Working Capital The Real Estate Podcast

From Tech to Real Estate with Tim Milazzo | EP89

Jan 26, 2022

In This Episode

Tim is the co-founder & CEO of StackSource, a tech-enabled commercial Real estate financing platform. StackSource has now completed over $250 Million of commercial financing transactions and they are in growth mode They are re-inventing the stagnant mortgage brokerage model with a tech-enabled marketplace/service. Tim speaks from experience when he says that the best possible financing for a commercial/multifamily real estate deal doesn’t have to be painful. StackSource brings transparency to commercial financing.

In this episode we talked about:

  • Tim’s Bio & Background
  • Genesis of StackSource Platform
  • StackSource Distinguishing Aspect
  • Capital Markets Overview
  • Underwriting Real Estate
  • Inflation and Interest Rates
  • Debt Market
  • Residential Real Estate Space
  • Tim’s Team Structure
  • Promising  Areas in Tech Space, Real Estate Tech and Property Tech
  • Roll Up Strategy in Real Estate
  • Mentorship, Resources and Lessons Learned

Useful links:
tim@stacksource.com
https://www.stacksource.com
https://www.linkedin.com/in/timmilazzo/
https://www.facebook.com/TimMilazzo

Transcriptions: 

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time. Or ladies and gentlemen, my name’s Jessica gala. You’re listening to working capital the real estate podcast. My guest today is Tim Palazzo. He’s the co-founder and CEO of stack source. A tech enabled commercial real estate financing platform.

 

Stack source has now completed this hot off the presses over half a billion of commercial financing transactions and they’re in growth mode. They are reinventing the stagnant mortgage brokerage model with the tech enabled marketplace slash service. Tim speaks from experience when he says that the best possible financing for commercial multifamily real estate deal doesn’t have to be painful. Stack source brings transparency to commercial financing. Tim, how you doing today?

 

Tim (1m 1s): I’m doing great, Jesse. Thanks for having me on.

 

Jesse (1m 4s): Well, thanks for being here. I was going to say it in the bio here, but you might as well give listeners a little bit of a background because it seems that prior to stack source, you were in the tech space. It looks like Facebook, Google. Maybe you could talk a little bit for listeners about your background in real estate and how you got to the place that we’re at today.

 

Tim (1m 26s): Yeah. Thanks so much, Jesse, for the opportunity. So real estate is one of these things that could have been, you know, in my blood, so to speak, right. I had an immigrant grandfather who late in his life after saving up from his union job, started buying like a couple of commercial properties in his town, in New Jersey. And then my dad was full into it right away as a, a leasing broker in New York city. And he became a managing director for a boutique leasing brokers that was then bought out by CVRE, which is now the number one, leasing brokerage in the city.

 

And I interned at a real estate company when I was studying finance in college. And that would have been the natural path is to follow this, you know, generational real estate path. I always loved technology companies. I loved tech and smartphones and software programs and video games. And that’s the stuff that really made me excited. And so when I came out of college, I went and worked for tech companies specifically in advertising technology for several years before coming back to real estate, seeing this opportunity to merge technology and software with the real estate industry.

 

And I saw a spot that I thought I was really needed, and that’s why I found it stack source.

 

Jesse (2m 46s): Awesome. So we talked a little bit before, before the show here. So you, where are you originally from New York and now you’re in Florida. Is, is that right?

 

Tim (2m 55s): Yeah, so I, I moved to Florida during the pandemic actually had a growing amount of small children running around the floor of our two bedroom apartment in New Jersey, just outside of New York city. And so we made the move since I was working from home anyway, and our team was increasingly remote across the U S to move down to a place that would be really good for the family. Give us a little bit more space and be a pretty good work from home environment here too. That’s great.

 

Jesse (3m 25s): So for, for listeners stack source, what was that kind of the Genesis of, of this platform and how you, you know, what you’ve been up to with, we said at the outset over a half a billion so far in commercial transactions?

 

Tim (3m 41s): Yeah. Well, I came to this idea for stack source because I happened to visit a real estate tech meetup several years ago in New York with a couple of friends that were involved in the real estate industry. And my eyes were really open to that time to, you know, taking this passion for software and technology and coming back towards the real estate industry and what was going on. And at that time there were some really cool startups in data and getting access to real estate data, cool startups in like transactions and keeping track of your portfolio as landlords.

 

And I started to see a bit of a FinTech and really online real estate investing was the only thing that was starting to happen there with, you know, fundraise and Realty mogul. And some of these companies that you can invest passively into real estate deals online. And this lit up my eyes to, okay, well, who’s building the inverse of that platform, who is for a property owner for an investor. That’s a sponsor, that’s raising capital. Who’s giving them a menu of financing options. Who’s providing them with access and transparency into what are all the sources of capital that they can tap on a deal by deal basis.

 

And that seems like a pretty clear and obvious idea to me. And maybe I had, because I was further from that part of the industry and, and I was coming in as an outsider. It just seems so clear and easy and obvious. And I think to people that were in the industry for a long time, commercial lenders for decades are commercial mortgage brokers together. They were too close and they saw how hard the transactions were and how hard these relationships were to navigate when the truth is actually something in the middle. There is technology needed for having transparency into financing, but there’s just huge expertise in this human touch and relationships are valuable too.

 

And so stack source ended up being a tech enabled commercial finance that we have capital advisors and teams of capital advisors across the country at this point that provide that skill in underwriting and that negotiation and that structuring ability to put commercial financing deals together. But there’s a transparency to our platform where you can see your financing options and you can easily compare them and the is faster and more efficient.

 

Jesse (5m 60s): That’s interesting. So with these, these different competitors that you kind of saw in the market, what was the, what was kind of the value add or the, the distinguishing aspect of stack source as it, you know, with who’s currently in the market?

 

Tim (6m 14s): Sure. Well, the speed and the transparency of the process has really been the focus for us since day one. When I started working on this as a platform, it was myself and a couple of software engineers saying, Hey, how, how much can we automate in this process of finding the right financing options and getting loan quotes? You know, that was the first thing is like, how easy can we make it to get loan quotes on a commercial property? And it kind of showed us what are the edges of what can be automated and what can be made instant versus what are, where are the human pieces of this process?

 

And I think if you were someone that started a commercial mortgage brokerage in the 1970s or eighties, you probably adapted to email in the nineties and two thousands, but what other technology have these guys really had adopted because they’re run just by the most successful broker at the, the, at the firm. And they’re, they’re going to be the best sales guys, but they’re not going to be the innovators in operations, in technology. And that’s led to these traditional commercial mortgage brokers to be under-indexed on research and development to be under-indexed on this innovation and this technology and what it ends up being for the, for commercial mortgage brokers and for financing advisors is they don’t have access to the tools that they could.

 

They don’t have access to the tools and the data and automation in a way that can make them more efficient. So it’s speed, it’s transparency. We’re now working on a lot more features and functionality on our platform, and there’s a lot coming on our platform, but it’s always been this speed and transparency from day one

 

Jesse (7m 52s): Around. That makes sense. So, in terms of the, the actual kind of, from when you started inception of this, to where we’re at today, it’s obviously been a crazy last 18 to 24 months. What have you seen in the capital markets or change, or how has that evolved over the, the last, you know, the last little while?

 

Tim (8m 14s): It’s interesting, because for the last decade, we’ve had low interest rates, right? And only now in 2022, are we starting to have economists predict the federal reserve in the, in the U S is going to start to pull back on some of this quantitative easing, and they’re going to start to raise interest rates, there’s internet, there’s an inevitable interest rate rise coming. We’re still in this low interest rate environment for now. Now certainly the pandemic made things a little bit more choppy with during the pandemic.

