Over the last 12 months Jason Hogg and Nick Gould have quietly built a major rental real estate lending business called B2R Finance. A portfolio company of a Blackstone Group fund, it has scaled quickly. Targeting real estate loans in the $60,000 to $50 million range for landlords who own at least one investment property, they have originated over $1 billion in loans in their first year.
Now, they are broadening their scope beyond real estate into consumer and small business loans. B2R Holdings, the parent entity of B2R Finance, is rebranding to Lending.com with big plans for the space. I chatted with CEO Jason Hogg yesterday to get the scoop on Lending.com.
One of the first things that Jason said is that it was very important for them to build out the underlying platform. This platform had five components:
1. Origination engine
2. Underwriting
3. Servicing
4. Balance sheet
5. Capital markets
All these five things needed to be in place before they could really scale their business. By focusing on real estate they were able to develop and implement all five components and so now it is time to move into new verticals. Real estate was intended to be a starting point to test out the model and though it will branch out into new verticals including consumer installment and small business loans, the firm remains committed to the real estate space. With a billion dollars in loans under their belt, with zero delinquencies, they have certainly done quite a test.
With a name like Lending.com I assumed, wrongly, that they would be creating an online platform similar to what Lending Club, Prosper or Funding Circle have done with a two-sided marketplace. Instead Lending.com will be more of a holding company with different verticals and will fund loans through its warehouse facilities. On their home page there is a letter from Jason and his partner Nick Gould that gives you some insight in to their thinking – here is an excerpt:
While we’ve all grown accustomed to hearing about the economic recovery and the cost of capital being at an all-time low, the reality is that lending remains constrained. Consumers’ access to credit is still fragmented and banks are unable to adapt to this rapidly evolving landscape. Satisfaction with traditional forms of financing remains abysmal, with just 3 percent of consumers reporting they would recommend their bank to a friend.
On the consumer and small business side Lending.com will be partnering with companies that already have distribution with consumers or merchants. Jason said that finding consumers one by one is not a game he wants to play, it is expensive and difficult to scale. So, he is going to partner with companies like major retailers or telcos that already have a large flow of consumers.
While he wouldn’t provide any details of imminent deals he did give some clues. He is looking for prime consumers and point of sale is a key place where he sees opportunity. One of Jason’s previous companies was Revolution Money, which was bought by American Express in 2009, and was a pioneer in creating instant credit decisions at the point of sale, so he has a lot of experience in this area.
For small business loans he talked about partnering with merchant processors but was quick to point out this was not going to be a merchant cash advance business. They would be originating small business loans but by partnering with merchant processors they can understand the financial performance of the small business better. There is a wealth of data knowing the charge volume or receivables flow of a business.
Jason said he intends to scale this business quickly and sees lending volume of $10 billion over the next three years. This would put them on a steeper growth curve than just about any other company. For comparison Lending Club has issued around $10 billion in new loans in the last 2 1/2 years.
Securitization will be an important part of their business and this is where capital markets expertise is so important. They have already completed one $230 million securitization in their real estate business and they see Lending.com as a business that could take loans from origination through to securitization.
The bottom line is this. We don’t know much yet about this new entrant in the alternative lending space. Other than they come with a pretty impressive track record and some deep pockets. From the tone of our conversation Jason is excited about the lending business. He sees it as mired in inefficiencies and ripe for disruption. Clearly, this new company is one to watch.
