Today’s guest is Michael Gevurtz.
Michael Gevurtz is an entrepreneur and investor in the real estate and finance industries. He is the CEO and founder of Bluebird Companies, a diversified real estate organization specializing in private lending, development, and construction management.
Show summary:
In this podcast episode, Michael shares his experience working for a real estate investment trust and how he ventured out on his own after the financial crisis hit. He discusses his decision to become a lender and how they mitigate risk by underwriting loans conservatively. Michael also talks about their focus on bridge and fix-and-flip loans and the importance of assessing borrower credit and cash flow potential. He emphasizes the significance of effective communication when managing a remote team and discusses scaling and team building.
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[00:03:41] The start of the lending business
[00:08:52] The importance of single-family properties
[00:10:05] Origination and sale of 30-year rental loans
[00:11:43] Selling loans at scale
[00:13:16] Fixed and flip loans
[00:18:33] Leadership and scaling the business
[00:21:49] The remote management approach
[00:22:52] Benefits of remote management
[00:23:56] Closing remarks and contact information
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Connect with Michael:
Linkedin: https://www.linkedin.com/company/bluebird-companies/
Instagram: https://www.instagram.com/bluebirdlending
Web: https://bluebirdlending.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Michael Gevurtz (00:00:00) - Lending is a risk mitigation business. That's really what it is. What asset class do I go after to make the safest risk adjusted return for me and my investors?
Intro (00:00:11) - Welcome to the How to Scale Commercial real Estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson (00:00:24) - Michael Gavin is an entrepreneur and investor in the real estate and finance industries. He is the CEO and founder of Bluebird Companies, a diversified real estate organization specializing in private lending, development and construction management. Michael, welcome to the show.
Michael Gevurtz (00:00:39) - Thank you, Sam, for having me.
Sam Wilson (00:00:40) - Absolutely. The pleasure is mine. Michael There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?
Michael Gevurtz (00:00:49) - Yeah, sure, Sam So I started in 2005 working for a real estate investment trust here in Philadelphia, Pennsylvania, Real estate investment trust. They they focus on they specialize in enclosed malls and shopping centers.
Michael Gevurtz (00:01:07) - Um, for about five years, I was a development director for the most of the properties in the South and part of the part of the mid-Atlantic region. So at that time, from 2005 through 2010, they were acquiring portfolios of malls and shopping centers. And that's and that's when this redevelopment initiative really took place in retail, when retail started changing. So converting big, you know, anchors and big boxes to more lifestyle oriented uses, maximizing value through developing out parcels on underutilized land, things like that. So I cut my teeth and I learned the business of real estate development there, which is a great experience because it was a large company. They owned 20,000,000ft² of of property fully integrated in-house. And and then the financial crisis hit. So and if you remember, the retail really got hit hard during that time. Um, so from there, in 2009, I decided to go off on my own. And from 2009 to about 2015, I was focusing. I was purchasing local properties in the neighborhoods, the emerging neighborhoods and outside Center City, Philadelphia.
Michael Gevurtz (00:02:34) - So in South Philadelphia, parts of North Philadelphia, a little bit in West Philadelphia. And we you know, we focus on this this urban infill strategy where I developed over 70 properties in that six year period, ranging from single family homes to sell single family homes to rent, mixed use properties, you know, apartments above a retail use or a restaurant, something like that. And that was really fun. And, you know, a lot of those investments, you know, we still own today. And then in 2018. Um, I brought, you know, from 2015 to 2018, I was experimenting with blending. So, you know, you're out in the neighborhoods, you're meeting these contractors or other real estate investors, and the market started getting a little overheated, at least I thought, at that time. So I started lending to contract, you know, other contractors and investors, 100,000 here, 200,000 there with some of the money that I made in the real estate business. And then it was successful and it was working and it was a relationship business.
Michael Gevurtz (00:03:41) - It wasn't actually a business. It was more of like a side investment. But then in 2018, I decided to bring all my real estate expertise and knowledge and the properties I had developed and manage and pair it with the lending business. So since 2018, we've been primarily focused on fix and flip bridge lending and 30 year rental products.
Sam Wilson (00:04:04) - That is really interesting. I want to go back to a comment you made where you said you felt like the market was getting overheated. Why would that then say to you, this is a good time to become the lender? I would have thought maybe it was the other way around where it's like, Oh, the market's overheated. The last thing I want to do is be holding a note on stuff that's going to go belly up. Well.