 

And in the first phase of the pandemic, we saw leverage start to be pulled back, especially from banks and more conservative lending institutions. They started back leverage. They started adding more capital reserve requirements. You know, that’s, that’s largely washed away by this stage of the pandemic where the underwriting has smoothed out. Again, we’re at full leverage, not only full leverage for permanent financing, but we’re seeing really healthy leverage on value, add and construction deals as well, where you can, there’s a lot of dry powder out there in the forms of bank balance sheets in the form of debt funds.

 

Everybody’s waiting for interest rates to rise, but there’s this kind of golden opportunity right now to lock into a 10 year term with a loan, you know, in the low threes or to get construction financing. That’s a, that’s a really healthy leverage. I think it’ll be interesting to see what happens to both cap rates and interest rates as inflation continues to rear its head and see how long it rears its head and how strongly there’s going to be in interest rates. But it hasn’t yet.

 

Jesse (9m 55s): Yeah. Yeah. It’s something that we’ve constantly been talking about in the, over the last little while. I know, you know, you have the Powell that was, I think, just in front of Congress to answering questions. So I think it’s top of mind for everybody right now, in terms of the actual asset classes themselves, we talked a little bit at the outset commercial and multifamily. Is it all different sub categories within commercial that you guys will lend on?

 

Tim (10m 21s): Yeah, so, so SAC source won’t lend directly on anything. What we do is we act as a portal and a guide and you know, that menu of financing options. So everything you find on our, on our platform is coming from third-party capital sources. So we have built up this national lender lending network of hundreds of banks, credit unions, CMBS shops, you know, the, in the U S the big agencies, Fannie Mae and Freddie Mac, and a lot of debt funds because there’s all these, sometimes it’s a sidecar fund for some big real estate developer that wants to support other developers.

 

And the debt part of the stack, many of them are just dedicated debt funds, or even mortgage rates. And you have all these scattered sources of capital, and everybody has their own lending and investment criteria. They are looking at certain asset classes, they’re looking at certain parts of the capital stack, maximum leverage and recourse. And there, there are these, you know, multifaceted lending programs where it’s a half an hour conversation. If you really want to understand any given capital source, you have to ask about all of this, you know, what are the edges of what you can do and how, how, how do you size your loans?

 

Do you size them with debt yields? You sized them with LTV, figuring out what might be a match and what projects might be a match for any given number of lenders is this intensive process. If you try to do it manually. So what we’ve done is we’ve cataloged all of that. We’ve put all of that in a database so that you enter a, a loan request and stack source on the front end. And you’re instantly matched with algorithmically. Here are your matching lenders now from a human level and a quality and a sponsor quality standpoint, there’s some quality control and making sure the right deals are entering our marketplace for our lenders to respond.

 

But if you’re a quality deal and you know, you’re underwritten correctly, we can instantly identify which of these capital sources might be a place you might get matched to just a couple of capital sources. If you’re working on something really funky. And if you’ve got a straight down in the middle of multi-family refinance, you’re going to get matched to a lot of lenders and you can potentially get an instant agency loan quote.

 

Jesse (12m 23s): Fair enough. So if you took, say for an example, you took a, an investor, you know, they, they are looking at a a hundred unit apartment building in say, in your neck of the woods in Florida, what can you walk the, walk me through what the process would be like for, for that investor?

 

Tim (12m 43s): Sure. So we need to know what are the relevant details on the underwriting that any lender or capital source is going to need to know? So property address the, the net operating income, the physical characteristics, when was it built? When was it renovated? What type of framing, all this stuff that would impact a lenders, sizing, underwriting, and pricing of a loan. The idea is you enter that once in the stack source portal, and that’s instantly matched to the database of what these different capital sources are looking for. And it also instantly generates a debt offering memorandum still can be made, have changes made later.

 

We w the stack source team themselves, and our analysts are going to adjust and tweak and add, add data and Siri and the right comps. But those two things are done instantly where, you know, within men, within minutes, the ideas, you know, the types of capital sources and the types of things they can provide, Hey, there’s an interesting life insurance company lending on this type of multifamily. And they can only go up to 65 LTV, but hang on, their rates are amazing. Like, yeah, I want to get a 2.8% interest rate.

 

And I’m interested in, you know, putting that lender in my shopping cart, so to speak. You know, I want to see if that unders interested in working on my deal, that, you know, some, some lenders, some loan programs, like a, like a Freddie Mac, small balance, you can get an instant quote on our platform. And then some of this is like, Hey, it’s a life insurance fund. They’re going to review. They’re actually going to do a lot of diligence. But if I get the loan from them, it’s going to be the best interest rate around.

 

Jesse (14m 15s): Got it. So, in terms of that, you know, that investor, he finds, say that life insurance companies, that that’s kind of lending on funky loan, funky, or, you know, more involved loans in this certain area in Florida. And then how does, how does the, how does that get taken to fruition the, through the platform they’re connected and then they, they break from the platform, or is it everything is done within the platform?

 

Tim (14m 40s): Good question. So, first of all, you do get an advocate. That’s a human being on the platform. So you’re not dropped off into something that’s confusing. And especially when you’re matching to a bunch of different lenders and they may be asking questions and, and, you know, they they’re expecting to see the underwriting in a certain way. So that person that you get to talk to is a capital advisor. And they are professionals that work for stacks, horse across the U S that have been, you know, have decades of experience in lending and commercial mortgage brokerage, and real estate investment.

 

And they’re going to be your advocate through the whole process. So you don’t have to talk to, you know, it’d be just as bad that you have to talk to 14 lenders on stack source versus, you know, trying to find those lenders on your own and pitch the deal to them one by one. So there’s no pitching all of these lenders separately. You get one capital advisor, you’d answer some questions, you get an advocate. They actually will help you with structuring and finding the best financing sources, maybe challenge you on different ideas that you haven’t thought of because there may not just be a senior lender, but there may be a subordinate APOE source that can also add value in your capital stack.

 

So you get to have a conversation with a capital advisor, they help you go out to market, and then you are getting notifications. When you have new loan quotes and new financing offers in the portal, you get an email notification, you can compare and analyze those very easily within the process. When it comes time to sign the term sheet and deposit, the lender gets to choose their own process, because they’re the ones closing funding, your loan. So some of those will have a, an email checklist or, or what have you, you know, but you keep the capital advisor advocating with you throughout the process until close.

 

Jesse (16m 22s): That’s great. So we’ve talked a lot about over the last few months, a lot about the amount of debt in the market right now, you know, we talked about it, just you and I here briefly on inflation interest rates. W w what we’re finding on the investor side is that there is a lot of capital chasing fewer and fewer deals. I’m curious on the flip side of that, on the debt market side, what are you finding is, or is, or are some of the biggest challenges from, from the debt side of things?

 

Tim (16m 52s): Well, you’re right. You’re right. There’s a lot of money. There’s a lot of types of money. That money is going to go full leverage, and it’s going to be low rates. So for these capital sources, when they find a good project that they want to back, it it’s a competitive market for them to get in to the capital stack, especially if it’s multifamily industrial, some of these darlings of the industry, or you could probably throw self storage and a couple other things in there that are performing really well, you know, really from coast to coast.

 

And so we’re seeing that’s advantageous for the borrower, not just in rates, but there are negotiable pieces of term sheets right now, from everything from recourse to reserve structuring to leverage that it really slants it in a it’s a borrower’s market. Right, right now in early 2022, and things can change that change economically. But early 20, 22 is one of the best borrowers markets that we’ve had.

 

And that’s, that’s not just early 2022. You look at 2019 was the largest year of commercial mortgage origination ever. The second largest ever was 2021 and 2022 is not slowing down. As far as the first half of the year, from what we’ve seen now, inflation some more economic pressure, some bad job reports, something can slow it down quickly, but right now, 2022 at pace could be the record breaking banner year for commercial mortgages.

 

So it’s a competitive, it’s a borrower’s market right now. People have been gearing up. People geared up for maybe more economic turmoil than we’ve seen rear its head yet. And so there’s this money that needs to go somewhere. It needs to be on deals. And that’s just as true on the debt market as is on the equity.

