JF2218: Online Commercial Real Estate Loans With Tim Milazzo

Tim is the co-founder and CEO of StackSource, an online platform for commercial real estate loans. He previously worked for Facebook & Google helping B2B marketplaces in the ad tech space and got into a few limited partnership deals in 2015.

Tim Milazzo  Real Estate Background:

Best Ever Tweet:

“Building a team that has complementary skills, and with people, you enjoy being around is key” – Tim Milazzo

TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, I’ll be speaking with Tim Milazzo. Tim, how you doing today?

Tim Milazzo: I’m doing great. How are you, Theo?

Theo Hicks: I’m doing great as well. Thanks for asking and thanks for joining us today. I’m looking forward to our conversation, but before we get into that, a little bit about Tim’s background. He’s the co-founder and CEO of StackSource, which is an online platform for commercial real estate loans. He previously worked for Facebook and Google, helping them with business to business (B2B) marketplaces, and ad tech since 2015. He has been involved as a limited partner on a few deals. He is based in Lyndhurst, New Jersey. You can say hi to him on his website, which is https://www.stacksource.com/.

Tim, do you mind telling us a little bit more about your background and what you’re focused on today?

Tim Milazzo: Thanks so much, Theo, for the introduction. Some people, they hear that I used to work for Google and Facebook in advertising technology and they say, “Well, how did you get into real estate and real estate Finance?”

The answer is actually that I grew up around real estate. My father was a real estate professional. He did big office leases in Manhattan for tenants and landlords, so I kind of grew up around real estate stories around the dinner table. By the time I got to college, I studied finance. I interned for big real estate and finance companies, but I always had a passion for technology and I wanted to work for a technology company.

When I got out of school, my first job offer actually was for a full-time job at Google. I always loved the tech side. I learned a lot within a few years at Google, working in their ad-tech division, which is the way these big tech giants make money, by the way, is from the advertising. I learned a lot about business and operations and sales.

I got a little bit of a startup itch; I went to a video ad tech startup that was a little bit of a smaller company versus Google that has 10s of thousands of employees and is a huge company. This one had about 100 employees. I had the opportunity to start a new team there… And that company, within a year of me joining, actually got bought out by Facebook, so I found my way to another tech giant.

I probably would still be working at big tech companies today, except I got reacquainted with real estate back a few years ago, by getting introduced to some real estate tech founders; and with the family background in real estate and having multiple family members in that industry, and seeing a technology enabled angle got me really interested in what was happening and maybe what was possible in commercial real estate technology. I saw the financing side as this black box of not understanding exactly how that process works, real estate investors needing to talk to people that didn’t have a very clear process as far as what financing might be available property by property – I saw this as a huge potential industry problem to solve, and that’s what got me down the road that eventually led to founding StackSource.

Theo Hicks: Thanks for sharing that. Let’s talk about StackSource; it is an online platform for commercial real estate loans. You have already mentioned why you started, because you identified a need in the market. Maybe go into what StackSource does and then I might ask a couple of follow-up questions on the actual process of creating the company.

Tim Milazzo: Sure. StackSource at a really simple level is bringing transparency into the commercial real estate financing process. There’s already a lot of transparency and there’s a lot more efficiency in residential mortgages, where you basically, based on your credit score and the down payment that you’re willing to make on maybe a single-family rental or your own primary home, you can very quickly get to the answers of what a 15-year mortgage rate is, or what a 30-year mortgage rate is, and what you’re going to be paying month to month in that, and therefore what that property investment looks like, or that home purchase looks like.

As soon as you hop over into commercial real estate, so multifamily five-plus units, if you have anything with a retail component or office or industrial, the financing process just becomes this black box. It’s about finding the right person to talk to you that’s actually tied in with the capital markets, has done a bunch of deals, and traditionally, there has been no way to figure out, what are the rates? What are the terms? Who are the lenders that are in the market for commercial financing? What does it mean to get a Fannie Mae loan versus a Freddie Mac versus a bank loan today? How much leverage can I get? What are the rates going to look like and the amortization and all of these covenants? There was such a lack of transparency in this market that I thought it could be easily addressed by technology.