Michael Gevurtz (00:04:24) - Well, I didn't. The risk on that on those deals is in the equity position? Sure. So I'm underwriting these loans, especially at a conservative LTV. Back then it was like 50%. You know, back then it was more of like traditional hard money.
Michael Gevurtz (00:04:43) - And we can talk a little bit about what hard money means and things like that. So I didn't want you know, I started buying stuff 2009, 2010 that was like shooting fish in a barrel. I mean, anything you bought went up for the next few years. Reynolds Single family home prices went up. It was easy. And then around like 2015, like it wasn't so easy anymore. I was looking at different things, different way to attack it. No, I agree with you. I would not want to lend at a high LTV on an overheated market. But the way that I look at it is I take over the property if the borrower can't complete it. So, you know, I'd rather expose 100 to $200,000 in the debt position that instead of equity at that time.
Sam Wilson (00:05:24) - Yeah, absolutely. Absolutely. No, I think that's really cool. The thing I love about your story here is that you said you still own a lot of that portfolio that you built up from 2009 to 2015.
Sam Wilson (00:05:37) - Yes, I think that's awesome. I did a kind of a bag of the napkin analysis of everything I bought from 2013 to like 2020 because I was in the fix and flip game for actually 2018 when I got out of the fix and flip game. But I looked at that and I'm like, I could have retired if all I did was just hold that portfolio.
Michael Gevurtz (00:05:58) - Well, well, I'll tell you, it's funny you say that because the the best deal I ever did on a on a return basis was a package of eight single family houses in South Philadelphia that I bought in 2012, paid $100,000 apiece for them. They were all rented with great tenants for 12, 1300 bucks a month. And then, you know, I pretty much financed it 100% because there was equity in the deal where I was able to refinance it, you know, a year or two into it, get my money back. And I did make the mistake of selling most of those off. Now, I kept a bunch of them.
Michael Gevurtz (00:06:36) - But I do think about that sometimes. I'm driving down the street. I used to own that house. It'd be worth, you know, $400,000 today. But the majority of the portfolio I've kept.
Sam Wilson (00:06:46) - Good for you. Good for you. You're smarter than smarter than me. That's. Yeah. Which you can't. I mean, hindsight's always 2020 or at least somewhat. Sometimes it's 2020, I think I should say. But and that's just, that's just business. You know, you take the wins when you when you get them and you think you're winning and you are and you move on.
Michael Gevurtz (00:07:06) - Yeah, you can't.
Sam Wilson (00:07:07) - Always second guess it. But it is also interesting just to see what how the strategy, if I could go back, how you would have changed that. But I digress. And kind of getting off off track here because we want to talk about your lending business that you've built from 2018 until now. You guys focus on. Will you tell me like, what's what's your core business look like in the lending business now?
Michael Gevurtz (00:07:31) - So the the core business is that we're bridge lenders.
Michael Gevurtz (00:07:36) - We provide funding capital to acquire, construct and refinance Single 1 to 4 family properties is our core business. When I started it in 2018, it was heavy on the bridge side. There's a lot of fix and flip going on up until more recently because the real the state of the real estate market, it's kind of frozen is how I describe it. Yeah. In single family and commercial, we're doing a lot of 30 year rental loans for people who, you know, are trying to get, you know, flip their bridge loan into a perm. That market's really been healthy or people who own properties free and clear with little debt on them. And, you know, the capital markets are pretty, pretty dislocated at the moment and they're looking for money either for working capital or to to acquire more if they have equity in their property, 30 year rental loans. Great way to go.
Sam Wilson (00:08:37) - Yeah. So tell me tell me about, I guess in the first part of your statement there, why did you focus on the 1 to 4 family? What was the opportunity there that you saw in that versus other potential assets to lend on?
Michael Gevurtz (00:08:52) - Um, well, I started there because that's what I just knew and I built and renovated a bunch of stuff.
Michael Gevurtz (00:08:58) - I mean, it's kind of like where a lot of people start, right? The, the single family market, single family home market is, is more stable and has a longer track record of. Providing year over year growth compared to other asset types. You know, as I mentioned, I'm familiar with retail development and you see what's happening in the office space right now. People need a place to live. Look, multifamily is getting a little skittish because that could be a little overheated. The single family market is definitely the most stable and wanted, I thought to myself. Lending is a risk mitigation business. That's really what it is. What asset class do I go after to make the safest risk adjusted return for me and my investors?