 

Jesse (18m 43s): Yeah, I mean, we’re seeing, we’re seeing the exact same thing from, from our vantage point here. And we’re finding, you know, some telltale signs for this is we’re finding more and more lenders are getting more creative on deals, you know, in, in my area, we’re typically very conservative when it comes to debt in general. And now we’re finding that, you know, five years ago, there’s certain properties that, that wouldn’t be lent on. You know, it could be at a host of things, maybe environmental, you know, other, other aspects or variables that lenders are trying to figure out and get more granular to see if they can lend on.

 

So it sounds like that’s, that’s happening across the board. And, you know, we just had somebody that on the podcast last week that was speaking to self storage and yeah, another area that I’m sure you’re seeing a lot of capital going towards.

 

Tim (19m 28s): Yeah. And retail, if you’re in a hot market to, you know, re you probably don’t want to be fifth AV office and retail in New York right now, but you absolutely want to be retail in south Florida, for instance, or Dallas, Texas. These are places where they’re seeing such a population increase and, you know, there’s, there are plenty of drivers behind that, that we could go into, but they’re seeing a massive population increase in Texas, Florida, the Carolinas, and, you know, it’s actually a great market for retail, even retail construction.

 

So I think any asset type in these hot areas across the country, and then if you’re in the right asset type multifamily, storage, industrial, you’re going to get the money you need anywhere.

 

Jesse (20m 15s): Yeah. It’s been a, it’s been a ride quite a ride the last few years. So I’m curious, Tim, just because of your background, I thought maybe you could talk a little bit about how coming from the tech world, how has that impacted the way that you look at real estate or, you know, the way that you look at the business and, and just the way you look at your customers. Okay.

 

Tim (20m 38s): I think there’s a lot more information and data available today on real estate than there was a decade ago. There was like one big real estate data company, a decade. And while they’re still one huge. Now, now they’re huge. And they’re a huge real estate data company, and they’ve acquired others. There’s a lot of other startups that are bringing interesting data points that can help with underwriting that can help make you more intelligent and make you more competitive when you’re using data to full effect. I think there’s a lot more workflow technology, not just with real estate CRM, so that certainly has grown, but really with, you know, deal management platforms and portals, and the listing portals are so much more full featured today than they were.

 

I think this next era of real estate tech is going to see a lot of those trends come together where not only will some of these real estate tech companies be more vertically integrated, where they were a data company and how they’re helping with like transaction tools, but there’s going to be integrations and partnerships between more real estate tech companies, where processes for, you know, for asset managers, for operators, for property managers and all the way down the line can really be connected in a way that it hasn’t been before where your accounting system and your asset management system and your CRM and your transactions, and all the way through to your, you know, your tenant portal.

 

If you have all of these things are connected in a way that can really drive efficiencies. And, and that’s, that’s something that we’re starting to see in the real estate tech market is, you know, these startups, some of them are becoming like real companies and like larger companies. They’ve gotten a lot of funding, 2021 in addition to being a second highest ever year for commercial mortgage origination. It was the highest year for venture capital investment into real estate data and real estate tech companies. And that’s, you know, that’s a leading indicator of more change and efficiency and innovation to come in our space.

 

Jesse (22m 40s): Yeah. I, you know, I think that’s, that’s exactly right for us. What’s kind of amazing from the commercial real estate standpoint is you’ve seen the proliferation of tech in residential for a long time now, I think, and I think we’re still playing catch up on the commercial side. And I think, I think we’re headed in the right direction, but hopefully COVID, you know, the silver lining there is, it’s kind of made people think a little bit more in just more forward thinking from the technological perspective.

 

And I think we’ve kind of, you know, COVID in general has kind of kicked us into that mind frame a mindset because we, we just did it by necessity.

 

Tim (23m 18s): Yeah. I agree. Residential real estate tech is another place to look. If you want to know, what are you going to, what are the trends going to be two or three years from now in commercial? You could look at what’s happening in residential today. So in our space, I mean, it’s very encouraging that in the us one out of every 11 loans on residential homes, I think was by rocket mortgage last year. And that’s a staggering number considering every banker and every single bank can credit union across the country, wants their own customers coming in the front door to get a mortgage, but they’re not, they’re using rocket mortgage, we’re using better mortgage because of the digital experience because of the ease and the efficiency of it.

 

And for that many people to be choosing instead of their local bank relationship or the local mortgage broker relationship to be choosing the efficient path and the transparent path, I think tells you all, you need to know about what’s going to happen in five years in commercial mortgage.

 

Jesse (24m 13s): Yeah. It’s just seems like a bit of a democratization to the consumer level. Tim, I’m curious, the, you, you mentioned that you guys were in growth mode, you know, even prior to the show we were talking about, you know, where you guys were at last year compared to this year, what is the, the next, you know, year or two look like for the team?

 

Tim (24m 34s): Well, we tripled our revenue and doubled our team at Sachs worse in 2021. And so to stay at a trajectory like that would be amazing from a, you know, from a company growth standpoint. And, you know, I think we’ve got the infrastructure in place, but really it’s what’s what are we going to continue to do on the product and not sit still and just say, Hey, we have a nice little digital loan portal. You can get access to these different financing options. We’re going to continue to invest in this product.

 

Things like there are a couple of types of automated quotes you can get on our platform today. There’ll be a dozen types of automated quotes. You can get on our platform by the end of the year, a lot of it for multifamily, but others are starting to do for other asset classes as well. So if you have straightforward underwriting scenarios, why should you wait on a banker to finish your round of golf before giving you, what is your interest rate in one zip code versus another, that’s just not going to be the way agency multi-family and stabilize multi-family deals are quoted in the future as well as other asset classes.

 

So we’re going to continue to push on the products pretending to make it as good at experiences and as easy to experience as possible to wait through different financing and capital sources. And, and we’re going to hope to do that across the U S we’re going to strike some more partnerships with other real estate tech companies, which I kind of alluded to is happening across the space in order to streamline the underwriting and the due diligence process, as well as to surface financing options in more helpful contexts, where you may be off of stack source, but you can get financing options where it’s helpful to do so.

 

So that those are some of the things that we’re focusing on.

 

Jesse (26m 14s): Are there current areas in the tech space or real estate tech prop tech that you think, or that, you know, you’re excited about, or, you know, you think you’re going to see a lot of big changes aside from the space that you’re currently in.

 

Tim (26m 28s): I’m, I’m a huge cheerleader for real estate data and not just real estate data, but like external sources of data and figuring out how they impact properties and cities and what that means for investors. I think that’s like a really cool thing that’s happening. And it’s, it’s several steps away from something like artificially intelligent, real estate investing where like, you know, but I know 30 years ago, the best chess players were human and now they’re computers 10 years ago, like there’s this ancient Chinese board game of go.

 

And they thought it was too complex for, you know, for humans to be over, you know, passed out by a computer by computers. But now it’s happened. I kind of wonder about real estate investing. I don’t think that there’s going to be some AI that can like out invest like the best real estate investors, certainly not at this stage of our history, but I think we’re about to enter this era where if you’re a real estate investor, that’s not making the best use of data and tech you’re going to fall behind.

 

And I don’t think it’s even too bold to say that because, you know, within, within like real estate comps, but also like social media sentiment and like there’s, so there’s so much you can mind and understand, like, where are people going? What do people want? And I think the best real estate investors are gonna make so much use of that over the next few years. And they’re going to seriously outperform.

 

Jesse (27m 59s): Yeah. That’s a, that’s great. I’m currently reading a, the age of AI is a book I highly recommend it’s Henry Kissinger, I guess, teamed up with, I think he was Eric Schmidt. I don’t know if he was like, I think it was Google one of the founders, but it’s

 

Tim (28m 14s): Chairman of Google when I worked there.

