S2 Ep5 – Accessible Financing with Gene Combes

“Hi, welcome to Funded. I’m Katelyn Phinney, and this is a Clearinghouse CDFI podcast, here to give you a glimpse into the community development work Clearinghouse CDFI is doing around the country. Listeners can expect to tune into conversations discussing what a CDFI is, how getting funded by a CDFI works, community impact stories, and how we are all working towards building better communities together.

Hello, and welcome back to Funded by Clearinghouse CDFI. I’m your host Katelyn Phinney. You are joining us on Season 2, Episode 5 of Funded. Each month, we are tackling the key industry gaps in the CDFI industry in hopes to bring more accessible financing to underserved communities. Today, I am joined by a very special guest. This is Gene Combs. He is the Vice President of Rail Consultants Mortgage, and he is lending us some of his expertise on community financing and lending. Hello, Gene. Welcome to the podcast. Greetings, Katelyn. Greetings, How is everybody doing today? Happy Thanksgiving. Happy Holidays.

 Good. I’m happy to have you here, and thank you for lending us some of your expertise today. Well, I’ll do the best I can with the limited expertise I have. So Gene, can you give our audience a better understanding of your background in lending? My background in lending goes way, way, way back. Initially, I began lending probably in the late 80s, and I was working as a processor on residential home loans. From that, I transitioned into originations in the early 90s, learning how to originate residential home loans. And to be quite frank with you, I failed miserably. The reason I failed miserably is because I didn’t know what I was doing. So I took a step back, and I got into the originations training aspect of it, how to underwrite, how to process, how to evaluate capacity, credit and collateral, and more determine what’s a good client or not. And then at that particular point, I got back into the residential lending avenue and worked a lot with an agency called Consumer Credit Counseling Services of Los Angeles, California. They were around back in the late 90s, early 2000s, educating first-time homebuyers, generally individuals that had issues as far as qualified home loans. And after a period of time, I transitioned over into commercial lending, simply because of the fact that the numbers, number one, were higher. Number two, there was a level of seriousness that wasn’t quite always there as far as residential lending was concerned. And I just found my niche, the life of a third term. Wonderful. You’ve had plenty of experience, and it’s given you a bit of background in lending. So thank you for joining us today. Thank you for having me. Okay. So first, before we get into it, I want to lay some foundation and explain the mission and goals of the CDFI industry and how we focus on financing projects that help people work, live and grow to thrive in healthy communities.

 And we do that by creating financial opportunities in these underserved communities, by supporting local housing developments, small businesses, commercial real estate, those kinds of projects so that those areas have a little bit more flexibility in financing. Oftentimes, because we’re so out of the box, we often partner with outside lenders to make deal stacks come together and give it viability. And one of the ways that we do that is by partnering with other lenders like Gene’s Company at Real Consultants Mortgage. So that’s what we’re going to talk about today, how companies like CDFIs and lenders can partner together to bring more financial services to underserved communities. Gene, can you explain to our audience why a CDFI and a lender might team up to bridge some gaps in financing? I don’t consider myself a traditional lender. And the reason I don’t consider myself a traditional lender is because I’ve worked for and with traditional lenders in the past. Generally, traditional lenders follow a matrix. They fit into a box, the client puts into a box. Majority of times, most of the people that I deal with as well as a company that I work with, which is Real Consultants Mortgage Services, we don’t interface with inside-the-box clients. We serve predominantly underserved communities. They’re not that familiar with how the economic or the financing world works. So our job is to educate, inform, and if they’re not ready, we do our best to get them ready. So what CDFI does for us is it gives us another avenue with which to serve our clients, with which to provide services that typically they would not be able to avail themselves of.