Sam Wilson (00:09:50) - Got it. No, I love that. And now you. Now you've really switched, it sounds like to you said the 30 year rental loan. How do you how do you capitalize that and then get your money back? Are you selling those notes off? Yeah.
Michael Gevurtz (00:10:05) - Is that we all. Yeah, we can't we don't have the capital structure to hold 30 year paper. Right. So it's all are all originated used off warehouse lines and partnerships with capital providers and. It all goes to investors who have an appetite for that long term.
Sam Wilson (00:10:24) - Right. Right. That's that's interesting. So tell me how that how does that process work? Like, what's the turnover time from? Okay, maybe you guys have investors and I'm just I'm speculating here. So tell me if I'm wrong. You guys have investors give you money, you guys then go out and you close this 30 year, you fund this 30 year loan, but then you take that and then sell that off. Is that about the.
Michael Gevurtz (00:10:46) - Yeah, exactly. I mean, it's it's all about so the loans can be originated within 21 days. That's our average turn time. The and it's a turn business and it's a it's really a fee. Business is what it is. We're providing a service to match, you know.
Michael Gevurtz (00:11:07) - You know, our customers, our borrowers with the appropriate capital source. So we charge origination fees. There's some processing things that go into it and things like that.
Sam Wilson (00:11:17) - Sure. Sure. No, completely understand that. I was going to ask you about that. So I'm losing my train of thought here. Let's see. Isn't the buyer side of things now is looking at that. So yeah, it's a fee based business, but what's your what's your typical term? That was a question. What's your typical turn time from the day they closed? Yeah. Until you sell.
Michael Gevurtz (00:11:36) - An asset within within 1 or 2 weeks. Okay. It's quick. Yeah, we don't. I don't hold it on the warehouse line for very long.
Sam Wilson (00:11:43) - Right, Right. Okay. I gotcha. And then how do you match that up? I mean, are you selling these to private equity? Is there just a pool of buyers that you just put it out to and say, hey, I got this loan available? Or how do you how do you effectively sell those at scale is the question.
Michael Gevurtz (00:11:58) - Um, so this is a new product that we're working on and I actually have not yet in the chat, so to speak, on. Selling them at scale. We're smiling them off one by ones and small packages and things like that. But that's, you know, the next thing that we're going to be working on. Got it. And, you know, we need scale. For the securitization market. That's where all this stuff is going, right? Right. So it's going to be anywhere from 50 to $100 million at a clip. And again, look to you before, we're not there yet on the 30 year we're doing. You know, we focus a lot on the bridge and the fix and flip space, which is an entirely different loan type. And we hold you know, we hold most of that on our balance sheet. Um, but it will be it will be an interesting journey on how to. Efficiently execute on the aggregation and sale of those of those loan assets. And the way I look at it, I'm going to approach it, You know how I have built all the other parts of my business and, you know, we're going to take a clean sheet approach to it and I'm going to hire the best people and, you know, connect with the best people in the industry.
Michael Gevurtz (00:13:14) - And we're going to figure it out.
Sam Wilson (00:13:16) - Right? No, I like that. You know, and that was my next question. Was your fixed and flip loans, things like that. I would imagine that those are like you said, there are things you hold on the balance sheet. Is that simply just because the returns on those mean that's that those are those are interest bearing loans that at a number that probably makes sense.
Michael Gevurtz (00:13:36) - It's mostly because of duration I mean they're short duration you know average is say is a little under 12 months and you have to think about. Well, the where, you know, the capital that we have to lend doesn't have the time horizon for 30 years, first and foremost. And then for the other aspect is that, you know, duration isn't is expressed in time, but it's really a measure of risk as a result of interest rate changes. Yeah. So. Right, So a, you know, last year was a great example. Our entire portfolio for a period of time for a couple of months was like not making any money because our cost of capital was rising and our interest rates were fixed.
Michael Gevurtz (00:14:23) - On our bridge, on our bridge loans mean the whole industry, you know, got hit pretty hard by that because of how fast the rates rose. But because of short duration, it didn't affect the asset value of that loan. And I was able we were able to just run them off and then originate new loans at a higher rate. Right at market, Right.