 

Jesse (28m 16s): Oh, there you go. That’s right, Google. So, yeah, I’m just kind of nerding out on that book right now. I’ve thought it was pretty, pretty interesting, but yeah, it it’ll be cool to see how this, how we shift because even, even the proliferation of data, when it comes to our area, we, we were using Altice insight for a lot of our stuff. Then moving into CoStar. And a lot of the brokers that I worked with were like, you know, CoStar is never going to be where all this is is that, you know, what we were using. And now I don’t even think, I think every broker I talked to just uses CoStar.

 

So it’s, it’s interesting too, because you want other companies to be able to play in the space and be competitive, but it kind of seems like it’s very similar to these social media platforms where the, you know, you have a first, first mover advantage and then once you actually become the dominant incumbent, it’s it just kind of snowballs. So I’m, I’m curious how that will play out, you know, in five years from now, we’ll, you know, we’ll, there’ll be a couple of different data companies or will there be, you know, one or two that, that dominates our space.

 

Tim (29m 18s): Yeah, that’d be interesting to see. I’m also curious to continue to see how it plays out though. A bunch of other real estate data companies have grown a lot over the last couple of years, and maybe they’re not as large and certainly not as comprehensive as CoStar because CoStar has also been acquiring other real estate tech and data companies. They bought 10 X last year. They bought a couple other real estate data companies for different verticals that they didn’t have well covered yet. But like out of New York city comp stack raised $50 million to do office industrial and retail comps across the country.

 

Last year, Moody’s analytics is investing in several real estate tech companies like light boxes investing in a bunch of real estate tech companies. So there are some of these other players that are putting together, if not this, the full comprehensive package, I think there are starting to be some challengers. And then there are these interesting, like alternative data, you know, placer.ai had raised a bunch of money over the last couple of years. And what they do is for real estate companies, they allow you to see without doing manual measurement, where is foot traffic and where’s car traffic, because they crowd source the data from people’s smartphones and they see where are all these smartphones moving around?

 

And they aggregated anonymized that to say, you know, at any given storefronts or, you know, ha and a given storefront, how much foot traffic foot traffic will it really have, you know, on a two o’clock on a Thursday or for this apartment complex, how many people are already driving by on the way to work and would have a shorter commute if there was an apartment complex here. So like the, the analytics I think is, you know, gotta be one of these biggest opportunities for real estate tech and real estate data companies it’s already happening.

 

I expect that to continue to accelerate.

 

Jesse (31m 13s): It’s curious to the, the fact that you have companies doing kind of a roll-up strategy when it comes to acquisitions and growth, where they’re buying other companies, rather than building their lines. I’m curious to see how we kind of roll forward. Like in the Canadian market, Avison young, the commercial real estate company I work for. I think we are, we’re over 80, 80 offices now, but we’re probably one of the larger ones here. So you have CVRE JLL, Cushman, the usual suspects, Colliers and ourselves. And we’ve a lot of these companies. I know Cushman has, we are JLL, has we built our own platforms?

 

So exactly what you’re talking about, where, you know, we’re in an office building in downtown Toronto, you can see where all the cell phones are analytics for our company, but we’re building that in-house, and I’m always a little bit hesitant when I hear companies doing that, that aren’t in that space. Cause I’m, I’m just of the mind like, well, why don’t you just get the best, the best person or best company that does this and, you know, figure, figure that out. So I think, I can’t remember the name of the company that we use, but a hundred percent, I think, I think that this is definitely the next, the next stage.

 

And then I think the, the big question is just like, it was 20 years ago. Okay. You have information now, what do you do with it? And I think that’ll be, you know, still the difference between these successful investors or brokerages or real estate companies versus the ones that aren’t at the top of their class.

 

Tim (32m 33s): Right? Yeah. And, and the answer might be different based on your size and your goals, right? Because a powerhouse estate investment company that has multiple funds or rates, or, you know, and they have a, they have a big presence in a, in a big budget. They, they’re probably going to build their own tools, just like the major brokerage companies. They’re going to build their own tools. You know, Avison young is going to build its own, you know, suite of tools, but some of the largest investors are going to do that too, for their own operations. If you’re a mom and pop investor, you should looking for something off the shelf, that’s going to give you an advantage.

 

And because you can’t help to beat some of the in-house tools beat by some of the larger ones. So that’s really where startups can thrive is either enabling like these big companies and being a part of their mix or having an out of the box solution for tons of small investors. And so we’re probably somewhere we’re somewhere in between because we do mid market loans as well as small, but in that small space, and even in a space where commercial mortgage brokers don’t even want to help you, that you owe you need $700,000 to buy your first, multi-family get out of here.

 

Like you’re not going to be helping since the office of many brokers, but for stacks or so we’ve made that process really efficient. And we actually did a number of loans less than a million dollars last year.

 

Jesse (33m 55s): Yeah. I think that’s a critical point there. All right, Tim, I want to be mindful of the time here. We’re just coming up to the end of the episode here. We ask all of our guests for questions. If you’re ready to answer them, they’re a little bit of a final four. We do.

 

Tim (34m 10s): Yeah. Let’s do it Jesse.

 

Jesse (34m 11s): Right on. All right, Tim, what’s something that, you know, now that you wish you learned at the beginning of whether it’s working in real estate or at the beginning of your career in tech,

 

Tim (34m 22s): So many things, but I’ll say everything is sales when you come down to it because everyone you deal with, even if you’re not actually selling something, they’re a human being and people react well when you use empathy. And when you use clarity of communication, and these are really what great salespeople do is they connect with someone at a, at a human level. Then they communicate clearly and then they guide them in the right way. So if can sales and I wish I learned that earlier.

 

Jesse (34m 52s): Yeah. It’s great to try to move the S word into a, a, a positive thing over, I feel like it’s over the last 10 or 15 year, he probably longer, I feel like it’s, it’s now starting to take a switch to people realizing that even in the technology, I think technology companies were a big part of this too, because at the end of the day, you know, you add value you market, and then you need sales to kind of bring it in and actually have that human aspect that you just mentioned. What would you say to a younger person trying to break into the industry?

 

And that can be on the real estate tech side or real estate in general?

 

Tim (35m 27s): Well, if you’re trying to break into real estate or real estate tech, figure out something that you are good at and double that strength because especially right now, companies are looking for talented people. I mean, listen, it’s, it’s actually a job seekers market in many ways, and there’s been this great resignation, find something you’re really good at. And you can be passionate about whether it’s your current passion or not. Like for me, starting off my career, I, if I looked around the room of my peers and other financed graduates coming from my university, I was good at spreadsheets, double down on something.

 

You can to be really good and add value on day one. And you’re gonna make it hard for people to turn you down for a job. If that’s part of the part of the job, right on

 

Jesse (36m 16s): What is on the proverbial bookshelf that could be audio book or any media that you’re you’re consuming right now,

 

Tim (36m 25s): I have too many podcasts on my list and I also have way too many books. I feel like I track what books I read on good reads.com. And I, for every one that I check off the list, I must be adding two or three. So the reading list is growing. I have a bunch of leadership books that I want to read because I, my company is growing and we had less than 10 people a couple of years ago. And now we have 25 and growing. So, you know, there are, I, I expect to read 3, 4, 5 leadership books among other things this year.

 

Jesse (36m 57s): And it’s funny you say leadership. I was just looking at a list today and I don’t, I, you know, listeners can can message or they can email in on whether this, the leader who had no title, I think was the, was the book that was recommended. Yeah. I think it’s Robin,

 

Tim (37m 13s): That’s my list based on the title alone. Next for that.

 

Jesse (37m 16s): Yeah. Okay. So last question. Our personal favorite here. First car make and model

 

Tim (37m 25s): Jeep Cherokee sport. 1999 red. We used to drive it down from, we lived outside of New York city and we used to drive it down to the Jersey shore. And you know, it was a lot of fun. You didn’t care if you got sand all over it. And I CA I kept that car for a while and definitely shed a tear when I had to sell that.

