Just a heads up, we had a NPL purchase deal with Granite this month with an accepted offer. We waited over 2 weeks for Chaz to get us a missing assignment to complete our due diligence. Just yesterday I was told that "Chaz said the loan is no longer available". This is the second time that we've spend time on DD , getting an offer accepted then Granite pulling the asset/deal out from under us.
They have become a waste of our time and just want set other folks expectations if you decide to place an offer for an asset from them. I'm obviously having difficulty with the company's and Chaz Guinn's integrity as a note seller. Buyer beware!
@Bob Malecki That's bad I'm not surprised I know of another investor this happened to.
You had a verbal accepted offer or was there a signed contract?
In the other case, it was a verbal but no signed contract as that was not forth coming after the verbal agreement so the buyer ultimately didn't get any further.
These were verbal/email agreements during our due diligence. The previous time we had Chaz, one of his desk managers, myself and my 2 partners on a conference call all agreeing to purchase 3 assets which Granite agreed to our offer price. About a week later after a few email inquiries we were told that those were sold to another buyer of a larger pool. Another waste of our time.
Appears to be the same behavior. Too bad, what a waste.
@Bob Malecki thanks for the heads up. There seems to be a void for a good chop shop that buys pools and splits them up for smaller buyers. The ones I know of aren't super reliable. What kind of short term funding are they using to buy the pools before they resell most of it?
Hi @Patrick Desjardins Granite is a subsidiary of a larger, well funded company. You can get more info on the interview with Chaz at http://www.blogtalkradio.com/capitalmarketstoday/2...
@Patrick Desjardins - I can't speak for Granite's borrowing strategy, but most all of the major banks have a team dedicated to lending to pools of residential loans for large asset managers. They are generally <5 year tenor, revolving lines of credit and spread is pretty competitive (think Libor + low single digits). There are also teams who lend directly to private equity funds secured by investor commitments (google "Capital Call facilities"), again providing a cheap, 3-5 year tenor line of credit.
Again, can't speak for Granite, but if you are a large asset manager with diverse pool of collateral, there are a lot of very cheap financing options available to you in the market these days.
@Abel T. Are there some "capital call facilities" that you can recommend? What are typical rates on the lines of credit? Are they lending money on an existing pool of assets so that a Fund can lever up and purchase more? Or do they lend prior to the purchase of a pool?
Hi @Andreas Mirza
I’ll first put a disclaimer that the only times I have seen these LOCs are for funds that raised $500MM+ and the investors are institutional (e.g., pension funds and universities). It’s possible this is done with smaller funds, but I don’t know what those terms look like (actually would be interested to hear them).
Second, I did this in a past life, so I’m not as up to date on the latest developments, this is just meant to give a high-level overview.
Third, I’ll apologize to @Bob Malecki for hijacking his thread. Watch out for Granite everyone.
Capital Call Facilities:
Most large PE funds raise money from investors, however they don't collect the cash from their investors upfront. Rather they collect signed commitment letters from investors, which say the investor will fund portions of their commitment to the Fund as requested over time. There are several reasons for this, but a main reason is that whenever the investors send cash to the fund, they are owed a certain guaranteed return (6-8%) on that amount, so funds like to manage this process and only call cash from investors when needed. However, funds then run into an issue because they need to appear to potential sellers as cash buyers, and be able to close very quickly. Calling capital from investors takes 2+ weeks usually and is an accounting mess. This is where Capital Call facilities are helpful. A bank provides the fund with a LOC, and now the fund can use that LOC to make large purchases very quickly. I've been out of this space for a bit of time, but rates were <4% (incl. LIBOR) and tenors range anywhere from 1-5 years. And then once the deal is closed, the fund will work on getting a long-term asset-level refinancing to repay the Capital Call LOC. Very similar to an investor using a HELOC to quickly purchase an asset, then going to a real estate banker to refinance the HELOC with a mortgage.
If the fund gets into trouble and can't repay, the bank has the right to turn to those investors and basically say "hey remember the commitment you are contractually obligated to send to the fund when called, well – we need to call it to pay off the LOC". If done right, the investors are already aware that this type of LOC is in place (it's usually covered in the fund's governing docs), and know they will need to fund to the lender or risk whatever repercussions are outlined in the fund docs.
Now, the reason I said I’ve only seen this with large funds with institutional investors, is because the bank is only repaid in an event of default if the investors pay up. So the bank needs to make sure the investors have significant financial wherewithal and a long track record of meeting their obligations. Obviously it’s much easier to determine this when the investors are large pension funds and schools who publish financials vs a private HNW investor.