Sam Wilson (00:14:41) - That makes sense. That makes sense. And and would you say because your your capital is, like you said, warehouse lines and things like that, do you take and it's probably a floating rate that just adjusts all the time. Do you bring in private. Do you raise money from private investors at fixed rates or is that just an entirely different side of the business or different strategy altogether?
Michael Gevurtz (00:15:03) - Yeah, no, no. We have we have the investors that plug in the equity capital required for the warehouse lines, and they're paid just a fixed rate of return based off the income that comes off the fund. Got it. And then the warehouse line fluctuates based off of Sofr or prime.
Sam Wilson (00:15:22) - Right. Got it. Okay, That's. That's pretty that's I mean, that's a pretty complicated series of things that have to happen because you're you're again, I'm just getting my head wrapped around. The way this works is that you have lenders that get a fixed rate of return who basically collateralized the warehouse line. Is that a fair saying.
Michael Gevurtz (00:15:43) - That that's exactly what to say.
Sam Wilson (00:15:45) - Yeah, right. Okay. And then you're borrowing off of that warehouse line. So you. Yeah, it's that is and.
Michael Gevurtz (00:15:52) - And that's why the short duration is important because imagine if we were taking long dated risk on a short that's that's a recipe for disaster and that's a that's effectively what you know the SVB banking crisis was. You know they their deposits and everything are short term. Their capital short term, they're borrowing short term. And they were buying long term instruments that they couldn't weather that storm and had a market down to market.
Sam Wilson (00:16:19) - Like selling options you have you would at that point have unlimited risk. You know. Exactly.
Sam Wilson (00:16:24) - Yeah.
Michael Gevurtz (00:16:25) - So yeah you it's like the.
Sam Wilson (00:16:27) - Premium but then you have unlimited risk as the interest rate rises. So it's like you got to offset that somehow. And the way you do that is by, you know, compressed duration.
Michael Gevurtz (00:16:36) - Exactly. That's right.
Sam Wilson (00:16:38) - That's cool. I love that. Very, very cool. So we've talked a little bit about your private lending business. Actually, I have a couple of questions here before we kind of shift gears and talk really about the business side of your business. But, um, where do you see risk right now in the space that you're in? And I know we talked a little bit about this compressed or shorter durations is a way you offset some of that risk. But what are some other things, I guess market sentiment? And then where do you see risk and how are you guys offsetting that?
Michael Gevurtz (00:17:07) - So. It's really a function of, you know, credit the borrower's credit and loan to value on the collateral. And, you know, I was having a conversation with a colleague of mine in the industry, and all he wanted to talk about was, well, what's the LTV? What's the value? What's the value of the asset, what the value of the collateral.
Michael Gevurtz (00:17:28) - And that's, you know, nice to look at an appraisal and say, you know, yeah, this house is worth $400,000, but if there's not many transactions, you have to resort to cash flow. You know, what's, what's the what's the borrower look like, What's their experience in their ability to execute and what type of cash flow can the property throw off, even if it's not designed to even if their plan is to sell it as a flip? You've got to look at the rental income because that will be able to ride you through a rough patch. Whereas value, who knows what values are today in reality.
Sam Wilson (00:18:06) - That makes a lot of sense. Makes a lot of sense. Very cool. One other point I wanted to make here is that you guys have just gone to a national lending lender.
Michael Gevurtz (00:18:16) - Yeah, we're we're now national lenders. We're able to lend across the country opposed to just stay here local in Philadelphia.
Sam Wilson (00:18:23) - Got it. Well, let's talk about that because that requires team. That requires building a business that requires you as the leader to, you know, get out there and organize all your people in the right ways.
Sam Wilson (00:18:33) - So what have been some things, I guess, on the leadership side and scaling your business that have been kind of some important lessons that you've learned over the last few years?
Michael Gevurtz (00:18:42) - So I think. The first thing, looking back at some of the mistakes I've made, is that before you scale a business, you really have to define what you're doing, why you're doing it, what are your values, what's the culture that you want to create? And because everyone does create. A culture, they just might not know what the heck they're doing. And then if they grow and grow and grow one day, they look around themselves and they're like, I don't like what this guy's doing or how this guy's behaving or how we are collectively, you know, attacking this. So, you know, I went through for a few years. It took me a few years to really figure that out. And I went through an exhaustive process to define my objectives from a leadership standpoint. And and then the next challenge is, you know.