 

Jesse (37m 46s): That’s a, yeah, that’s a pretty good first car. I was going to say, like you were in New York at the time. It doesn’t seem like a, it doesn’t seem like it fits there.

 

Tim (37m 54s): No, no. On the New Jersey side, it works well,

 

Jesse (37m 56s): Though. There you go. Absolutely. All right, Tim, for, for listeners that want to get more information on yourself or the company work in, they worked in the, be pointed to I’ll put some, some links in the show notes.

 

Tim (38m 9s): Sure. Stack source.com is our company website. If you want to reach out to me directly, my email is tim@stacksource.com. So pretty simple, but if you search Tim, Milazzo M I L a Z O on LinkedIn, Facebook or Twitter, I’ll be the first one.

 

Jesse (38m 25s): My guest today has been Tim Alonzo. Tim, thanks for being part of working capital. Thanks,

 

Tim (38m 30s): Jessie.

 

Jesse (38m 38s): Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.

Transcript

ions: 

Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Or ladies and gentlemen, my name's Jessica gala. You're listening to working capital the real estate podcast. My guest today is Tim Palazzo. He's the co-founder and CEO of stack source. A tech enabled commercial real estate financing platform.

 

Stack source has now completed this hot off the presses over half a billion of commercial financing transactions and they're in growth mode. They are reinventing the stagnant mortgage brokerage model with the tech enabled marketplace slash service. Tim speaks from experience when he says that the best possible financing for commercial multifamily real estate deal doesn't have to be painful. Stack source brings transparency to commercial financing. Tim, how you doing today?

 

Tim (1m 1s): I'm doing great, Jesse. Thanks for having me on.

 

Jesse (1m 4s): Well, thanks for being here. I was going to say it in the bio here, but you might as well give listeners a little bit of a background because it seems that prior to stack source, you were in the tech space. It looks like Facebook, Google. Maybe you could talk a little bit for listeners about your background in real estate and how you got to the place that we're at today.

 

Tim (1m 26s): Yeah. Thanks so much, Jesse, for the opportunity. So real estate is one of these things that could have been, you know, in my blood, so to speak, right. I had an immigrant grandfather who late in his life after saving up from his union job, started buying like a couple of commercial properties in his town, in New Jersey. And then my dad was full into it right away as a, a leasing broker in New York city. And he became a managing director for a boutique leasing brokers that was then bought out by CVRE, which is now the number one, leasing brokerage in the city.

 

And I interned at a real estate company when I was studying finance in college. And that would have been the natural path is to follow this, you know, generational real estate path. I always loved technology companies. I loved tech and smartphones and software programs and video games. And that's the stuff that really made me excited. And so when I came out of college, I went and worked for tech companies specifically in advertising technology for several years before coming back to real estate, seeing this opportunity to merge technology and software with the real estate industry.

 

And I saw a spot that I thought I was really needed, and that's why I found it stack source.

 

Jesse (2m 46s): Awesome. So we talked a little bit before, before the show here. So you, where are you originally from New York and now you're in Florida. Is, is that right?

 

Tim (2m 55s): Yeah, so I, I moved to Florida during the pandemic actually had a growing amount of small children running around the floor of our two bedroom apartment in New Jersey, just outside of New York city. And so we made the move since I was working from home anyway, and our team was increasingly remote across the U S to move down to a place that would be really good for the family. Give us a little bit more space and be a pretty good work from home environment here too. That's great.

 

Jesse (3m 25s): So for, for listeners stack source, what was that kind of the Genesis of, of this platform and how you, you know, what you've been up to with, we said at the outset over a half a billion so far in commercial transactions?

 

Tim (3m 41s): Yeah. Well, I came to this idea for stack source because I happened to visit a real estate tech meetup several years ago in New York with a couple of friends that were involved in the real estate industry. And my eyes were really open to that time to, you know, taking this passion for software and technology and coming back towards the real estate industry and what was going on. And at that time there were some really cool startups in data and getting access to real estate data, cool startups in like transactions and keeping track of your portfolio as landlords.

 

And I started to see a bit of a FinTech and really online real estate investing was the only thing that was starting to happen there with, you know, fundraise and Realty mogul. And some of these companies that you can invest passively into real estate deals online. And this lit up my eyes to, okay, well, who's building the inverse of that platform, who is for a property owner for an investor. That's a sponsor, that's raising capital. Who's giving them a menu of financing options. Who's providing them with access and transparency into what are all the sources of capital that they can tap on a deal by deal basis.

 

And that seems like a pretty clear and obvious idea to me. And maybe I had, because I was further from that part of the industry and, and I was coming in as an outsider. It just seems so clear and easy and obvious. And I think to people that were in the industry for a long time, commercial lenders for decades are commercial mortgage brokers together. They were too close and they saw how hard the transactions were and how hard these relationships were to navigate when the truth is actually something in the middle. There is technology needed for having transparency into financing, but there's just huge expertise in this human touch and relationships are valuable too.

 

And so stack source ended up being a tech enabled commercial finance that we have capital advisors and teams of capital advisors across the country at this point that provide that skill in underwriting and that negotiation and that structuring ability to put commercial financing deals together. But there's a transparency to our platform where you can see your financing options and you can easily compare them and the is faster and more efficient.

 

Jesse (5m 60s): That's interesting. So with these, these different competitors that you kind of saw in the market, what was the, what was kind of the value add or the, the distinguishing aspect of stack source as it, you know, with who's currently in the market?

 

Tim (6m 14s): Sure. Well, the speed and the transparency of the process has really been the focus for us since day one. When I started working on this as a platform, it was myself and a couple of software engineers saying, Hey, how, how much can we automate in this process of finding the right financing options and getting loan quotes? You know, that was the first thing is like, how easy can we make it to get loan quotes on a commercial property? And it kind of showed us what are the edges of what can be automated and what can be made instant versus what are, where are the human pieces of this process?

 

And I think if you were someone that started a commercial mortgage brokerage in the 1970s or eighties, you probably adapted to email in the nineties and two thousands, but what other technology have these guys really had adopted because they're run just by the most successful broker at the, the, at the firm. And they're, they're going to be the best sales guys, but they're not going to be the innovators in operations, in technology. And that's led to these traditional commercial mortgage brokers to be under-indexed on research and development to be under-indexed on this innovation and this technology and what it ends up being for the, for commercial mortgage brokers and for financing advisors is they don't have access to the tools that they could.

 

They don't have access to the tools and the data and automation in a way that can make them more efficient. So it's speed, it's transparency. We're now working on a lot more features and functionality on our platform, and there's a lot coming on our platform, but it's always been this speed and transparency from day one

 

Jesse (7m 52s): Around. That makes sense. So, in terms of the, the actual kind of, from when you started inception of this, to where we're at today, it's obviously been a crazy last 18 to 24 months. What have you seen in the capital markets or change, or how has that evolved over the, the last, you know, the last little while?

 

Tim (8m 14s): It's interesting, because for the last decade, we've had low interest rates, right? And only now in 2022, are we starting to have economists predict the federal reserve in the, in the U S is going to start to pull back on some of this quantitative easing, and they're going to start to raise interest rates, there's internet, there's an inevitable interest rate rise coming. We're still in this low interest rate environment for now. Now certainly the pandemic made things a little bit more choppy with during the pandemic.

 

And in the first phase of the pandemic, we saw leverage start to be pulled back, especially from banks and more conservative lending institutions. They started back leverage. They started adding more capital reserve requirements. You know, that's, that's largely washed away by this stage of the pandemic where the underwriting has smoothed out. Again, we're at full leverage, not only full leverage for permanent financing, but we're seeing really healthy leverage on value, add and construction deals as well, where you can, there's a lot of dry powder out there in the forms of bank balance sheets in the form of debt funds.

