The partners at Noble Capital discuss current industry trends and reflect on how private lending will impact the U.S. economy.
Private Lender by AAPL conducted a round-table interview with the partners at Noble Capital: Jadon Newman, Romney Navarro and Chris Ragland. Newman founded the company in 2002 to create alternative investment opportunities that provide shelter from the volatility associated with other investment models. Navarro and Ragland joined the firm as partners later. The growth that ensued led to three divisions: private lending, retirement and real estate.
The three partners have built the company on four core values: growth, stewardship, candor and expertise.
Among the trends they are seeing are Wall Street’s entrance into private lending and the rise of various lending platforms. In this excerpt from the interview, the three partners discuss what these developments mean for smaller private lenders and the U.S. economy.
What trends are you seeing within the private lending industry?
Romney Navarro: Wall Street has entered our space. That’s the biggest trend. So now that institutional capital is here, we’re competing against those guys and it’s great—they’re welcome. There’s more money flooding the space, which is good. It brings a little bit of a spotlight to it.
Chris Ragland: Yeah, I think Wall Street entering is the biggest, latest thing in our industry, and for me, it’s a validator. I mean, thank you for coming in and validating the product that we have from an investor standpoint. I can’t wait to go back to Main Street and raise more money now. Thanks for the headlines. I used your ad or your headline in the Wall Street Journal to show my investors that what we’re doing has just been validated. A lot of it is going to be very disruptive, but I think it can be positive at all levels. It’s going to help the ecosystem of private lending become stronger.
Some of the weaker players are not going to be able to compete with that—that’s very true. If you don’t have a platform that’s scalable, if you don’t have proper asset management to back you up when things go wrong, if you haven’t thought through proper servicing of your paper, if you don’t have that infrastructure, you are at a disadvantage. But otherwise, it’s helping legitimize our space.
Jadon Newman: Wall Street swaps and trades and moves paper around very well. We’ll never be able to compete with those big institutions at swapping and trading paper. Where we come in strong—our competitive advantage—is our platform. We’re on the street, and we know what’s going on in the real property market, in the marketplace that we do business in. Real estate—while you can swap it and trade it and move the paper around—has to be more of a hand-to-hand, face-to-face business.
RN: Wall Street entering our space has also done something else. There is now enough money, enough capital on the streets, to where you no longer have to raise the money the way you used to have to raise money. Case in point, we’re getting bombarded daily with money from institutional capital. Banks telling us, “Here’s all the money you ever needed.” And we’re raising money one investor at a time. So, those days are not necessarily over, but those days are changing.
So, these hard money lending and private money lending shops have essentially become sales forces for Wall Street. That’s all great, but here’s the problem: Wall Street makes the rules. They’re so big, they make the rules. Down here on Main Street, we can still make the rules with the end consumer in mind. The disruption I envision is that we can come in here at the ground level and do the same thing they’re doing and give operators, hard money lenders or private money lenders the opportunity to scale and run a business, not just go out there and be somebody’s salesman.
CR: Yeah, I think I can button that up. We’ve spent years telling large institutional players, “No thanks.” And it’s because we’ve been through the ringer a couple of times and we realize that some of the constraints or the structure that they wanted to create is not going to work out. If you got me into a stressed-out deal or there was a change in the economic condition, we wanted to do it on our terms. And that’s started to pay off now, because now we do have players that want to give us capital and they want to do it on our terms. What that’s done is create an environment for us where we have access to a lot of capital.
What impact do you think, or hope, private lending will have on our economy?
CR: Because of the unique challenges in this space, banks are never going to return like they tried to do before. I really don’t believe they are. They know better. But I believe at the same time, this kind of private lending is like a new sector that is being legitimized by Wall Street. It’s being paid attention to by regulators, so you’d better make sure you’re doing it right. That is really a big piece.
So, I think there is a new sector of the industry being created right now in the finance industry that’s going to become accepted, ubiquitous and it’s going to be: Who has the best platform and who can originate loans? It’s going to turn into that and it’s going to have its own little market maker. There are already states that are providing new licensing specifically for this type of lending. You’re watching something brand-new right now being created in the finance industry. I think it’s fascinating.
RN: I think it’s the concept of utilizing this for retirement income planning. That’s the knock-out punch we’re now starting to pay attention to, and that’s the model we’ve been working on proving. That’s the Main Street model, so you can utilize stocks, bonds, life policies, annuities, different types of insurances, you name it, to create an income plan. But the most forgiving and most rewarding of all those things that may exist out there? Private lending. So, I think the future of this thing is really becoming a staple in the world of retirement.
How do you help to lead the private lending industry?
CR: A few things we’ve done at a very base level is try to improve some of the education and certification standards. We’re trying to raise the bar in terms of what it means to be a private lender or hard money lender in the U.S. And, out of that was born some other initiatives.
We’ve been talking a little bit here about out-of-the-box ideas for raising capital. I think what we’re trying to bring is this Main Street attitude that we don’t all have to raise capital from an institutional investor. There are ways to organize that capital and put it to work in your ecosystem of these guys who are flipping houses or building spec homes or new construction. We’ve spent years crafting that business model, and we’ve gotten very good at it. That’s what we want to do. I think we want to take that on the road and start helping people understand that they can own their future in terms of where their capital is and control that capital. I think that’s where we want to take this message.
RN: That goes for the “Main Street” investor, but also for the hard money shops across America raising this capital. They’re not necessarily adding this next level of thought into their clients’ investments, and we can really help mold it into something a lot more complete than just a deal. Because that’s what we see: “Here’s the deal, here’s the loan.” It’s like, no, here’s a plan. And it’s easier said than done.
We’re still working on it daily, but that’s what I think we can bring to the space that is going to be different. I also think there’s probably a couple of other things. For example, the concept of operating a business and growing it to scale the way we’ve done it is something that I know, for certain, there’s a need for, after we’ve been involved in multiple education and ethics committees. There’s a lot of disorder and just, rogue cowboys, as they call some of us, in the space. I think there’s this desperate need for a little more order and structure and direction. So, people want the tools but can’t necessarily access them because we’re all kind of paving the way right now.
JN: I have a heart for entrepreneurs, and I respect men and women who go out there and hang on to a dream and a vision to build a company and be successful. It’s not easy in any industry. Specifically, in the private lending industry, there’s not a blueprint out there. You don’t go buy a “Private Lending for Dummies” starter kit off the shelf. It’s one of these things where we’ve put together this platform purely on blood, sweat and tears. But, we’ve got this wonderful platform. We are not afraid of competition. In fact, we want to empower our competition and our fellow entrepreneurs, and we would love to create an open, transparent community of entrepreneurs who are sharing, empowering and inspiring each other. We would love to be a leader in that charge.
So, we see ourselves taking on some role, some leadership role in helping shape the industry and really taking the best ideas, the best business practices and the best concepts—and not just specific to the private lending platform. What’s the best way to fire up your marketing machine? What’s the best way to fire up your back office and your servicing? And what’s the best way to manage your relationships with your capital? It goes on and on. We would love to be able to empower others and really be a beacon in this industry. That excites us because we believe that if we can help as many people achieve their dreams and goals, we’ll always have what we want.