Constructive Capital
Putting Client Success First
By Carole VanSickle Ellis
“There are three things in life you can count on,” Alex Offutt, managing director of the Wholesale and Correspondent Division of Constructive Capital, likes to say, “death, taxes and Constructive.”
When Ben Fertig, founder and president of Constructive Capital (known as Constructive Loans prior to January 2022), started the company in 2017, he knew he wanted to bring flexibility with stability to the private lending sector. “We start with client success first and work backward,” Fertig explained, adding, “We are a business that outperforms in difficult market conditions. There is a differentiator when markets are challenging, and that is when Constructive stands out.”
Early on, Fertig identified four components of client success that a lender must meet in order to actively advance a client’s ability to transact deals. “From the beginning, we concentrated on speed, flexibility, price and reliability,” he said. “Our decision to put client success first and work backward affects our processes, policies, and the decisions we make on personnel.”
Fertig cited Constructive’s decision to diversify across capital sources, product offerings, and distribution channels in 2021 as an example of the results of prioritizing client success over internal milestones.
In April of that year, Constructive finalized a deal to bring in a new source of capital: direct life insurance money. Life insurance policies last for a specific period of time, usually between 10 and 30 years, and pay out upon death only if the policy is active. Life insurance companies, like most life insurance providers, generate revenue through premiums charged on policies and by investing a predetermined portion of those premiums into reliable, low-risk assets. Not surprisingly, real estate-based assets and loans are precisely the type of low-risk asset insurance companies find appealing. The surprising thing in 2021 was that very few of these insurance companies were investing with capital providers like Constructive.
It only took Constructive four months of its diversification focus (diversification was “the word for 2021” according to Fertig) to identify and bring life insurance money into the equation for the fund.
“When the market started to have liquidity problems in Q2 2022 and rates started shooting up like a rocket, we were able to use our relationships in the insurance industry to lock in money for about 60 days at a time,” Fertig explained. This meant that Constructive was passing along locked-in prices with roughly two-month windows at a time when much of the rest of the industry was dealing with rampant volatility.
“There were periods when some of our competitors were changing pricing by 250-300 basis points at a time, whereas we were able to maintain steadier prices because our money was locked in,” Offutt recalled. He said the company also elected to pass the low prices it had been able to maintain thanks to diversification on to clients, which paid off in the form of customer loyalty in 2022 and beyond.
“That decision [to bring in that capital] was huge for us because we were able to help our clients, many of whom are brokers themselves, access attractively priced capital for their borrowers,” Fertig explained. “It gave us a lot of traction and a reputation for doing what we say we will do, being stable and reliable, and remaining a good partner when things [in the market] get difficult.”
Standing Strong Through Thick & Thin
Offutt, who joined Constructive Capital just days after Fertig opened the doors, recalled early discussions between the two when they envisioned creating a business-purpose loan provider dedicated to “bringing source capital to the average small broker or private lender.” He explained, “We built our model on transparency, efficiency, and scalability, with the goal of executing on a loan better than anyone else out there. That is what defines us.”
Fewer than five years after its founding, Constructive Capital snagged a referral from Scotsman Guide in its residential directory and what was, at that time, referred to as the “hard money” category, which included lenders offering “fast closings and short loan terms…based on unencumbered property value,” according to the July 2022 issue of the leading lending-resource platform’s Residential Edition. (Today, the hard-money nomenclature has been replaced with the term “private money lender”).
“We have worked hard to try to become the strongest and most consistent capital provider in the industry,” Fertig said. “Today, when this business is tougher than ever due to the difficult market environment, tight liquidity, and higher rates, it can be hard to get started. We are on the side of the smaller broker or lender who wants to take advantage of the stability we provide.”
Offutt chimed in, “If a lender is doing between one and five loans a month, we want to help them get to 20 or 30.”
During the early days of the COVID-19 global pandemic, Constructive Capital, like many lenders, was placed in a quandary over whether or not to continue originating new loans in a truly unprecedented financial environment rife with unexpected and often non-negotiable regulations that were, in some cases, passed nearly overnight without oversight or public discourse. Although the company did elect to implement some extremely stringent origination guidelines, it refused to shut its doors completely.
“The liability of not making those loans [when investors needed them] was greater than the liability of making them,” Offutt explained, “and in cases where we did have to pull back on planned origination activity, we paid the broker fees and earnest money on those loans anyway because it just felt wrong not to. We wanted people to know that we had not abandoned them; we were still there.”
Those payouts, which included a winnings payment for a broker contest in March 2020 that ultimately was unable to move forward due to pandemic-related complications, totaled more than half a million dollars. Money was tight for a while, but Constructive stood firm. “When the market came back, our people remembered what we did,” Fertig said proudly. “They know they can count on us to follow through and to be there.”
The company was open at nearly full bore by June 2020 and saw its belief that the loans were “still good,” as Fertig had predicted, bear fruit. “Borrowers kept paying, and loans kept performing,” he recalled. “‘Big Capital’ realized it was underinvested, which kicked off the lending renaissance of 2021, but our brokers and lenders were months ahead of the curve.”
“Debt-service coverage ratio (DSCR) capital was the first capital to come back into the market,” Offutt said. “We saw the opportunity to grow the business because we were out ahead, our asset quality was proven, and we had 18 months of continuous month-over-month growth that enabled our clients to build the efficient, scalable models they were craving.”
DSCR rental loans use the debt-service coverage ratio to compare rental income on an investment property to the expense associated with acquiring and maintaining the investment. On its own, DSCR is a way to evaluate the risk potential and profit potential associated with an asset. DSCR rental loans are loans originated primarily based on this metric.