 And that’s one of the reasons why I’m here today, because I not only want to tout the benefits of mortgage brokers such as Real Consultants, but also the fact the job that CDFI does. You guys do a great job. So thank you for being our partner. It’s an honor. So we have similar goals and mission in helping underserved demographics, and so we align on that. Part of being a CDFI means that we’re focusing on every project we fund having some kind of measurable impact. Is that any taken into consideration for your lending? It’s a big consideration because I think it’s Hippocrates’ Creed, which is do no harm. And our goal is not to do harm. Our goal is to enhance and provide the clients with a level of financial stability that perhaps they didn’t have before, and also to provide them with the tools and resources and how to get those tools and resources in order to improve their financial situation. We need to educate our clients because typically it’s a day-to-day existence as opposed to a five-year or ten-year plan. We need to get them there. Yes, yeah. It’s setting them up for long-term future success. Before we get into some of the details on our partnership, could you describe the mission and role of Real Consultants and maybe give us an example of some of the projects you guys focus on? Real Consultants Mortgage offers a variety of programs. We offer first-time buyer program.

 We offer the typical conventional FHA purchase refinance type of transaction. The area that I work in, which is the specialized lending division, we try and reach out construction projects, flips if in fact they’re necessary. I focus primarily on getting a lot of people commercial business and trying to give them long-term security. It’s all about taking them out of the day-to-day grind and putting them into a long-term type of scenario or situation whereby they can rest a little bit. They can actually understand the reason why they’re providing taxes, which in fact are accurate, or giving us bank statements that reflect actual deposits as opposed to squirreling whatever amount of money that they’re going to squirrel away, I should say. Our job is to make their lives better. You mentioned that some of the projects that you focus on are the commercial real estate and sometimes small businesses and just the ones that we oftentimes can find, bring to partner. Those are the ones that we’ll be talking about today. Let’s discuss some of the challenges that the borrowers that we work with often face. That would be things like financial reporting that you mentioned, lack of education. What are some of the ways that we can address the challenges that you see when we’re working with borrowers from underserved communities? Well, first of all, that’s a good question. Part of the problem that we have when we’re working with underserved communities is there’s a multitude of problems. One of the problems that we have is misinformation. Typically, the sources from which they’re gathering their information are designed to sell as opposed to inform and educate. My job in collaboration with CDFI is to inform and educate. It’s to explain the reason why you are doing something as opposed to just saying, do this. We have to fight misinformation, number one. Number two, we have to tell them the financial tools that they’re going to have to provide in order to be a viable candidate, whether that’s reporting your income or at least a percentage of it, actually having rents in place, insurance that’s going to cover the actual value of your property. It’s a very intensive educational experience. For the most part, the clients don’t really know where to go. If they go to, for instance, not to mention any names, but if they go to Bank of America, they have to fit the box for Bank of America. If they don’t fit the box for Bank of America, then guess what? You’re done. Then you’re at a thrifted loan or you’re at a ledger, which is basically going to just give you X number of dollars at a high rate and not advise you why you’re in this particular situation. We have to educate the community better. Yeah. There’s an extra layer of advising when you’re working with a CDFI or a mission-driven lender that oftentimes, if you go to a normal bank, you might be passed over because they’re not willing to take the time to explain and go into that extra level of detail. Exactly. Part of it is, for instance, a lot of the underserved community, they don’t use credit. The reason that they don’t use credit is because they don’t want to have monthly debt. Well, unfortunately, when you come in to see me and I say, okay, let me look at your credit report and see what your FICA score is, it’s nonexistent or it got two trade lines and we’re at an impasse at that particular point. Our job is to more or less teach them how to operate under the American system of banking, lending, etc.

 Other than the lack of education and needing to take that extra time to communicate those things, what other kind of challenges do you see amongst minority financing? Lack of resources. A lack of resources as far as money with which to put down payment. They may be able to get it. Back in the day, they used to use something called a compina. And a compina, C-O-M-P-I-N-A, is essentially a collaboration of like-minded family members, like-minded community members. They would all put their money together. And at some particular point, it’s like a rotation. X person is going to have access to $15,000 in September. Another person is going to have access to $15,000 in October, etc., etc. These are quasi-social groups that allow them to develop the entre, the money that they need in order to come in with. The problem with that is the fact that there’s a lack of documentation. So obviously, CDFI, Bank of America, whoever the case may be, and I’m not picking on Bank of America, they need to document where your money is coming from.