 

Everybody's waiting for interest rates to rise, but there's this kind of golden opportunity right now to lock into a 10 year term with a loan, you know, in the low threes or to get construction financing. That's a, that's a really healthy leverage. I think it'll be interesting to see what happens to both cap rates and interest rates as inflation continues to rear its head and see how long it rears its head and how strongly there's going to be in interest rates. But it hasn't yet.

 

Jesse (9m 55s): Yeah. Yeah. It's something that we've constantly been talking about in the, over the last little while. I know, you know, you have the Powell that was, I think, just in front of Congress to answering questions. So I think it's top of mind for everybody right now, in terms of the actual asset classes themselves, we talked a little bit at the outset commercial and multifamily. Is it all different sub categories within commercial that you guys will lend on?

 

Tim (10m 21s): Yeah, so, so SAC source won't lend directly on anything. What we do is we act as a portal and a guide and you know, that menu of financing options. So everything you find on our, on our platform is coming from third-party capital sources. So we have built up this national lender lending network of hundreds of banks, credit unions, CMBS shops, you know, the, in the U S the big agencies, Fannie Mae and Freddie Mac, and a lot of debt funds because there's all these, sometimes it's a sidecar fund for some big real estate developer that wants to support other developers.

 

And the debt part of the stack, many of them are just dedicated debt funds, or even mortgage rates. And you have all these scattered sources of capital, and everybody has their own lending and investment criteria. They are looking at certain asset classes, they're looking at certain parts of the capital stack, maximum leverage and recourse. And there, there are these, you know, multifaceted lending programs where it's a half an hour conversation. If you really want to understand any given capital source, you have to ask about all of this, you know, what are the edges of what you can do and how, how, how do you size your loans?

 

Do you size them with debt yields? You sized them with LTV, figuring out what might be a match and what projects might be a match for any given number of lenders is this intensive process. If you try to do it manually. So what we've done is we've cataloged all of that. We've put all of that in a database so that you enter a, a loan request and stack source on the front end. And you're instantly matched with algorithmically. Here are your matching lenders now from a human level and a quality and a sponsor quality standpoint, there's some quality control and making sure the right deals are entering our marketplace for our lenders to respond.

 

But if you're a quality deal and you know, you're underwritten correctly, we can instantly identify which of these capital sources might be a place you might get matched to just a couple of capital sources. If you're working on something really funky. And if you've got a straight down in the middle of multi-family refinance, you're going to get matched to a lot of lenders and you can potentially get an instant agency loan quote.

 

Jesse (12m 23s): Fair enough. So if you took, say for an example, you took a, an investor, you know, they, they are looking at a a hundred unit apartment building in say, in your neck of the woods in Florida, what can you walk the, walk me through what the process would be like for, for that investor?

 

Tim (12m 43s): Sure. So we need to know what are the relevant details on the underwriting that any lender or capital source is going to need to know? So property address the, the net operating income, the physical characteristics, when was it built? When was it renovated? What type of framing, all this stuff that would impact a lenders, sizing, underwriting, and pricing of a loan. The idea is you enter that once in the stack source portal, and that's instantly matched to the database of what these different capital sources are looking for. And it also instantly generates a debt offering memorandum still can be made, have changes made later.

 

We w the stack source team themselves, and our analysts are going to adjust and tweak and add, add data and Siri and the right comps. But those two things are done instantly where, you know, within men, within minutes, the ideas, you know, the types of capital sources and the types of things they can provide, Hey, there's an interesting life insurance company lending on this type of multifamily. And they can only go up to 65 LTV, but hang on, their rates are amazing. Like, yeah, I want to get a 2.8% interest rate.

 

And I'm interested in, you know, putting that lender in my shopping cart, so to speak. You know, I want to see if that unders interested in working on my deal, that, you know, some, some lenders, some loan programs, like a, like a Freddie Mac, small balance, you can get an instant quote on our platform. And then some of this is like, Hey, it's a life insurance fund. They're going to review. They're actually going to do a lot of diligence. But if I get the loan from them, it's going to be the best interest rate around.

 

Jesse (14m 15s): Got it. So, in terms of that, you know, that investor, he finds, say that life insurance companies, that that's kind of lending on funky loan, funky, or, you know, more involved loans in this certain area in Florida. And then how does, how does the, how does that get taken to fruition the, through the platform they're connected and then they, they break from the platform, or is it everything is done within the platform?

 

Tim (14m 40s): Good question. So, first of all, you do get an advocate. That's a human being on the platform. So you're not dropped off into something that's confusing. And especially when you're matching to a bunch of different lenders and they may be asking questions and, and, you know, they they're expecting to see the underwriting in a certain way. So that person that you get to talk to is a capital advisor. And they are professionals that work for stacks, horse across the U S that have been, you know, have decades of experience in lending and commercial mortgage brokerage, and real estate investment.

 

And they're going to be your advocate through the whole process. So you don't have to talk to, you know, it'd be just as bad that you have to talk to 14 lenders on stack source versus, you know, trying to find those lenders on your own and pitch the deal to them one by one. So there's no pitching all of these lenders separately. You get one capital advisor, you'd answer some questions, you get an advocate. They actually will help you with structuring and finding the best financing sources, maybe challenge you on different ideas that you haven't thought of because there may not just be a senior lender, but there may be a subordinate APOE source that can also add value in your capital stack.

 

So you get to have a conversation with a capital advisor, they help you go out to market, and then you are getting notifications. When you have new loan quotes and new financing offers in the portal, you get an email notification, you can compare and analyze those very easily within the process. When it comes time to sign the term sheet and deposit, the lender gets to choose their own process, because they're the ones closing funding, your loan. So some of those will have a, an email checklist or, or what have you, you know, but you keep the capital advisor advocating with you throughout the process until close.

 

Jesse (16m 22s): That's great. So we've talked a lot about over the last few months, a lot about the amount of debt in the market right now, you know, we talked about it, just you and I here briefly on inflation interest rates. W w what we're finding on the investor side is that there is a lot of capital chasing fewer and fewer deals. I'm curious on the flip side of that, on the debt market side, what are you finding is, or is, or are some of the biggest challenges from, from the debt side of things?

 

Tim (16m 52s): Well, you're right. You're right. There's a lot of money. There's a lot of types of money. That money is going to go full leverage, and it's going to be low rates. So for these capital sources, when they find a good project that they want to back, it it's a competitive market for them to get in to the capital stack, especially if it's multifamily industrial, some of these darlings of the industry, or you could probably throw self storage and a couple other things in there that are performing really well, you know, really from coast to coast.

 

And so we're seeing that's advantageous for the borrower, not just in rates, but there are negotiable pieces of term sheets right now, from everything from recourse to reserve structuring to leverage that it really slants it in a it's a borrower's market. Right, right now in early 2022, and things can change that change economically. But early 20, 22 is one of the best borrowers markets that we've had.

 

And that's, that's not just early 2022. You look at 2019 was the largest year of commercial mortgage origination ever. The second largest ever was 2021 and 2022 is not slowing down. As far as the first half of the year, from what we've seen now, inflation some more economic pressure, some bad job reports, something can slow it down quickly, but right now, 2022 at pace could be the record breaking banner year for commercial mortgages.

 

So it's a competitive, it's a borrower's market right now. People have been gearing up. People geared up for maybe more economic turmoil than we've seen rear its head yet. And so there's this money that needs to go somewhere. It needs to be on deals. And that's just as true on the debt market as is on the equity.

 

Jesse (18m 43s): Yeah, I mean, we're seeing, we're seeing the exact same thing from, from our vantage point here. And we're finding, you know, some telltale signs for this is we're finding more and more lenders are getting more creative on deals, you know, in, in my area, we're typically very conservative when it comes to debt in general. And now we're finding that, you know, five years ago, there's certain properties that, that wouldn't be lent on. You know, it could be at a host of things, maybe environmental, you know, other, other aspects or variables that lenders are trying to figure out and get more granular to see if they can lend on.