StackSource, we’re actually an online platform for financing where we have commercial property owners that are considering an acquisition, or they’re looking at a potential development play or a major value add. If they want to get to the answers quickly about what financing might be possible, how to model that in with their deal, what are rates like today, and in a shifting market, like we have in 2020, to understand where rates are, which lenders are in the market. Traditionally, people have either gone to their local bank, and the bank they already work with, or they’ve had to use a commercial mortgage broker that may not have a transparent process. We are something in between.

We are direct in access, where we give you full transparency into what programs we can offer. We have Capital Advisors that are on staff at StackSource able to talk to people about their deal, and they are commercial real estate finance experts; you have a dashboard that shows you here are the options you’re matched to, here are lenders that are quoting your deal, how do you compare and analyze those… And we’ve built all of that into a web platform.

Theo Hicks: Alright. Can you give me an example of what someone would do? Let’s say they’re looking at an apartment deal, but they only wanna have value-add deals, and they want to get some sort of renovation financing. What information do I need to input and then what does actually outputted to me?

Tim Milazzo: Sure. One of the ways to start is, go to https://www.stacksource.com/ and you click ‘get a loan’, and you’re into our platform. Now, this is something custom that we’ve built. My co-founder in the company is a software engineer that was a friend of mine from Google, and he has built this web platform for us where you essentially put in information about the deal. We need to know the address, we need to know the asset type and basic information like the units and how many are occupied and what’s the current income and what are you projecting for income.

As you put in information, the platform asks you relevant questions. If you have a multifamily deal, it’s going to ask about the units and the occupancy and the income, and based on the financing that you’re looking for – so if you’re looking for short term renovation financing versus long term fixed rate, you’re going to be instantly matched with lenders that are in the market to provide that type of financing. Those lenders then essentially compete with each other for that loan by submitting quotes, where the borrower is trying to get the lowest rate, the most loan proceeds, the lightest covenants, and there are all these pros and cons of different loan programs, and what is output from the platform is actually a menu of options of different financing deals that you can pursue.

Theo Hicks: That’s amazing. From my perspective as someone who wants to use this, is it free? Is it subscription-based? If it’s free, then how do you, as StackSource, make money?

Tim Milazzo: Well, like a commercial financing broker, we only make money if a funding deal happens on our platform.

Theo Hicks: So you’re actually a broker?

Tim Milazzo: Yeah. We’re an intermediary where we work with a number of different lenders. If you’re talking to a lender directly, they are beholden to what their bank can prove, what their credit committee may be able to do. If you’re talking to a capital advisor or an intermediary, you’re talking to someone who may be able to offer options across a dozen different lending entities that have different credit boxes, and that can get you some competition.

Theo Hicks: Got it.

Tim Milazzo: Take that and bring it to the nth degree with StackSource, because we have hundreds of lending relationships across the country, from the obvious ones like Fannie Mae and Freddie Mac and HUD, out to the credit union that you’ve never heard of that’s actually out of state but just loves the type of deal that you’re working on, and is going to give you 25 bps cheaper rate right now based on their current credit box, right? We actually help a lot of borrowers find the lowest rate in the market from some lenders that they may not have ever discovered on their own.

Theo Hicks: So you guys are like a mortgage broker on steroids, in a sense?

Tim Milazzo: Absolutely, and we brand as Capital Advisors, but it’s absolutely that. We’re the next generation. Most of the biggest mortgage brokers, today, are companies that were built in the 70s and 80s. Maybe a few of your listeners will realize that a few changes have happened in the market since the 70s or 80s, and they kind of look around and say, “Well, we’ve got that whole internet thing.” What if we were to  rebuild the commercial mortgage brokerage process from the internet up, how different would it look?  The answer is, take a peek at our website. We are rebuilding the process from the internet up, in a way that’s maximum transparency. You see what StackSource fees are right in the loan, quote, lineup,; in the menu of options that we present to you, you see what StackSource’s fees are, as you can go down that road, you are seeing the options, you’re seeing the names of the lenders, and who they are. We’ve tried to rebuild that process to be more efficient for our borrowers, and ultimately, get them better financing.

Theo Hicks: Awesome. Man, I wish this interview was longer than 25 minutes, because I’m going to ask one more follow up question, and then we’ll go to the money question, which is, what’s your best advice ever.

