By Bob Coleman
Editor, Coleman’s Movers and Shakers
Clark Street Capital Announces SBA 504 Secondary Market Program
Bob Coleman: The 504 Secondary Market is essentially broken. With only a small percentage of 504 sold to the current publicized buyers in the marketplace. We are with Jon Winick, CEO and Founder of Clark Street Capital, what are you saying with that statement?
Jon Winick: If you look at the universe of active 504 sellers, they are really only doing maybe $75 million of 504’s a year. As a percentage of 504’s that is a pathetic percentage. In the heydey, perhaps as much as 20% of 504’s were being acquired by the players in the business.
I spoke with a banker in Utah that was fairly active in 504 sales and he said, ‘What if you took every 504 loan submitted and you sold every 504 opportunity to every single secondary market buyer, what percentage do you think they would do?” I said, “Is it 10%, 15%, 20%?” He said, “You are lucky if you got to 5%.”
The current official list of buyers is not sufficient to meet the needs of the sellers.
Bob Coleman: Jon from Clark Street Capital, what is your answer?
Jon Winick: We are filling the void in the 504 secondary market now. We’ve already done one sucessful offering where 75 people executed the confidentiality agreement. It was a $10 million deal and we had over a dozen bids with two sellers. Our plan is to run quarterly 504 first mortgage sales, working with multiple originators, to basically create a larger offering. We have found in all of our deals, the larger the offering brings more interested parties. If you can get to at least $10 million, typically you are getting a broader audience as oposed to trying to sell two or three loans.
Certainly competition and the competitive process yields better pricing and less pressure to re-underwrite the loan.
Bob Coleman: Jon, this is listened to by bankers, how do you want them to participate in the next offering?
Jon Winick: We want them to consider as a seller, to participate in this offering. I don’t care if you submit one loan or five loans, a couple $100,000, or $5 million. It is an opportunity to join a broader marketing effort. Instead of trying to sell two or three loans to the parties that are out there right now, you have an opportunity to sell two or three loans which are a part of twenty or twenty-five loans to literally dozens of potential banks and buyers all around the country so it’s a much more broadly marketed effort.
Bob Coleman: In the 504 secondary market the hiccup seems to be the underwriting at the secondary market level. How are you and your staff going to approach that?
Jon Winick: Well I think our investors find that our asset summary reports and our data tapes are the best in the industry. It is typically very easy to figure out these credits. Certainly the seller has the relationship with the customer. We would like the credit write-ups to be somewhat recent. We like the recent financial statements. Getting 2015 financials would be critical for any loan that we are doing now. The better information that we get, the easier it is for us to do our write-ups and data tapes.
Bob Coleman: Give me the logistics, what are the dates? What is your timeline?
Jon Winick: You have until Friday, April 29th to submit eligible loans. Really any performaing and good loan is eligible. We don’t want any classified loans or loans that have been thirty days past due. But we will consider any state, all property types. We are obviously sensitive to the mix of the portfolio, we are going to take that into account. Sellers are going to be protected by the fact that the bidder can bid on either a seller basis or a loan by loan basis. So somebody could bid on a $15 million pool, and it could be three sellers, but they are going to have to allocate their purchase price by seller. You have to agree to a single confidentiality agreement and at least a single draft loan purchasing.
Bob Coleman: Jon Winick, CEO and Founder, Clark Street Capital, this is very needed in today’s marketplace, thank you for talking to us and puting this fund together.
Jon Winick: Thank you Bob.
Chief Executive Officer
Clark Street Capital
601 S. LaSalle St., Suite 504
Chicago, IL 60605
P: (312) 662-1501