are.
Yeah.
What we've, what we've noticedis a lot of people come like, oh,
I'm in California, I'm doing14 and three, okay.
That means you're doing very,very narrow stuff, like a narrow
(15:49):
market for what you're doing.
And if you're going to scale,right, if you're really going to
scale, you have to assume thatyou're going to be offering a 10
and 10 and 2.
That's what everyone else inCalifornia is offering.
Yep.
So you better understand thatyour fund has to look like, has to
have those assumptions in mind.
Right.
And that's one of the flaws isthat, you know, a lot of attorneys
don't act as a consultantwalking the client through certain
(16:12):
assumptions and they just dowhat they're told.
And unfortunately that ends upwith situation where the client's
now offering 12% in aCalifornia market.
They're doing 10% loans.
So I mean, 10%.
I know a year, year and a halfago I had people talking about like
in the San Diego area, theywere like start.
Some people are like nine.
And yeah, in 2019, we, we.
(16:35):
The average fix and flip ratein California was eight and a half
percent.
Right.
In one point.
At one point it got soaggressive here that was eight and
a half and one.
It got better over time, butyou know, it.
Yeah, it gets reallycompetitive here.
Right.
And that goes for Texas,particularly the major metros.
That goes for, you know, the Miami.
Miami, you know, day market.
(16:58):
A lot of the major metros arevery competitive.
Yeah.
Because there's what's, youknow, there's a lot more people out
there and there's been a lotof money, it seems, pushed into this
space.
And I know a lot of peopleright now talk about other, you know,
asset classes like sellerfinancing and other types of in there,
(17:18):
like, oh, that's a, you know,I don't know, a $3 billion or forget
whatever size industry they say.
And I'm like, yeah, that's not.
Private lending is just offthe charts right now in regards to,
you know, probably 10x that Ithink, or I forget way more than
I think.
We're estimating 10, 10 to $12billion institutional capital flowing
in this year, fiscal year 25.
(17:39):
And overall market size, ifyou factor in DSCR is now in the
trillions.
Right.
So it's.
Yeah, it's a huge marketcompared to where it was in 2018,
2019, where those pockets, youknow, the seller financing, the consumer
bridge product, the EMDfinancing, the gap funding, these
random kind of like, I guessyou can call them fringe transactions
(18:00):
that you have that happen inthe market.
They're fine for kind of like,you know, I guess you can call them
smaller shops.
But the challenging issue isthere's no scale to it.
There's a reason for that.
Right.
You know, professionalborrowers don't do those things.
Yeah.
I was going to say, you know,if you're doing emd.
To me, it's like you might aswell just be, you know, call yourself
Capital One or Chase becausethat's really your credit card at
(18:21):
that point in time.
Credit card.
You're literally a credit card.
Yeah, yeah, but.
And yeah, to try and scalethat would be extremely challenging.
Now is so, you know, we talkedabout, you know, kind of the offerings
and the raising the capitaland you know, scaling along those
lines.
(18:42):
And have you seen anything oryou know, that can lead to roadblocks
in the future, whether it'sadditional estate licensing on private
lenders Because I know stateson a residential side because we
also.
Oh yeah, a little bit in thathave gotten very ornery and you know,
(19:03):
trying to protect moreborrowers as well as, you know, the
SEC in regards to or evenstate regulators in regards to offering
docs and with, you know, multifamily has taken a little bit of
a beating over the last fewyears and you know, getting better,
much better.
Yeah.
But you know, some people,again unfortunately what I see a
(19:26):
lot of times is hey, look, adeal's gone bad and people just assume
that oh, it's fraud and theytry and file something or whatnot
where the deal went bad.
So, you know, sometimes, youknow, and I live outside of Washington
D.C.
so it almost feels like a yoyo sometimes of when something happens
they just go to an extreme tocreate something, you know, to protect
(19:47):
it.
But it's just overblown andjust curious if you know, if you
can see think that will be putmore restrictions on the space and
certain things that might get restricted.
For example, like defaultinterest rates or anything like that.
Well, yeah, so there arecertain states you to watch out for
that kind of stuff for.
Right.
So in California is a good example.
California has that hansuredecision that did.
(20:09):
That did technically eliminatethe ability to charge default interest
before maturity.
Default.
You know, that's a thing in California.