 

So it sounds like that's, that's happening across the board. And, you know, we just had somebody that on the podcast last week that was speaking to self storage and yeah, another area that I'm sure you're seeing a lot of capital going towards.

 

Tim (19m 28s): Yeah. And retail, if you're in a hot market to, you know, re you probably don't want to be fifth AV office and retail in New York right now, but you absolutely want to be retail in south Florida, for instance, or Dallas, Texas. These are places where they're seeing such a population increase and, you know, there's, there are plenty of drivers behind that, that we could go into, but they're seeing a massive population increase in Texas, Florida, the Carolinas, and, you know, it's actually a great market for retail, even retail construction.

 

So I think any asset type in these hot areas across the country, and then if you're in the right asset type multifamily, storage, industrial, you're going to get the money you need anywhere.

 

Jesse (20m 15s): Yeah. It's been a, it's been a ride quite a ride the last few years. So I'm curious, Tim, just because of your background, I thought maybe you could talk a little bit about how coming from the tech world, how has that impacted the way that you look at real estate or, you know, the way that you look at the business and, and just the way you look at your customers. Okay.

 

Tim (20m 38s): I think there's a lot more information and data available today on real estate than there was a decade ago. There was like one big real estate data company, a decade. And while they're still one huge. Now, now they're huge. And they're a huge real estate data company, and they've acquired others. There's a lot of other startups that are bringing interesting data points that can help with underwriting that can help make you more intelligent and make you more competitive when you're using data to full effect. I think there's a lot more workflow technology, not just with real estate CRM, so that certainly has grown, but really with, you know, deal management platforms and portals, and the listing portals are so much more full featured today than they were.

 

I think this next era of real estate tech is going to see a lot of those trends come together where not only will some of these real estate tech companies be more vertically integrated, where they were a data company and how they're helping with like transaction tools, but there's going to be integrations and partnerships between more real estate tech companies, where processes for, you know, for asset managers, for operators, for property managers and all the way down the line can really be connected in a way that it hasn't been before where your accounting system and your asset management system and your CRM and your transactions, and all the way through to your, you know, your tenant portal.

 

If you have all of these things are connected in a way that can really drive efficiencies. And, and that's, that's something that we're starting to see in the real estate tech market is, you know, these startups, some of them are becoming like real companies and like larger companies. They've gotten a lot of funding, 2021 in addition to being a second highest ever year for commercial mortgage origination. It was the highest year for venture capital investment into real estate data and real estate tech companies. And that's, you know, that's a leading indicator of more change and efficiency and innovation to come in our space.

 

Jesse (22m 40s): Yeah. I, you know, I think that's, that's exactly right for us. What's kind of amazing from the commercial real estate standpoint is you've seen the proliferation of tech in residential for a long time now, I think, and I think we're still playing catch up on the commercial side. And I think, I think we're headed in the right direction, but hopefully COVID, you know, the silver lining there is, it's kind of made people think a little bit more in just more forward thinking from the technological perspective.

 

And I think we've kind of, you know, COVID in general has kind of kicked us into that mind frame a mindset because we, we just did it by necessity.

 

Tim (23m 18s): Yeah. I agree. Residential real estate tech is another place to look. If you want to know, what are you going to, what are the trends going to be two or three years from now in commercial? You could look at what's happening in residential today. So in our space, I mean, it's very encouraging that in the us one out of every 11 loans on residential homes, I think was by rocket mortgage last year. And that's a staggering number considering every banker and every single bank can credit union across the country, wants their own customers coming in the front door to get a mortgage, but they're not, they're using rocket mortgage, we're using better mortgage because of the digital experience because of the ease and the efficiency of it.

 

And for that many people to be choosing instead of their local bank relationship or the local mortgage broker relationship to be choosing the efficient path and the transparent path, I think tells you all, you need to know about what's going to happen in five years in commercial mortgage.

 

Jesse (24m 13s): Yeah. It's just seems like a bit of a democratization to the consumer level. Tim, I'm curious, the, you, you mentioned that you guys were in growth mode, you know, even prior to the show we were talking about, you know, where you guys were at last year compared to this year, what is the, the next, you know, year or two look like for the team?

 

Tim (24m 34s): Well, we tripled our revenue and doubled our team at Sachs worse in 2021. And so to stay at a trajectory like that would be amazing from a, you know, from a company growth standpoint. And, you know, I think we've got the infrastructure in place, but really it's what's what are we going to continue to do on the product and not sit still and just say, Hey, we have a nice little digital loan portal. You can get access to these different financing options. We're going to continue to invest in this product.

 

Things like there are a couple of types of automated quotes you can get on our platform today. There'll be a dozen types of automated quotes. You can get on our platform by the end of the year, a lot of it for multifamily, but others are starting to do for other asset classes as well. So if you have straightforward underwriting scenarios, why should you wait on a banker to finish your round of golf before giving you, what is your interest rate in one zip code versus another, that's just not going to be the way agency multi-family and stabilize multi-family deals are quoted in the future as well as other asset classes.

 

So we're going to continue to push on the products pretending to make it as good at experiences and as easy to experience as possible to wait through different financing and capital sources. And, and we're going to hope to do that across the U S we're going to strike some more partnerships with other real estate tech companies, which I kind of alluded to is happening across the space in order to streamline the underwriting and the due diligence process, as well as to surface financing options in more helpful contexts, where you may be off of stack source, but you can get financing options where it's helpful to do so.

 

So that those are some of the things that we're focusing on.

 

Jesse (26m 14s): Are there current areas in the tech space or real estate tech prop tech that you think, or that, you know, you're excited about, or, you know, you think you're going to see a lot of big changes aside from the space that you're currently in.

 

Tim (26m 28s): I'm, I'm a huge cheerleader for real estate data and not just real estate data, but like external sources of data and figuring out how they impact properties and cities and what that means for investors. I think that's like a really cool thing that's happening. And it's, it's several steps away from something like artificially intelligent, real estate investing where like, you know, but I know 30 years ago, the best chess players were human and now they're computers 10 years ago, like there's this ancient Chinese board game of go.

 

And they thought it was too complex for, you know, for humans to be over, you know, passed out by a computer by computers. But now it's happened. I kind of wonder about real estate investing. I don't think that there's going to be some AI that can like out invest like the best real estate investors, certainly not at this stage of our history, but I think we're about to enter this era where if you're a real estate investor, that's not making the best use of data and tech you're going to fall behind.

 

And I don't think it's even too bold to say that because, you know, within, within like real estate comps, but also like social media sentiment and like there's, so there's so much you can mind and understand, like, where are people going? What do people want? And I think the best real estate investors are gonna make so much use of that over the next few years. And they're going to seriously outperform.

 

Jesse (27m 59s): Yeah. That's a, that's great. I'm currently reading a, the age of AI is a book I highly recommend it's Henry Kissinger, I guess, teamed up with, I think he was Eric Schmidt. I don't know if he was like, I think it was Google one of the founders, but it's

 

Tim (28m 14s): Chairman of Google when I worked there.

 

Jesse (28m 16s): Oh, there you go. That's right, Google. So, yeah, I'm just kind of nerding out on that book right now. I've thought it was pretty, pretty interesting, but yeah, it it'll be cool to see how this, how we shift because even, even the proliferation of data, when it comes to our area, we, we were using Altice insight for a lot of our stuff. Then moving into CoStar. And a lot of the brokers that I worked with were like, you know, CoStar is never going to be where all this is is that, you know, what we were using. And now I don't even think, I think every broker I talked to just uses CoStar.

 

So it's, it's interesting too, because you want other companies to be able to play in the space and be competitive, but it kind of seems like it's very similar to these social media platforms where the, you know, you have a first, first mover advantage and then once you actually become the dominant incumbent, it's it just kind of snowballs. So I'm, I'm curious how that will play out, you know, in five years from now, we'll, you know, we'll, there'll be a couple of different data companies or will there be, you know, one or two that, that dominates our space.