 So that’s one of the issues. The other issue is lack of a business plan. You can have a great vision about putting something together, but unless you have a business plan, you’re not going to pass the smell test in lending. You have to exactly demonstrate what you’re going to do, or at least how you’re going to do it, and why it’s going to work. Have you had experience in helping some of the borrowers, you know, get into a more formalized business plan? Of course. That’s one of the things that we have to do. And those are hard conversations because nothing is written, but everything is thought of. So you have to actually write down. And one of the things that I like about CDFI is when I work with you guys, for instance, I’ve worked a lot with Lisa Van Helleck. Lisa takes her time to tell me, it’s not going to work, and this is why it’s not going to work. Or it is going to work, and this is why it’s going to work, and this is how we can put it together. So you guys, meaning CDFI, are in the process of educating me as much as I’m educating clients. So it’s a partnership that is a 360 type of vertical.

 Totally collaborative. And one of the benefits of working with a CDFI is that we don’t have any set loan programs or, you know, specific parameters that our borrowers have to fall into. So it helps us to be a little bit more flexible and to open a set of partnerships like that. And it is appreciated. So now that we’ve covered some of the challenges, what are some of the resources that we have to offer this community? For us, CDFI has transitioned into using more dual language marketing materials so that Spanish speakers have access to the financial resources that we’re sharing. Is there anything on your side of the table that you guys do to help? Well, to be quite frank with you, one of the things that I personally need to get back into doing is more community outreach. Social media is great. You can reach a million people in five seconds, literally.

 But that’s not going to close the deal and that’s not going to give the client the individual attention that they need in order to kick the can down the road or make it work. I’m a big proponent of outreach programs. I’m a big proponent of actually speaking with people, getting in your face, for lack of a better term. And I think if CDFI were to partner with certain brokers such as ourselves, we could really begin to start impacting the community. And that’s one of the things that I suggest that we enact or we start doing.

 Let’s talk about a specific example of how we’ve partnered in the past. And I want to bring up the approach and the practices that we put into place on the Uribe project. So this is a project that we partnered on to fund. It was our Mission Hills Shoppery Center in Lompoc, California. It was a $1.6 million loan that we provided refinancing on for a revitalization of commercial retail space.

 And that was owned by Alejandro and Blanca Uribe. Can you tell us about these borrowers? Blanca and Alejandro are really special people. And they’re really special because they have the drive of God knows what. I mean, they have tremendous drive.

 However, in terms of putting their documentation together and making it a financially presentable project, it had some serious challenges. I stumbled upon CDFI one day as I was looking for a lender because essentially Alejandro and Blanca were in a, I think it was a 12% interest only loan, which was part of the purchase of the project. The benefit of the project is the fact that they had a value of somewhere in the 2.4 range. They bought it at 1.6. At the end of the day, we were having a lot of trouble getting financing, managed to get them some kind of financing on an interim or a bridge basis.

 And then it was suddenly time to pay that off. And I began looking for a lender. One of the lenders that I encountered was CDFI. I had the opportunity to speak with Lisa Vanella and I began to explore how you guys work. And Mr. Uribe was dealing with the situation whereby the project was not fully functioning for lack of a better term.

 His paperwork was limited for another lack of a better term and the credit was okay. Having said that, we began to work on the project, CDFI and myself. And as we went through it, we realized the good side of the project, which was the LTB, the fact that we’re reducing from a 12% to a six and three quarters or seven and a quarter percent loan, the property improvements that he had made, the fact that it was in an underserved community. He had gone numerous banks before, nobody was going to touch him. So I mean, we were able to improve his overall financial situation.

 Yeah, and not only did you guys help him individually, but this project has eight different vendors located in the shopping center. It’s an assortment of community related facilities. It’s really brought a little bit more life into this part of the city. It has brought life into the city. It’s a nice looking project for lack of a better term.

 He was able to actually improve the property. Obviously the individuals that are there, I think he’s got a couple of markets. There is a entertainment center, a pizza place. He was able to allow them to hire people. So it creates some jobs.

 Wonderful. I want to ask you to sort of explain to me, like how specifically did our two financial institutions partner on the financial piece of this loan? When you ask how did our financial institutions partner, essentially what we had to do was we had to draw the big board and the big board was why this is a deal that can work. Why this is a deal that’s a good deal, not only for CBFI, not only for the client, but for all parties involved, including ourselves. We were trying to improve this financial situation.