Obviously, you’re a mortgage broker. Obviously, if I put all my information in and I’ve got all of these different potential loan options that are from all these different lenders; I’m just curious, how did you go about forming all these relationships? Was it something where you didn’t really need to—explain that to me, how are you able to form those relationships? And how are you able to pull all that information into one neat, customized plumb platform?

Tim Milazzo: Theo, the answer is that it took a lot of work. We’ve had to solve for the complexity of different deals in the ways that different lenders view them to see whether lenders should be matched on a deal by deal scenario. We track lenders and their loan programs against dozens of different criteria. It’s really not just, “Hey, if you put in multifamily, you’re getting all of our multifamily lenders.” There are dozens of different criteria as to why a lender and their credit committee may be interested in a deal or not.

We have taken all that information and we have put in an algorithm on our system that actually matches the right loan programs at the right time. Now, three years ago, if we were to chat, I would have been the guy that a lender would have said, “Oh, Tim and StackSource, they have some crazy ideas about trying to make the origination process more transparent and more efficient,” and they wouldn’t have believed me yet. We have to call over 100 lenders before the launch of our platform to talk to them about what our platform would be, why it’d be good for them as lenders, why borrowers are going to love it and why it’s going to become the next thing in the industry and very few of those initial lenders really understood the power of what we were going to bring to the table.

Fast forward to getting our first couple of dozen lenders on board and actually launching this thing and having a bare minimum viable product in 2017, that we started to get deal flow in the door. We’ve built slowly from that time. We now have hundreds of lending relationships across the country. Now the lenders are calling us rather than vice versa about being on our platform because we’ve got the deal flow and we have a process that borrowers want to use. It has grown. It took some real effort in the beginning and a marketplace business like ours, you have to balance both sides, as we built the platform and started getting deals done at a small level, and then a little bit larger and a little bit more, and eventually those scales tipped, and at this point today in 2020, with StackSource, where’s you’re actually finding every major type of commercial real estate loan available on our platform?

Theo Hicks: What’s the volume of loans you’ve done last year? What was the volume of loans you guys did on the platform?

Tim Milazzo: We have a higher pipeline of loan opportunities now than we ever have. As we talk here, we’ve now been operating for a couple of years, we’ve really grown in a couple of asset types in particular, multifamily is the number one asset type that we get loan requests for online. Number two would be retail, and we’ve actually closed a lot of retail deals. Retail is really hard in 2020. And we’re actually getting even more deal flow in retail, because it’s harder than ever to just go directly to your local bank, and hope that they can approve a retail loan. It really just doesn’t happen. You have to be going and underwriting in the right way and you have to go to the right lenders.

But at this point, we have a pipeline of hundreds of millions of dollars in commercial real estate loan opportunities. As a matter of fact, it’s more than a billion dollars in our pipeline, if you don’t weighted average that across the pipeline. We weighted average based on the stage that the deals had and whether it’s gotten the quotes yet and whether the borrower has accepted a term sheet. For that reason, it’s hundreds of millions of dollars rather than a billion dollars plus. We’re going to get hundreds of millions of dollars of deals done for our clients over the next several months, which I’ve never been able to say before until this point is growing client by client. We haven’t had the biggest marketing budget, like the big commercial banks and some of the traditional brokerages that have had decades to build up their cash piles. It’s been word of mouth, it’s been putting out our content on the internet, and this year, we’re really taking off in a way that has been awesome. And it’s been a lot of fun, as finally, these years of work can be paying off and the borrowers that are using the platform are loving it and coming back.

Theo Hicks: Thanks for sharing that. My next question is typically what’s your best real estate investing advice ever? You can definitely answer it that way because I know you do invest, but you can also answer it or look at it as, what’s your best business advice ever?

Tim Milazzo: I think they’re one in the same feel, Theo, and I’m going to give you this because building a business and building a real estate investment business, they require some of the same things. The one I’m going to say for the best advice ever is from people that have been mentors to me in the business side and definitely within the real estate industry. I think building a team that has different skills than you do and people that you really like being around and you have a level of alignment with is really key because whether you’re talking about making a real estate investment, and that’s an investment that you may be in for five, seven, 10 years or longer, or whether you’re talking about building a business and talking about bringing on partners, if you don’t enjoy being around those people, or if they don’t have complementary skills to you, neither of those situations are going to work out well. They need to have complementary skills, and you need to have some alignment, and you need to love being around them because you’re going to spend a lot of time with your partners on a deal. You’re going to spend even a lot more time with partners in business if you’re going to be working on multiple deals or working on building up an operating business.