Litigation.
A product of litigation.
Yeah.
So other states don't do that.
Right.
The beautiful part aboutprivate lending is that it's commercial.
And so yeah, there arelicensing state about 10 of them.
But the rest of the market isrelatively flexible.
And there's a lot of deference.
Right.
Because it's a commercial transaction.
(20:31):
The challenging issue is likeyou put it is when.
When you start seeing thesetransactions that were poorly written
and they were actuallyconsumer loans and or the plaintiffs
able to turn it into aconsumer loan.
Which is also like one of thereasons why I tell lenders, even
if you can legally in yourhome state, you probably shouldn't
lend to an individual likeever on a residential deal.
(20:53):
And you should also befollowing our best practices when
it comes to business purpose.
Confirmation affidavits.
Yep.
Yeah, I mean we do it, we dohandwriting, right.
So that's important.
The other component is grosslyoverestimating and overusing capital
markets.
We've seen too many people getburned when Wall Street's fickle.
(21:15):
Right.
Wall street is very smart.
There a lot of Ivy League guyswork in those desks and they're very
smart.
Right.
But they're very fickle.
And so when the market takes aleft turn, for whatever reason, they're
going to pull out.
And so what I've noticed was alot of lenders were over reliant
and put all their eggs in thatbasket and they found themselves
in a world of hurt when itcame to when they pulled out.
(21:38):
Right.
Or they became more stringentand they started enforcing their
buyback clauses.
And so the, the lenders werein trouble and so many of those lenders
aren't here today.
On top of that issue, there'sprobably, you know, at, at the small
level, the challenging issueis a lot of these lenders have get
bad information out there andso they run things just kind of like
(22:01):
really fast and loose and itcomes back to haunt them.
Right.
You know, we had a clientyears and years and years ago, you
know, they didn't get the best advice.
You know, they use their localattorney and he wasn't the real estate
guy.
He didn't really know finance law.
And you know, knock on thedoor came from the Virginia state
regulator.
(22:21):
They're nice, right?
Most state regulars are prettynice, right.
There are a handful that arepretty aggressive, but you know that
it's just, it's an unwanted headache.
And it was a securities issue,lending issues, all kinds of stuff.
And, and thankfully we wereable to put it to bed.
But like a lot of times whatends up happening is they, they freak
out and then they put theirhands up and then they, they end
up signing something that theyshouldn't have signed.
(22:43):
You know, and I hate to saythis, but like it's a simple.
Where like our firm iseverywhere nowadays.
We're online, you can find us easily.
Like it's, it's easy to findan expert like us.
And that's one of the thingsthat I still am frustrated with is
like guys, you could just, youjust, you had to cut that corner,
you know what I mean?
Like, yeah, you get there arenational experts in this arena, not
(23:05):
just us, right?
Contact them.
Right?
And that's so important, youmight have a friend at a national
shop, like contact them.
Because there's a lot ofresources in our industry now.
There's really no excuse to bemaking these kind of what I call
amateur hour mistakes.
Yeah.
And what they're surprised tofind out is like, yeah, we represent
small shops, we also representlarge shops.
(23:27):
We get this misnomer aboutlike, oh, we're, we're too big for
them.
Like, no, 90% of our clientsare small businesses, like two man
shops.
Like, it's not like we don'thave two man shop clients.
Right.
So it's very smallorganizations that end up scaling
up and doing really well.
Right.
And so, you know, that's,that's part of who we are as a boutique
law firm.
And that's one of the things Ialways get frustrated, like, ah,
(23:49):
man, I wish you had called mebecause I could have walked you,
I could have walked youthrough this, this when, when it
was a question, not an action,you know.
Oh, I'm laughing right nowbecause I was on actually a call
the other day with a regulatorabout getting licensed.
And we have financial, auditedfinancials, and we submitted them
and in nmls, you know, youhave to fill out information as well.
(24:11):
And you, you know, a typicalbalance sheet has assets, liabilities
and owner equity.
And you know, we filleverything out and then we uploaded
our audited financials and youknow, our audit.
You don't have a line itemthat says, you know, one line item
that says owner equity.
It's got, you know, commonshares, you know, holders and like,
(24:31):
and it's like, okay, this plusthis and do the math.