 We were able to do that. And we were able to do that because of the fact that CBFI didn’t just put out the rubber stamp and say we got a deal or we don’t have a deal, but you were able to dig into the file to see the good points and the bad points. So it was a cooperative effort, collaborative, to use your word. And having said that, we were able to improve his overall financial situation, give you a performing loan, because obviously he’s been making payments as agreed. He still has some issues once in a while with the reporting as far as giving the guys the taxes, et cetera, et cetera.

 But he realizes now that it’s not just him against the world, that he does have a partner as background. We still have an ongoing relationship. He’s looking to buy another property in the Central Coast area, and that’s an area that’s really underserved. So the fact that CBFI was able to step in and facilitate the financing speaks a lot because quite honestly, you guys were not my first choice. I had gone to other lenders and I was hearing stuff like it’s rural, it’s this, it’s that.

 I mean, all sorts of stuff. It doesn’t fit into the MSA’s statistical profile, blah, blah, blah. And you guys actually took a look at it and were able to come through. That speaks volumes. I’ll mention that Clearinghouse CDFI doesn’t have any specialized, or I’m sorry, doesn’t have any specific loan programs, but we do have specialized loan products that we tailor specifically to borrowers on a case-by-case basis, depending on their financial situation, their goals, and what the kind of project has impact on.

 One of the reasons, actually a few of the reasons that we’re able to be so flexible is because we have a nationwide service area, no predefined loan programs, and a wide range of industries and project types that we cover. In your experience, Gene, why does tailoring financing to an individual borrower benefit them in the long run? You know, unfortunately, we’re now in a situation, Caitlin, where everything has to fit a box. And we live in a society which is more or less instantaneous. We want in some coffee, we want everything through drive-thru, et cetera.

 And it’s rare to work with a company that will take a moment and analyze, evaluate, and actually engage in conversation in terms of whether or not a deal can be done and how it can be done. Because essentially, we all start at point A, and point A is we’ve got a deal. We all want to get to point Z, and point Z is basically the fact that the deal is done. The details in between A to Z are what determine whether or not I want to work with you in the future, yes or no. Are you going to educate me as far as what the solutions are?

 Are you going to benefit the client as far as what type of financing and long-term benefits they’re going to derive from this particular loan? Are we going to comply with what your requirements are as far as lending? These are all the things that have to come into play as we develop our relationship. And I’m very pleased with the relationship that I have with CDFR. I mean, there’s no way we haven’t allowed it.

 You guys are the gold standard as far as community lending in my particular view. That is a kind phrase from you. Thank you. Let’s talk about possible collaboration and funding in the future. I want to think your brain about the potential opportunity going into the new year.

 Can you give us any heads up on current market conditions or policies that you see being in play for farmers next year? You know, that’s a very interesting question because unfortunately or fortunately, we live in very political times. And those political times determine the amount of effort that’s going to be placed in lending moving forward. When I first got started in this business, I worked for a major bank whose name I won’t mention because they’re out of business. But one of the things that they did was when we had a loan officer meeting, we were brought into the conference room.

 There were like 25 people there. And there was a map of L.A. County. And that map of L.A. County, believe it or not, had a red line.

 And the red line basically said, we don’t want any deals in this particular area, which was essentially the underserved community of Los Angeles, which was really interesting because unbeknownst to the party that was giving the meeting, that was the area in which I grew up. So there was a little bit of aha on my part because one of the goals of CDFI, according to what I understand, is to enhance and deliver financing options for people of color, minority communities, etc. As far as challenges, we need to do more outreach. We need to be more proactive. And we need to take our time and develop community partnerships, which are going to be a benefit, for instance, your local chambers of commerce.

 Those are areas where individuals go and they don’t know what they’re looking for, but they’ll find an answer somewhere. For instance, a Japanese Cultural Association located in downtown L.A. That’s another avenue that that might be explored because it’s a little bit of a challenge because they do a lot of business planning for not just Japanese communities, but for all communities. I just think that we need to do a better job of getting that message out. Yeah.