I would categorize Capital Call facilities as more of a "bridging" facility vs true leverage. It doesn't really increase your purchasing power since the size of the LOC is based on a % of how much investor commitments have yet to be called. As the fund progresses through its life cycle it will call more and more of the investors' commitments, so the Capital Call LOC will also start reducing. But still a really useful tool if you have an institutional type fund structure. That's why I say that large institutional funds typically don't fund their purchases with cash on hand. Usually it's some form of an LOC like the above.
Hopefully that’s helpful, feel free to PM me with any specific questions. All the big banks have a team that do this, though you may have to navigate around to find the right team. Large law firms that specialize in fund formation could be another helpful resource.
**"rates were <5% (incl. LIBOR) and tenors range anywhere from 1-5 years"
Usually funds will use this type of LOC to make the purchase, then focus on refinancing it with long-term leverage. Much like how a HELOC allows you to make quick purchases, and then you can focus on getting a 30 year mortgage in place.
@Abel T. this is exactly what makes the small 1 to 5million fund kind of harry for the little investor who invests in those.. they expect interest day one. Only way for sponsor to raise the money..
sponsor cant get the funds in play and they have serious drag on the funds they raised.. its for those reasons I personally will not raise funds in that manner.. only pay interest the day I put it out.. not before and not after.. I can also offer quite a bit higher return this way too because I mitigate my down side or paying interest on raised funds that I cant place.
So when I did HML it was bank LOC's I only tapped the LOC when I had a deal to fund.
I also experienced what Bob is going through years ago when trying to buy larger tapes not just an asset or 3.. trying to get those deals to close was a hard thing to do.. and frankly never closed a one so I simply gave up and created my own notes LOL.
Thanks for the apology. I would very much appreciate it @Abel T. if you would start a new thread, copy your post to that so we can maintain the spirit of the original thread. :^)
Fyi, I just got a very sarcastic email from Chaz thanking me for posting my encounter with him and Granite on this thread. I gotta say that I don't mean any ill will to him or his company. I just found their sales and customer service tactics to be distasteful and prolonged with no favorable outcome, compared to other companies with which we have done business.
@Abel T. Thanks for the detailed response. I got a lot out of it. Yeah, we're not at $500 mil+ yet so we'll have to wait on that strategy!
@Bob Malecki what has happened to you is a disturbing trend that Chaz and Granite are doing. Chaz approached me at the beginning of the year to help market their assets. We agreed to do this under one major caveat...that we were the only firm marketing the lists. We didn't want to do all the work of marketing just to have people buy the assets through a different broker and us not get credit or paid for our time and energy. Well, that worked for two initial trades. Unfortunately, our investors and a chunk of our mastermind students who bid on assets and had verbal agreements that they were the approved buyers on a Friday afternoon found out on Monday that Chaz/Granite sold the asset to someone over the weekend.
I can understand that happening once or twice, but that quickly became the norm for Granite trades. And then the big kicker was that Chaz could not keep his word and was marketing the tapes to other brokers even after I stressed that we would not waste our time doing all the work that we do to market if he sent it out to his list or other brokers. Well, wouldn't you know, I get two phone calls from buddies who stated that Chaz either sent them the list two days or a week before he sent it to me...basically exposing Chaz as untrustful. Hey, if you are going to market it, go ahead and do it, just don't waste my or my staff's time. And sure as hell don't waste people's time and money telling them that they have an accepted offering and they start paying for BPO's, O&E's, etc only to pull the rug out from underneath of them and lie to them. That's why we've blacklisted Granite as a source and stopped doing business with them. It's not worth our time. Thanks for initially posting.
Thanks for your frank encounter @Scott Carson
Just wanted to say that as a newbie note investor...This is Awesome!
Not that there are companies that do this type of thing. But that there are people like @Bob Malecki and @Scott Carson , leaders in the field, that help self-police the industry. This does not happen everywhere. In most other areas you will find tacit approval for these kinds of acts, if not straight out approval. But not in the note space. So far in my short time here, I have found it to be a strong ethical group and I am happy to be a part of that.
Thank you gentlemen for speaking out and helping everyone.
You are very welcome @Seraj Saba . Normally I follow the philosophy of "if you don't have anything good to say, then don't say anything at all" about my peers and vendors. But when I see a company misleading customers and burning bridges as they continue to market to newbies, I have to post a warning shot not only to keep all of us aware of these tactics, but also in hope that the vendor realizes that there are public forums like this to "keep them honest".
I echo @Bob Malecki 's comments. I think we can all agree that things will happen every once in a while and we would all be accepting of it being a rare occurrence. But when it happens over a dozen plus times (and that's just from my Mastermind Students) then it breeds bad ethics...