And the regulator who'sreviewing it keeps arguing with me
that the numbers don't matchand that like I'm, and I literally
am like telling them.
And the auditing firm we useis a, I think the fifth largest company
just outside the big three orfour out of Pennsylvania.
(24:54):
And they're like questioningtheir audit.
And I'm like, we alsosubmitted this to the SEC and like,
you know, nobody elsequestions this.
And I'm like, the math, maths.
But they just, they're notgetting it.
And I'm just trying to like,explain to them.
And I'm being as polite aspossible because I also don't want
them knocking on my door.
But I'm trying to figure out,like, how can I like get to them?
(25:15):
And this is where it's likeone of these things where I'm at
the point of literally I'mgoing to, you Know, basically pick
up the phone and call you andsay, yeah, hey look, you know, can
you basically, because I knowyour services assist with licensing
and say, I'm just going tohand this over to you and it's worth
the aggravation in the cost.
And that's another thing with licensing.
Yeah.
It's like that's one of theaggravating thing because it's.
(25:35):
Yeah.
You got to speak theirlanguage sometimes.
Right.
The examiner's language.
They're not always that wellversed in the world of finance.
Yeah.
And that goes to the othertopic is like they also don't really
understand the differencebetween a business purpose residential
loan and a commercial purposeresidential loan.
Right.
They have trouble digestingthe concept.
(25:56):
And so we find ourselves insituations where the lender's getting
investigated in a state wherethey don't need a license and they're
being accused of all kinds ofthings like, I gotta prove a negative
in this situation because, youknow, and it was as simple as like,
oh, you didn't get thebusiness purpose affidavit.
Or as simple as like, oh, youdidn't do it.
Oh, come on, man.
(26:17):
Like we had that issue whenagain, so we have a regulation A
plus offering.
Oh yeah.
And we, when we submit every12 months you have to resubmit what's
called a, you know, yourpublic offering statement.
Again, when first, so firstyear, you know, we got qualified.
Then a year later we submit nocomments, you know, basically just
(26:40):
like rubber stamp.
Second year we get it and weget like seven pages of questions
and we're like, what is going.
My attorney is like perplexed.
And what happened was in ourupdate, we talked about more about
doing business purpose loans because.
And they interpreted abusiness purpose loan as me giving
(27:05):
somebody a loan to operate arestaurant or sell T shirts.
Even though we described itthat everything we do by real estate,
they got confused by that andbasically called like a timeout of
like, whoa, you went from areal estate company now to like a
bank essentially like, we needmore info on this.
(27:26):
And then, you know, after, youknow, we had to go back and forth
with them on it.
So it was still pretty quick.
And we actually got on thephone with them and just explained
it to them of no, theterminology business purpose means
just non owner, like an LLCinvestor who has an LLC to go buy
a rental property or.
And then after we explain thatto them, just like you said, they're
(27:47):
like, oh, now you're talkingour language, you're good.
So yeah, happens a lot withthe commission, especially there.
People forget this.
It's a.
It's a rotating door at the commission.
Right.
So, yeah, you understand, likethere are attorneys there that are
in for a year or two.
They're gone for.
They're gone for a year.
Do they come back?
Right.
So it's a.
It, it's.
It's a fun time with the commission.
(28:10):
Especially those reggae because.
So, yeah, the one thing Iwould tell anybody, and you can probably
preach to this, is if you'relooking to grow your business, understand
it takes time to a, work withyour attorney to draft your documents
if you're going to do a 506Cor whatnot.
(28:30):
Because a lot of people, youknow, you've got.
And a.
I'm just gonna use the term atemplate, per se, of what needs to
go in there.
But things like, oh, what'syour waterfall structure?
What's your redemption period?
Or do you have a death anddisability clause where somebody
could.
You know, there's a millionquestions that, when I went through
that my first attorney askedme and I was like, oh, boy, let me
(28:53):
get back to you.
So it's not just like, oh, I'mgonna hop on a phone with Kevin and
in 15 minutes he can, youknow, chat GPT and spit out the answer
until.
I wish we could, because I cancharge a lot less.
But it's.
Every deal is bespoke.
Every lender is different.
Yep.
I mean, some of the factors around.
I mean, this is one commonfactor to overlook, like leverage.
How are you going to approach leverage?
(29:14):
Are you going to obtain leverage?