 And participating in media like this is a great way of doing that. We’re aiming to really be a resource library for the CDFI industry and to elaborate on how underserved communities and demographics like that can have access to these kinds of financial services. Most brokers, most real estate agents, most boots on the ground individuals do not know what a CDFI is. They don’t. Yeah.

 And that doesn’t help the client. That doesn’t help the community because our goal should be to build communities as opposed to simply make a product. Yeah. And having you here and a partner that’s on a multitude of projects helps us amplify that voice and that mission. So thank you.

 Thank you. Is there any advice that you can give potential borrowers looking to finance commercial projects and using collaborations like this? Would you prefer them to maybe come with a business plan or with as much education knowledge as possible? Are you just recommending, get in the door, let’s make a deal happen? Well, anytime you embark on a venture to buy a business, whether you’re going to buy a gas station, which is unique to itself, buy a garage.

 Right now I’m working on the project that unfortunately CDFI was not able to participate in because the cash flow wasn’t there. But anytime that we’re getting ready to do any type of business venture, you have to step back and evaluate and analyze. I think one of the things that we need to do as far as clients, servicing our clients is to tell them what they’re going to need and why they’re going to need it. And not just show up at four o’clock on Friday and we’re going to start the process. I want you to bring a rent rule because your rent rule is going to tell me how much the project is generating.

 I want you to bring me a schedule of business debt so that I can figure out how much debt is on the property vis-a-vis what you’re actually reporting. I want you to bring me a phase one if in fact you have it. I want you to bring me a list of what your expenses are going to be as you’re moving forward so that we can actually do some real work. This is a partnership and it’s a three-way street. It’s the client, it’s the lender, and it’s CDFI.

 And if we all do our job in terms of upfront, honest communication and not painting a picture, then we’ll get somewhere. Love it. Okay, good to know for the borrowers. With interest rates potentially raising, is there a benefit of going this kind of route instead of the more traditional financing option? Is there, even though there’s added risk and a little bit higher increase on interest rates, are there still benefits from?

 Yeah, there is a benefit. And the benefit of the fact that you get, number one, your feet in the game. Okay, you’re actually playing the game by the rules of the system. Secondly, you have your tax advantages. Thirdly, you have a track record.

 Those are things that are paramount in terms of determining whether or not you’re going to be in business for five months or 15 years. Okay, well, Gene, I think that’s wrapping up our episode. We talked about some of the challenges that underserved communities face in accessing these kinds of financing services. We talked about how we can address some of those challenges and a little bit of looking into the future on next year and what borrowers may expect in the financial landscape. We talked about the power of our collaboration efforts and how that benefits our institutions, but ultimately the borrower for long-term success.

 As we wrap up, where can our listeners connect with you? Is there anything that you want to shout out? Well, first of all, I do speak Spanish. Yo puedo hablar espanol. Si quieres hablar conmigo, el teléfono es 626-622-7477.

 Voy a repetir, 626-622-7477. In addition to that, the company that I work with is WWW. Real Consultants Mortgage Services. We’re located in Downey, California. I’ve been with them for probably around nine years, 10 years going on at this particular point.

 It doesn’t cost anything to talk. It’s not like you go in to see your attorney and it’s like $4.50 an hour and that’s, you know, the first 15 minutes or 20 minutes. If you want to bounce an idea off of me or one of my associates more than willing to help, we work closely with CDFI because they are our partner for quote-unquote special projects. Projects that typically are not questionable, but they require some work. And that’s one of the things that I like about CDFI is the fact that they’re willing to work with us in terms of putting a deal together.

 I’ve given you my phone number. I’ve given you the name of the company. That’s pretty much it. Oh, my email is econbes at realconsultantsonline.com. I repeat, econbes at realconsultantsonline.com, and I’m here to help.

 Wonderful. And I’m also going to leave Gene’s contact information down in our description below for this episode. So you’ll have that written out for you as well. We encourage you to reach out to him if you have any projects you have in mind. Also, leave our loan inquiries email that you can reach out to us directly if you’d like.

 And with that, Gene, thank you so much for being here. It’s my pleasure. And having this great conversation with me. I really appreciate it. Thank you.

 I appreciate it.”