 

Tim (29m 18s): Yeah, that'd be interesting to see. I'm also curious to continue to see how it plays out though. A bunch of other real estate data companies have grown a lot over the last couple of years, and maybe they're not as large and certainly not as comprehensive as CoStar because CoStar has also been acquiring other real estate tech and data companies. They bought 10 X last year. They bought a couple other real estate data companies for different verticals that they didn't have well covered yet. But like out of New York city comp stack raised $50 million to do office industrial and retail comps across the country.

 

Last year, Moody's analytics is investing in several real estate tech companies like light boxes investing in a bunch of real estate tech companies. So there are some of these other players that are putting together, if not this, the full comprehensive package, I think there are starting to be some challengers. And then there are these interesting, like alternative data, you know, placer.ai had raised a bunch of money over the last couple of years. And what they do is for real estate companies, they allow you to see without doing manual measurement, where is foot traffic and where's car traffic, because they crowd source the data from people's smartphones and they see where are all these smartphones moving around?

 

And they aggregated anonymized that to say, you know, at any given storefronts or, you know, ha and a given storefront, how much foot traffic foot traffic will it really have, you know, on a two o'clock on a Thursday or for this apartment complex, how many people are already driving by on the way to work and would have a shorter commute if there was an apartment complex here. So like the, the analytics I think is, you know, gotta be one of these biggest opportunities for real estate tech and real estate data companies it's already happening.

 

I expect that to continue to accelerate.

 

Jesse (31m 13s): It's curious to the, the fact that you have companies doing kind of a roll-up strategy when it comes to acquisitions and growth, where they're buying other companies, rather than building their lines. I'm curious to see how we kind of roll forward. Like in the Canadian market, Avison young, the commercial real estate company I work for. I think we are, we're over 80, 80 offices now, but we're probably one of the larger ones here. So you have CVRE JLL, Cushman, the usual suspects, Colliers and ourselves. And we've a lot of these companies. I know Cushman has, we are JLL, has we built our own platforms?

 

So exactly what you're talking about, where, you know, we're in an office building in downtown Toronto, you can see where all the cell phones are analytics for our company, but we're building that in-house, and I'm always a little bit hesitant when I hear companies doing that, that aren't in that space. Cause I'm, I'm just of the mind like, well, why don't you just get the best, the best person or best company that does this and, you know, figure, figure that out. So I think, I can't remember the name of the company that we use, but a hundred percent, I think, I think that this is definitely the next, the next stage.

 

And then I think the, the big question is just like, it was 20 years ago. Okay. You have information now, what do you do with it? And I think that'll be, you know, still the difference between these successful investors or brokerages or real estate companies versus the ones that aren't at the top of their class.

 

Tim (32m 33s): Right? Yeah. And, and the answer might be different based on your size and your goals, right? Because a powerhouse estate investment company that has multiple funds or rates, or, you know, and they have a, they have a big presence in a, in a big budget. They, they're probably going to build their own tools, just like the major brokerage companies. They're going to build their own tools. You know, Avison young is going to build its own, you know, suite of tools, but some of the largest investors are going to do that too, for their own operations. If you're a mom and pop investor, you should looking for something off the shelf, that's going to give you an advantage.

 

And because you can't help to beat some of the in-house tools beat by some of the larger ones. So that's really where startups can thrive is either enabling like these big companies and being a part of their mix or having an out of the box solution for tons of small investors. And so we're probably somewhere we're somewhere in between because we do mid market loans as well as small, but in that small space, and even in a space where commercial mortgage brokers don't even want to help you, that you owe you need $700,000 to buy your first, multi-family get out of here.

 

Like you're not going to be helping since the office of many brokers, but for stacks or so we've made that process really efficient. And we actually did a number of loans less than a million dollars last year.

 

Jesse (33m 55s): Yeah. I think that's a critical point there. All right, Tim, I want to be mindful of the time here. We're just coming up to the end of the episode here. We ask all of our guests for questions. If you're ready to answer them, they're a little bit of a final four. We do.

 

Tim (34m 10s): Yeah. Let's do it Jesse.

 

Jesse (34m 11s): Right on. All right, Tim, what's something that, you know, now that you wish you learned at the beginning of whether it's working in real estate or at the beginning of your career in tech,

 

Tim (34m 22s): So many things, but I'll say everything is sales when you come down to it because everyone you deal with, even if you're not actually selling something, they're a human being and people react well when you use empathy. And when you use clarity of communication, and these are really what great salespeople do is they connect with someone at a, at a human level. Then they communicate clearly and then they guide them in the right way. So if can sales and I wish I learned that earlier.

 

Jesse (34m 52s): Yeah. It's great to try to move the S word into a, a, a positive thing over, I feel like it's over the last 10 or 15 year, he probably longer, I feel like it's, it's now starting to take a switch to people realizing that even in the technology, I think technology companies were a big part of this too, because at the end of the day, you know, you add value you market, and then you need sales to kind of bring it in and actually have that human aspect that you just mentioned. What would you say to a younger person trying to break into the industry?

 

And that can be on the real estate tech side or real estate in general?

 

Tim (35m 27s): Well, if you're trying to break into real estate or real estate tech, figure out something that you are good at and double that strength because especially right now, companies are looking for talented people. I mean, listen, it's, it's actually a job seekers market in many ways, and there's been this great resignation, find something you're really good at. And you can be passionate about whether it's your current passion or not. Like for me, starting off my career, I, if I looked around the room of my peers and other financed graduates coming from my university, I was good at spreadsheets, double down on something.

 

You can to be really good and add value on day one. And you're gonna make it hard for people to turn you down for a job. If that's part of the part of the job, right on

 

Jesse (36m 16s): What is on the proverbial bookshelf that could be audio book or any media that you're you're consuming right now,

 

Tim (36m 25s): I have too many podcasts on my list and I also have way too many books. I feel like I track what books I read on good reads.com. And I, for every one that I check off the list, I must be adding two or three. So the reading list is growing. I have a bunch of leadership books that I want to read because I, my company is growing and we had less than 10 people a couple of years ago. And now we have 25 and growing. So, you know, there are, I, I expect to read 3, 4, 5 leadership books among other things this year.

 

Jesse (36m 57s): And it's funny you say leadership. I was just looking at a list today and I don't, I, you know, listeners can can message or they can email in on whether this, the leader who had no title, I think was the, was the book that was recommended. Yeah. I think it's Robin,

 

Tim (37m 13s): That's my list based on the title alone. Next for that.

 

Jesse (37m 16s): Yeah. Okay. So last question. Our personal favorite here. First car make and model

 

Tim (37m 25s): Jeep Cherokee sport. 1999 red. We used to drive it down from, we lived outside of New York city and we used to drive it down to the Jersey shore. And you know, it was a lot of fun. You didn't care if you got sand all over it. And I CA I kept that car for a while and definitely shed a tear when I had to sell that.

 

Jesse (37m 46s): That's a, yeah, that's a pretty good first car. I was going to say, like you were in New York at the time. It doesn't seem like a, it doesn't seem like it fits there.

 

Tim (37m 54s): No, no. On the New Jersey side, it works well,

 

Jesse (37m 56s): Though. There you go. Absolutely. All right, Tim, for, for listeners that want to get more information on yourself or the company work in, they worked in the, be pointed to I'll put some, some links in the show notes.

 

Tim (38m 9s): Sure. Stack source.com is our company website. If you want to reach out to me directly, my email is tim@stacksource.com. So pretty simple, but if you search Tim, Milazzo M I L a Z O on LinkedIn, Facebook or Twitter, I'll be the first one.

 

Jesse (38m 25s): My guest today has been Tim Alonzo. Tim, thanks for being part of working capital. Thanks,

 

Tim (38m 30s): Jessie.

 

Jesse (38m 38s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one. Take care.