If so, how?
If so, how much?
Also from who?
Right.
And it's commonly overlooked.
Right.
And another topic is like, oh,are your fees in line with market?
Like, it's not just what yourfees are going to be.
Are your fees in line withwhat your competitors are charging?
Because I can tell you, JoeSchmo down the street from you.
Right.
(29:34):
Is charging this.
Yeah.
Right.
And I could tell them thatbecause it's public knowledge, like
those guys out there who arecompeting with you in your market
are charging X, Y and Z betterbe sure that you're able to compete.
Because a lot of times whathappens is these guys think about,
like, what's good for them.
Right.
That's oftentimes a mistake.
Like, well, no, no, no, no, no.
This is a fund.
Right.
It has to be good for theinvestor too.
(29:56):
Right?
Yeah, yeah.
So that's another issue wefind ourselves in.
But yeah, I mean, it's.
Every deal is bespoke.
Every deal is Every businessplan is different, every client's
approach is different, andevery client's profile is different.
So like we, I wish we couldstandardize this.
Like we have our loan documentservices, but we can't.
And I've tried, I've tried,I've tried.
And you know, every time islike, I'm really having to massage
(30:17):
the fact patterns with theclient and explain to them, like,
here is the reaction you'regoing to get if you do this.
Here's what the market canbear if you do that.
Not really legal, but like,here's what are the implications
of doing those things.
You know, and also if, then ifyou look at again goes back to doing
business.
If you're doing business inArizona, California, you know, hey,
(30:38):
100.
Yeah, you gotta get licensedand that's good.
California.
Oh my goodness.
Yeah.
And I always get this a lotlike, oh, like I don't need a license.
Like, no, you do care whatthat guy told you on the Internet.
This is still mortgage lending.
And some states don't care,like California.
And then we have.
We find ourselves in asituation where they get the wrong
license sometimes.
Sometimes, right.
Or they put the license in thewrong place sometimes.
(31:00):
That's a big issue in California.
In Nevada too, like, oh, youhave the right license, but it's
functionally useless because Ican't get the loans into the fund
now.
So that's, that's another issue.
Right.
So I was gonna say how.
Who.
What are you originating andare using multiple entities that
you're putting different.
Because then you're licensing.
Like, how does that come intoplay regarding who's really originating
(31:21):
the loan?
And you know, so there's somany nuanced things that we could
talk all day on.
But long story short is you'vehit the nail on the head.
Use a professional.
Don't cut corners on it.
There's a cost of doingbusiness and you just have to understand
and absorb those costs.
(31:42):
And I'm sure if somebodycalled you, Kevin, and said, hey,
look, what's an approximaterange for putting together this type
of information?
You know, there's ballparknumbers that typically can be thrown
out.
And we're not, we're not superexpensive either, I think.
Right.
So we're not in the.
You're not spending 100 grandto do a fine.
You're not spending even 50grand to do a fun with me.
(32:03):
Right?
We're.
We're sub that, you know, itdepends on the transaction.
Obviously, every deal is alittle bit different, but like most
like run of the millregulation D, B or C offering.
It's going to be like, youknow, between 30 and 30 and 40.
Right.
You do a read, it's going tobe more expensive.
You do crowdfunding, reggae,it's going to be more expensive.
But aside from that, you know,your average reg defund.
(32:24):
Yeah, we're right there.
And it's not too far offbecause what's included is also my
time.
Right.
All my time's included in that.
You're not going to see aninvoice from me.
And also all like a lot of theadvisory work that you need, aside
from the legal work.
And that's there's value tothat, you know.
Yeah, it's just like you saidof asking that question of okay,
(32:44):
you want to do.
You know, you've written inthis that you're going to do only
loans and aren't, you know,San Diego or Orange county.
And you know, you're, youknow, this is what you're kind of
targeting, you know, thatdoesn't, you know, you sure, you
know, you might want to take alook at that or look at some competition
because that somebody could gospend 30,000, 40,000 and just be
(33:06):
a failed business plan andhave to go back and probably edit
the ppm, which a lot.
Yeah.
Then if you have investors inthere, then it's more challenging
to go edit, you know, addingan addenda to your PPM or.
No, it's not fun.
Yeah, I'd rather avoid that ifwe can avoid it.
