Thirty-three-year-old Trixy Castro-Weiss was quick to foresee and take advantage of a tremendous opportunity that arose from the collapse of the housing market. Today the private-money lending firm she started in 2008, Genesis Capital Mortgage Fund (GenCap), is already projecting revenues of close to $75 million this year, as it provides financing for highly qualified and experienced investors in a growing foreclosure market. The strategy is simple: GenCap accepts money from investors and then lends that money to quality borrowers (builders and developers) seeking to “fix and flip” properties. Loan terms are short- usually three to six months so as to minimize risk; investors get a 12 percent return on their investment; and borrowers get that extra leverage to buy foreclosed or distressed properties in volume. “We lend on entry-level, single family residences that are being purchased from banks as REO’s (real estate owned) or at trustee sales,” Weiss said, adding that borrowers, who typically buy properties in cash at auctions, can increase their purchasing capacity up to 200-300 percent by borrowing as much as 80 percent of the purchase price of a property through GenCap. The average price of REO properties being purchased is $250,000, she said. “As the economy worsens we strengthen, so we’re kind of a unique little structure that runs in the opposite direction of everybody else,” said Allan Drazen, President and CEO of GenCap, who helped Weiss get the company off the ground. “Right now, except for us, real estate is a very poor investment. With us it’s just the opposite.” Weiss, who worked her way up the management ranks at Wells Fargo Bank for more than six years before branching out on her own, believes GenCap is also playing a significant role in helping beautify neighborhoods and reduce blight across underdeveloped and impoverished neighborhoods. Foreclosed homes can sit empty and deteriorating for a long period of time and can also attract squatters and criminal activity. By helping developers “turn a house into a home” through cosmetic rehab that often includes putting in brand new appliances, re-doing bathrooms, replacing fixtures, painting and landscaping, what was once the ugliest house on the block becomes the spiffiest, she said. Growing niche GenCap is among a number of mortgage banking firms profiting from the growing industry niche of acquiring foreclosure properties, fixing and flipping during the downturn market, where private money lenders are playing an important role. “It’s hotter than ever with investors acquiring these properties basically at the courthouse steps and then fixing and selling them in a short time, there’s a multitude of companies out there doing this,” said Scott Fine, chief executive at New Haven Financial, a full service mortgage banking firm in Calabasas since 1994. New Haven Financial has seen a surge in loans to investors as the number of foreclosures continues to rise. “Private money lending is and has been a necessary tool to provide capital availability where institutional lenders fall short and in the present growing investor market,” he said. There were 3,483 homes sold at foreclosure auctions statewide in July according to research firm ForeclosureRadar, and the number of foreclosures is expected to swell in the coming months. “The consensus out there is that here in California institutional lenders are about to release upwards of 100,000 to 400,000 foreclosures that have been held in suspense pending the banks’ ability to ramp up the services necessary to handle the volume of defaulted loans and now that they have accomplished this there will be a spike of foreclosure sales over the next 12 months,” Fine said. Seeing opportunity Although Weiss did not predict the foreclosure crisis that would ensue, the idea for GenCap was born back in 2005 when Weiss was working with her friend and business partner Gary Lowenberg at a mortgage company they started in 2002. Both sensed that the housing boom could not last forever. “Our mortgage company was strong and we were happy with it but we knew that this wasn’t a forever thing, so we wanted to catch it on the other side and that’s how we planned it,” she said. It took more than two years to plan and figure out. Both Weiss and Lowenberg put in their own money as working capital to start the business. They studied the market, learned who the big players were and worked hard to align themselves with those “elite” builders and developers who had been fixing and flipping for decades on a large scale. They new that, given the market conditions, these builders and developers would be looking for leverage to be able to fix and flip a larger number of properties. They also knew they had to raise capital from investors as part of their business model so they reached out to Drazen, a veteran of the mortgage business with a track record of successful capital raising, and asked him to join their team. However, soon after their first meeting with Drazen, Lowenberg suddenly passed away from a brain aneurism at 53 years old. “All of a sudden here I was at 31 years old, I was left with a company I had to direct and manage,” Weiss said. “He [Drazen] could have walked away from me at that point but he didn’t, he chose to partner with me.” The two then worked to fine-tune the business structure pooling from their collective experience in the mortgage industry. Today GenCap has more than 50 investors and approximately 25 clients, according to Weiss. “In this business, ten percent of the people doing this are doing 90 percent of the volume. There are the elite players and then there are all others and it just so happens that we’re interlinked with those elite players and that’s why we are as busy as we are,” Drazen said. “The largest company in Los Angeles doing this is a client of ours and they are acquiring over 100 houses a month,” he added. GenCap has built a predictable business model that allows the company to turn its money at least four times a year as borrowers turn their inventory at least four times a year. The company, which functions much like an investment bank when it comes to its clients according to Drazen, has not only helped borrowers grow exponentially but has also helped them become more efficient. “When we started this business the average holding period was between six to nine months but it was closer to nine months,” he said. “We have shown them ways in which to dramatically reduce the amount of time it takes to turn these properties so now our average loan is turning over in under 90 days.” Looking ahead Although the high number of foreclosures is expected to continue well into 2011, Weiss and Drazen are already planning ahead for when the housing market recovers. They are in the process of launching a mortgage division within GenCap that will facilitate long-term loans for homeowners. The company is also looking to increase its pool of investors as it prepares to explore different avenues in the future, said Weiss. “We see that this market is not always going to be this way and we feel commercial is coming down the road and we want to be able to capture that market,” she said. “Our loan amounts would then go from $200,000 to $2 million so we need to have legs to be able to do that.” Still, the company’s core business of lending to developers and builders will not disappear, she said. “There are so many foreclosures in California, if we capture just ten percent of that, when the market comes down we’ll still be comfortable.” Genesis Capital FOUNDED: 2008 Location: Westlake Village CORE OF BUSINESS: Private-money lending to builders and developers NUmber of Employees: 12 Revenues in 2009: $22 million Revenues in 2010 (projected): $75-$90 million
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