Michael Gevurtz (00:19:42) - You have to communicate it. Um, you know, what are our values again? What are our. What's our mission? Our mission is that we provide capital to real estate investors so they can accomplish their goals. And I've seen it across the board. Some of our clients are just looking to build up a portfolio to create wealth for generational wealth. Some of our clients are looking to improve neighborhoods. You know, they grew up in an area they don't like the direction that's going into. And so once you really, you know, they don't like the direction that it's going into. So that's why they're motivated to do what they do. So when you're able to connect those points together, then you know you have a purpose behind that. And that's really I think we're like, you know, we're the special sauce is.
Sam Wilson (00:20:26) - Yeah, no, that's very, very cool. And it sounds like you would like to align yourselves with borrowers that have kind of a mission and purpose behind what they're doing that kind of aligns with what your mission and purpose is, Correct?
Michael Gevurtz (00:20:38) - Correct.
Michael Gevurtz (00:20:39) - I the word alignment, you know, is key. Like, you know, going back to after when I left Crete, you know, I built all those properties and some of them, you know, with a series of different partners. I was looking for partners. I'm a I'm a I love the action. I'm a deal junkie by trade, by nature. And, you know, you get into a partnership with somebody and they're your friend or they do something that you do, and then you realize, well, it doesn't really complement what I do. And our interests really are not aligned. So alignment of interest between internal stakeholders and external stakeholders is really important to me. Yeah, and being able to identify that is key.
Sam Wilson (00:21:24) - Right? That's that's fantastic. What's it been like scaling across the country? I mean, that requires that communication, um, really just to increase exponentially, I would think you accomplish that.
Michael Gevurtz (00:21:39) - So.
Michael Gevurtz (00:21:41) - It's. Remote work and hybrid work has really you know, that shift has really changed the landscape.
Michael Gevurtz (00:21:49) - I used to have a mentality of that. You have to have people boots on the ground in the neighborhoods across the country to get that going. And, you know, a couple years ago, a colleague of mine and. Pretty much, you know, opened my eyes up. The fact that there's so much data out there and, you know, and he was in in Baltimore, Maryland, and I could tell you what's going on on the property in North Philadelphia that you're lending on. I know it just as well as you do. And I'm sitting here in Baltimore. So, you know, we mostly most of the national stuff is done totally remotely and we spend a lot of time. I spend a lot of time with my sales director, for example, making sure that he's managing the sales staff and. You have. He's so diligent with communication. When you're when you're managing remotely, you have to essentially keep it, act like you're in the office together, but not right. And it's not intuitive for a lot of people.
Michael Gevurtz (00:22:52) - But. If you're diligent with that, the results can be great. And, you know, in terms of because, you know, we have we have sales guys in Florida that are doing deals up here. You know, they just you know, all the borrowers have the same objective. You know, we know what they want. It can be anywhere.
Sam Wilson (00:23:16) - Right. Right. Oh, that's cool. Absolutely. Love it. Michael, I regret that we are out of time because there's a lot of questions here on the leadership team building, scaling side of things. I feel like you've got a front row seat to growing something. I think you get you get some of the people and they're always excellent guests. But on the show, you know that have are looking back 40 years ago and going man this is what it took to grow but I feel like you are kind of in the middle of it. And so there's a lot of lessons that we can we can really learn from you. Thank you for taking the time to really break down your business, the private lending business, how you guys are offsetting risk the products you guys see that customers want right now and how you guys are aligning yourselves with your borrowers on on what your company core values are and what they're accomplishing as well.
Sam Wilson (00:23:56) - So I think this is a really cool space. I absolutely love it. Thank you for taking the time to come on today. If our listeners want to get in touch with you, your firm and learn more about you, what is the best way to do that?
Michael Gevurtz (00:24:06) - The best way is Bloomberg lending. There's a a contact us and an apply now page and that will go straight to our sales team and we'd love to talk to whoever is interested in working on the next project.
Sam Wilson (00:24:22) - Fantastic Bluebird lending Blue Bird lending. If I could speak today.com bluebird lending. Com and make sure we include that there in the show notes. Michael thank you again for your time today. I do appreciate it. Thank you Sam. Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.
Sam Wilson (00:24:51) - It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