I’d say, team is key; find people with those complementary skills, but make sure you have a level of alignment. You’ve got to have both sides.

Theo Hicks: Okay, Tim, are you ready for the best ever lightning round?

Tim Milazzo:  I’m ready.

Theo Hicks: Okay.

Break: [00:18:21] to [00:19:26].

Theo Hicks: Okay, Tim, what is the best ever book you’ve recently read?

Tim Milazzo: A great book that I recently read was not a business book per se, but it’s When Breath Becomes Air by Paul Kalanithi, and he was a doctor that then was diagnosed with cancer in early stages after saving other people’s lives that had cancer. It’s one that really hits close to the heart and makes you think about making the most of the time that you have because this life is short.

Theo Hicks: If your business were to collapse today, what would you do next?

Tim Milazzo: I love being involved in real estate and I am involved in some real estate deals and that would continue even if I wasn’t doing full-time in the real estate finance business. But if I was talking about what I’m doing day to day with the bulk of my hours, I’d probably be working in operations for a big tech company.

Theo Hicks: What is the best ever way you like to give back?

Tim Milazzo: One of the ways that we love to give back is we actually have a 1% pledge for the StackSource platform. 1% of all of our revenue right off the top, not our profits, but our revenue. So we can never make the excuse, “Oh, we weren’t profitable that quarter.” We give 1% off the top two charities that we partner with. When we do multifamily deals, in particular, we’re actually supporting Habitat for Humanity, a chapter of it in New Jersey, where we were founded with 1%, of all of our multifamily revenue. That comes right off the top automatic from the StackSource platform. That’s one way that we love to give back.

Theo Hicks: And then lastly, what’s the best ever place to reach you?

Tim Milazzo: Best Ever place to reach me would be tim@stacksource.com if you’d like emailing, or if you like going on LinkedIn or Facebook, I’m there as well. If you type in Tim Milazzo, I will usually be the first person that comes up. So tim@stacksource.com or find me on LinkedIn or Facebook.

Theo Hicks:  Awesome. Well, Tim, thanks for joining us and talking about your company, StackSource, a very [Inaudible [00:21:08] company. I personally, whenever I’m helping people underwrite deals, without understanding what the potential loan terms are, I always base it on the fly and say, we need to talk to the mortgage broker to figure all that out. Now, we have another option to give them, which is, go to StackSource, type in information with the in deal, and very quickly get an idea of what terms they can get for your loan, their amortization, interest rate, loan and value, things like that. [Crosstalk].

Tim Milazzo: —as well. My dad was a broker, I love brokers. We work with brokers every day. If you are a mortgage broker or a financing broker, and you’re one of these people that is helping people with their deals, and your current brokerage isn’t giving you the tools that StackSource gives to our Capital Advisors, I would love those people to reach out too, so use the same contact info.

Theo Hicks: I look forward to testing this out and seeing what this output we’re matching with different lenders looks like. But my other takeaway from the conversation, you talked about how you were able to form all these relationships with these lenders. Again, in business, everyone always says how’s the relationship business and you basically just grinded, right? You said you called over 100 lenders before you launched your platform. We talked about how you were pitching, telling them what the deal was, why it’s good for them as lenders, why it’s good for borrowers, why they’d be the next big thing. When you first start talking to them, they thought you were crazy, in a sense, and then you’re at the point now where you’ve got hundreds of lender relationships, hundreds of lenders on your platform, and they’re actually calling you. So you can really apply to anything. Take finding deals, for example. You call hundreds of brokers to work with them, eventually, you do enough deals, you add enough value and they’ll start calling you instead.

Then lastly, you gave your best ever advice which I really like which is building a business is the same as building a real estate investing business which requires a lot of the same things. You said that your best ever advice is to make sure that the people you bring in your team; number one, are different and have complementary skill sets; and then two, that you like being around them because you’re going to be spending a lot of time with these people and if you don’t like them or they don’t like you, it’s not going to work out. If you have the same skills, it is also not going to work out.

Tim, again, really appreciate you coming on the show. Best of listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

Tim Milazzo: Thanks, Theo.

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