And having understanding theeconomics, it's a huge value add
from our standpoint.
Yeah.
Yeah.
Because we have the data.
(33:27):
A lot of folks are like, well,prove it.
Well, here's literally, whatis it?
$5 billion of loans being doneon light knocks platform.
Here's all the RTL data thatnobody has on interest and it's like,
it's there.
You can't refute the fact thatthat market is doing 10%, not 12.
Right.
And correct me if I'm wrong, Imean, you guys host a conference
(33:51):
multiple times per year and Ithink you also publish a lot some
of that data throughout theyear on kind of what the market's
headed, where it's going.
So you can see, hey, look,what's an average DSCR or RTL fix
and flip.
And I recall like, hey, Dallasis higher than this place, but this
place is lower.
So you provide all that.
Nima does a state of themarket for APL every quarter and
(34:13):
he's doing one soon with KevinWarner from Renovo and he always
presents the data fromLightning Docs.
Right.
And it's really solid databecause the amount of users and loan
volume out of that is substantial.
And beyond that, yes, we doour webinars internally and then
we have our conferences every year.
And then Nima and I get onstage at APL every year and we do
a state of the market as wellfor the whole year.
Right.
And so, and where we're headed.
(34:33):
So yes, we have twoconferences every year.
We're having one in August inNewport Beach.
That's going to be a good one.
And then, yeah, look out forour webinars.
They're all on our website inour emails.
So sign up for our newsletterand you'll get it.
But yeah, I mean the onecoming up in a few days I think for
APL that Nima's doing andyeah, rate data, volume data, market
(34:54):
data, MSA level data.
Right.
So you'll see what markets aresuffering and there's also data on
volume.
So it's really important tosee the.
Other thing that I enjoy withif the content that you provide is,
for example, you just had oneabout is, is this still a good time
to do a reit?
Now I watch that and then.
But you also talk about othertypes of offerings and other types
(35:15):
of like hey, licenses inCalifornia or other states.
So you can also, well, youprovide a lot of what I'll call free
content.
So once you could clearly beprepared, somebody goes to talk to
you and say, hey, I've watchedall these videos, I'm trying to figure
out what I'm doing.
Like for example, we invest alot in the non performing side of
(35:37):
things.
Which when I again, this isbefore I knew you guys existed, I
spoke to attorneys like, yeah,you don't want to reap because REITs
could be passive.
And then you have to kind ofdo all this other stuff.
So he's like, don't do a reit.
There are ways.
But yeah, it's tricky whenyou're in NPL.
But like, yeah, you know, ourweb, our YouTube page has all of
our, all of our webinars, allof our interviews, all my podcast
(35:58):
episodes.
It's really easy to get in there.
YouTube, draw, CLP, it's there.
And webinars, there's a wholelist of webinars going back four
or five years.
And yeah, we've covered REITs,licensing, offshore capital raising,
fund structuring, and then wealso have the class that we teach
for apl.
So there's a lot of resourcesout there.
So especially on capitalraising and funds.
We put out a lot of contentand it's really accessible.
(36:21):
And so if you're a member ofapl, the fund manager course is really
straightforward.
If you're.
If you're not.
Our website and our YouTubepage have all the webinars on those
topics, so it's not verychallenging to absorb the information.
And I always actually send links.
Like before I do a call on aread, I'll send a webinar that I've
(36:42):
done.
That way they're prepared forthe call.
Great.
As we wrap up a thanks again,Kevin, for coming on.
If people want to reach out tolearn more about your services, what's
the best way for them to reach out?
And I know if you're watchingthis online, you can see he's got
his website link down in thecorner, but yeah, I'll let you.
Yeah, you can just email mesimple k.kimasi llp.com and find
(37:05):
us on our website.
You can also find us, find mespecifically on our podcast platform
for Lender Lounge with KevinKim a lot of ways.
Right.
You can also just Google KevinKim at drossi and you'll find me
somehow some way.
Easy to find.
You've got a good social, yougot a good online presence.
Oh, shout out to Casey andMegan on that one.
(37:26):
They do all the.
They do God's work on that one one.
I don't know anything aboutthat stuff.
So Kevin, thanks for your time today.
Appreciate it and look forwardto seeing you in a few months in
Arizona.
Looking forward to it.
Okay, great.
Thank you.
Thank you.
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