Looking Back at 2011 and Ahead to 2012

Every so often it's a good idea to pause, take a moment and reflect on where you've been and what you've learned. In the case of MMG Capital and our steadily growing lending business, it's especially important that we do it to  make sure that both our partners and our investors fully understand what kind of success we've had with our current program and how it shapes the moves that we're going to make going forward. In this case, it seems only too appropriate to take a look back at the last 12 months and examine our results from 2011, discuss what we see changing, and give some indication of how those changes will effect us for the next 12 months.

How did we do in 2011?

We couldn't possibly be happier about the results that we achieved in 2011, and we sincerely hope that our investors feel the same way. As of the date of this recap, MMG Capital has not had a single loan default. That's right - not  a single default. We haven't even had to think about the prospect of foreclosing on real estate since we opened our doors over 4 years ago and every loan that we've originated has performed exactly the way that we would want it to. Borrowers have made payments on time and investors have received their monthly interest shortly thereafter. Those types of results are the reason that we're in business and they're also the types of results that we're going to strive for on an ongoing basis. This company exists to protect its investors and provide them with exemplary returns. Using that mission statement as a measuring stick of our 2011 performance, it's hard to say anything but, "So far, so good." The average yield per investor portfolio was around 11% last year and no investor earned anything less than a 10% annualized yield.

Someone reading this that isn't currently an MMG Capital investor may say that it's unbelievable and may even be a little skeptical about whether we're providing an accurate representation of our performance thus far. And quite frankly, that would be a logical assessment, but only if you didn't know and understand our investing philosophy and how we make investing decisions. You see, we've always prescribed to the idea that "safety comes first." When in doubt, we sacrifice yield in order to get more security. The loans that we make are secured by 3 to 4 times (or more) the balance of the loan in lendable real estate equity. So in other words, the borrowers that are getting approved for MMG Capital loans are putting a lot on the line in order to get our money. They're highly motivated to ensure that we get repaid, and because they're generally very savvy business people, they don't mind doing it. In the end, borrowers typically thank us for making capital available to them when the bank wouldn't.

We're proud of what we've achieved and we hope that investors are taking notice, but not because we want a pat on the back.  MMG Capital's investment and lending strategy works. Quite frankly, it works extremely well. We have something very unique to offer investors that are looking for that combination of safety and yield, and to that end we do hope that investors are able to recognize it.

What did we learn in 2011?

Most importantly, we learned that the strategy we formulated on our first day of business is going to be our strategy going forward. The global and domestic economic climates are dictating that safety should be and will be our top priority in all of our investment decisions. There was a lot of risk out there in 2011, and there's likely to be just as much out there in 2012 if not more. But, you're not going to see MMG Capital venturing anywhere near it now or in the years to come because our core investing philosophy is going to remain unchanged: slow and steady wins the race. We're not going to achieve success by trying to hit as many home runs as possible. We'll achieve it by hitting an extremely high percentage and making sure that we don't ever get picked off of second base. 2011 was a reaffirmation that we're in the right place, and that our natural risk aversion is going to be a great ally in the months ahead.

We also learned that there's very little that is certain in our economy, in our markets, and in our world. On a day-to-day basis, headlines are about as volatile as the equity markets themselves. We have economists on one side proclaiming that there has never been a better time to own real estate and that the recession is over. You have economists on the other side stating that global financial turmoil is going to lead us into another Great Depression. So who should we believe? Everyone is certainly entitled to believe one side, the other, or subscribe to some entirely different line of thinking. But regardless of your take on where this country, our currency, or our markets are headed, the only way to be truly conservative is to assume that we're headed for the worst and at the same time hope for the best. That way, should the worst come, you'll be well prepared. Our conservative lending strategy and commitment to keeping with secured investments accomplishes just that. We won't make more loans than other lenders and we won't get every deal that we want to, but the ones that we do offer to our investors will be safe, conservative opportunities that are high probability winners.

So what's on deck for 2012?

The biggest change that we see in store for 2012 is that there will likely be more borrowers in the market for private real estate loans than there were in 2011 or in years before. Traditional financing is likely to become more scarce for borrowers that would have otherwise gone directly to a bank for their loans. That means that more opportunity will exist for private lenders to step in and fill the gaps. At the same time, this also means that fewer borrowers are going to be able to refinance out of short-term loans than might have been able to previously. So, there will be less room for error when analyzing the probability that a borrower's project will be a success, valuing collateral or scrutinizing an exit strategy. The bottom line in 2012 is really going to be very similar to the bottom line from 12 months ago - lenders are going to have to underwrite collateral very carefully, stay conservative, and lend to only the most credit-worthy borrowers. This has really been our strategy all along, so we're in a very good place to execute on that strategy and continue our streak of success in the year to come. And at the same time, we have one of the most experienced management teams around and our investors will be able to rely on the fact that their expertise is going to carry us all a long way.

So, in summary, it's going to be much of the same in the year to come. For investors that like to receive double-digit returns and get a monthly check in the mail, this is definitely going to be the place to be. We're very much looking forward to servicing our current investors and those that choose to join us in the coming  months. Happy New Year.