Counting on the Tools that Build Success
As the company entered 2022, Constructive began to focus on what Fertig described as “diversification 2.0,” which essentially meant the team’s primary focus centered on helping clients optimize access to capital for their own deals and customer projects.
“Many of our clients are capital brokers themselves,” Offutt explained. “For them, it is huge to be able to provide competitive offerings in today’s market. We are determined to continue to provide them with the tools to build success.”
One characteristic of Constructive that demonstrates how determined the company leadership remains when it comes to efficiency is the number and type of employees working there. According to Fertig, Constructive employees are hired based in large part on how well they handle empowerment and engage in critical thinking as a team. “We do not like to cram our people into narrow operating channels because that prevents them from serving our customers at their highest level,” Fertig said. “We want to be sure each team has the best ability to leverage their talent and our resources on behalf of our clients.”
Offutt noted that it is “not uncommon” for the company to transact as many as 700 loans in a month with an employee base of just over 100 people. “These teams are super-efficient,” he said. “We have one of the lowest head counts relative to volume of anyone in the industry. To us, it is all about building a successful operating business with more efficiency and less waste while keeping our clients happy with best-in-class products and services.”
Offutt described a client he said typified what Constructive would consider a “success story.” He explained, “This client, who is now one of our biggest clients, came to us with an idea when they were brand new in the industry. We took that idea, which involved offering business-purpose loans to their customers and helped them run with it.”
The company is now one of the largest brokers for this type of loan, which involves borrowing using non-owner-occupied collateral, like rental properties, in order to fund a business. This type of loan is extremely important to most real estate investors who purchase properties in order to fix them up and rent them out.
“Now, that client averages about 120 business-purpose loans a month,” Offutt said proudly. “Our goal is to replicate that process with as many of our clients as possible in the fields where they want to focus.”
Fertig added, “We view our clients and the relationships they have with their borrowers as sacrosanct. In light of that, it is our job to make sure they have the tools they need to grow their businesses.”
As Constructive Capital continues to grow, Fertig said, an increasing amount of their business is made up of clients leveraging DSCR rental loans. “DSCR is our strength,” Offutt said proudly. “We believe we execute these loans better than anyone else in this space. Our goal is to reach successful private lenders who do not have a DSCR product or who are not executing that product effectively and help them be successful with it.”
SIDEBAR 1
3 Constructive Products for Lenders and Investors
Constructive Capital offers three primary products, placing an emphasis on the company’s ability to customize these services to a client’s needs.
Rental Property Loans
Designed with flexible financing, less than two-week closings in many cases, and LTVs up to 80% for purchase and 75% for rate & term and cash-out refinances, Constructive’s rental property loans offer flexible terms, flexible financing, and are available for properties with between one and four units including condos and townhomes.
Fix-and-Flip Loans
Because every fix-and-flip deal is unique, Constructive Capital takes an active role in assessing the potential of properties and deals before making these loans. However, Fertig noted, the Constructive Team focuses on the asset rather than the borrower. “We base our calculations for short-term fix-and-flip loans off the property’s value, not your finances,” he said.
Lines of Credit
Constructive Capital created its credit-lines program to help investors acquire and manage multiple projects at once. Some lines may go as high as $5 million, and properties with between one and four units are eligible.
Learn about Constructive Capital products and services at ConstructiveLoans.com.
SIDEBAR 2
Awards & Notes in 2022
November 2022
The Constructive Capital Team earned the National Lending Experts (NLE) Leadership Award (accepted by Alex Offutt at the NLE conference in Tampa, Florida).
October 2022
The Constructive Capital Team presents “Capital Stability in a Rising Rate Environment” at the American Association of Private Lenders (AAPL) conference in Las Vegas.
September 2022
Tess Siwa, senior vice president of operations, named a finalist for the Five Star 2022 Authentic Leader Awards.
June 2022
Constructive Capital receives a nomination for the Geraci Captivate 2022 Lender of the Year.
February 2022
Constructive Capital co-sponsors the Women in Private Lending Event in Scottsdale, Arizona.
January 2022
Constructive Loans evolves into Constructive Capital.
SIDEBAR 3
Don’t Make the “Biggest Mistake a Lender Can Make”
When Ben Fertig, founder and president of Constructive Capital, thinks about mistakes he has seen mortgage lenders and bankers make over the years, one stands out above the rest. “The biggest mistake a mortgage banker can make is not managing to operating results,” he said firmly. “You can’t try to grow into an enterprise value when you are losing money at the same time. Look for a partner that can help you with that growth for the long term rather than one that will just help you make a quick buck.”
Fertig and his managing director of the Wholesale and Correspondent Division of Constructive Capital, Alex Offutt, have seen the wisdom of this simple warning borne out time and again in their space as companies mistake the momentum of fierce competition for true growth, overpromise, underdeliver, and, ultimately, flame out.
“We have seen other companies price clients into other lenders’ products where the lender went out of business because it could not deliver what was promised. That made the client look bad when they could not deliver because their lender was no longer in business,” said Offutt. “Watching anyone choose a risky or unreliable product belonging to someone else instead of one of our reliable, predictable options is always hard to handle, but we only offer what we know we can deliver. We know we will be the winner at the end of the day because if you are building a brand for the long term, you need a partner for the long term. Constructive Capital is that partner.”
Fertig continued, “Investors have to remember there is more to successful investing than making some fast cash. At Constructive, we are a capital provider, not just a lender. No one is bigger than the market, and investors need sources of capital that understand this and understand how to think creatively and diversify ahead of the curve so they are always one step ahead.”
