Carolina Commercial Real Estate Connection

Navigating Financial Crises: Jake Clopton's Journey to Transforming Commercial Real Estate Financing

• Tony Johnson

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What if you had launched a financial company during the worst financial crisis of our generation and turned it into a thriving nationwide provider? Join us as Jake Clopton, founder of Clopton Capital, recounts his extraordinary journey from trading interbank hedging products to becoming a key player in the commercial real estate financing sector. Jake sheds light on his company’s evolution from scouring the market for liquidity when lending was scarce to managing deals across the country, handling everything from fixed-rate first mortgages to complex bridge and construction loans. His unique approach and expansive network of up to 150 banks give clients an unparalleled advantage in securing optimal financing terms.

Get ready to navigate the intriguing world of syndicated real estate financing with Jake as your guide. This episode dives deep into the current trends shaping the real estate market, such as the boom in new construction projects and the high capital costs that challenge general partners in structuring deals. Jake’s expertise offers a clear understanding of the shift towards non-recourse debt from private capital markets and the critical role of global underwriting by banks. Learn about the balancing act between asset security and financial liabilities, a must-know for syndicators handling multiple projects.

Finally, we explore the comprehensive commercial property services offered by Clopton Capital. Jake explains their strategic expansion into commercial property insurance, especially in high-risk areas, and their commitment to proactive insurance management. Discover how Clopton Capital is positioning itself as a one-stop shop for all commercial real estate needs, from acquisition to financing, insurance, and even 1031 intermediary services. With practical advice on connecting with Jake and his team for your next venture, this episode is packed with expert guidance to help you succeed in the commercial real estate landscape.

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https://timelesspropertiescc.com/

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Speaker 1:

Welcome to another episode of Carolina Commercial Real Estate Connection. Today we have Jake Clopton with us. Jake, thank you so much for joining us.

Speaker 2:

Appreciate it. Thanks for having me on.

Speaker 1:

Yes, sir. So Jake is a financial intermediary for commercial real estate. Jake, can you tell us a bit about how long you've been doing this and what got you into that?

Speaker 2:

Yeah, I've been doing this for 15 years. That's when I started this company 15 years ago, uh, which you put the timeline back together. That was during the financial crisis, when there was credit crisis and nobody was lending and the idea was to start a company to help people find financing. So you can kind of see where the need came from, um, and before I did this, I was trading interbank hedging product futures, mainly three-month live wargles with Fed funds, stuff like that. That market kind of disappeared along with a lot of other stuff, and you know, we had the idea to help people find liquidity. And here we are 15 years later.

Speaker 1:

That's amazing. So in the beginning, and what is first of all, what's the name of your company? Could you tell?

Speaker 2:

everybody Clopton.

Speaker 1:

Capital, clopton Capital, okay, and you are located out of Chicago. That's right, he does work nationwide yeah we are nationwide Just be aware of that In Carolina, awesome, awesome. So tell me in the beginning, what was your main line of business when you started out? I know you're saying finance. What type of deals were you financing in the beginning?

Speaker 2:

Yeah, in the beginning. So the idea in the beginning was, because of the time period, right, nobody could even find money. Time period, right, nobody could even find money. So we were less concerned with like just going and finding deals, as the main focal point was just going and finding money right, that people were lending and anybody that was lending and finding things that they were lending on, and then putting that out there and telling the universe, hey, here's what we have to lend and deals would just come to us because of that, because, I mean, barely anybody was lending at all, right, so if you had money, people would just come to you.

Speaker 2:

Since that time, like, our focus is really like deals that are well, my personal focus let me preface this better is deals that are $2 million and up Fixed rate first mortgages, bridge loans and construction loans. However, we do also have a small balance platform from like $100,000 up to $2 million, mainly geared towards like residential, small, commercial, multifamily type investors for the same stuff, fixed rate first mortgages, bridge and construction type investors for the same stuff fixed rate first mortgages, bridge and construction. That's more of like almost like a fintech type platform. It's very streamlined, but the side that I do, which is very hands on. Brokering of larger financing is really two million bucks and most of the volume happens anywhere from two up to like 50 million volume happens anywhere from two up to like 50 million.

Speaker 1:

Okay, so let's walk through this on your ideal customer and kind of to identify someone out there looking for financing to see if they're a proper fit. What are you looking for when you have a client come to you looking for debt coverage? Let's focus on building and development.

Speaker 2:

Yeah, yeah, absolutely. So we work with a lot of different clientele anybody from just independent owners with one-off property or all the way up to like you know, larger commercial real estate companies with acquisitions officers.

Speaker 2:

Our ideal guys are somebody that wants the widest amount of access to as many debt providers as possible to get the best terms. To give you an example when a normal person who's just a real estate owner and operator goes out to the market and let's just talk about banks, for instance, they go out and say, hey, I'm going to try to get a bank loan. How many banks do you think they really end up talking to? Three or four, maybe at most. Right, I mean pretty, pretty hard to get actually through those guys and then also figure out like do they actually lend on this property and you know, you may talk to a handful of banks and come up with maybe one firm sheet.

Speaker 2:

We take a much wider net cash approach. Our process is very efficient and we've just been doing this for so long. Some of these deals we're talking to upwards of 150 different banks on any one deal Inside of those banks. We talked about three to four different loan officers inside of each bank. Every time you approach a loan officer at a bank, you may get a different answer from a different loan officer. That's why we approach multiple of them. Just today, I had one loan officer at a bank tell me yes and another one told me no for the exact same deal. It's just how they're feeling that day, I guess. So our ideal client is somebody that wants to look at us as a service provider to find them the best capital out there, and maybe they really need to focus on doing more deals and the acquisition side and really need, like an outsourced finance department, to take over that time constraint. That's what we do.

Speaker 1:

Fantastic. So let's understand a little bit of your advantage, comparatively speaking to someone going and dealing with their local regional bank, giving you about a reach of 500 people, potentially understanding what you're saying when you're doing a reach out initially, compared to someone, yeah, going talking to three or four banks. So, terms wise, are your terms, obviously, when you're shopping that much you're able to offer, I'm assuming, better terms than these regional banks typically. Or is it just finding finance? So someone that's not so experienced and maybe he's only done one or two deals and they're looking for a third build and let's just give a number of 5 million on a full development deal, so they've acquired a piece of property, what criteria are you looking for? Does it need to be pre-leased if they're wanting to do like an industrial or retail development? Walk me through that process.

Speaker 2:

Sure, so I'll handle the first part of that question. As far as advantages, right, I think you can think about it two ways. One, it's a two degree, it's a numbers game. Let's say there is one optimal, you know, or the most competitive, just deal out there, right, the lowest interest rate, the odds of finding that by only going to a couple of banks, not very good. Right, so we provide a much broader access to the market. So just logically, you can see how you know accessing better terms would be done through that way. Right, accessing a lot more like lenders that are out there to you know. I would think the other way is you know expertise and presentation and knowing where these banks can push you know, just knowing how banks work and knowing what, what types of terms we're getting from other lenders in the markets, can help us push banks and push them a little bit harder. And also we're an advocate for the borrowers, so we can be a little more aggressive with these lenders than maybe the borrowers want to be, because they're going to have a long relationship with them going forward. So we can push a little harder on terms and you kind of get these guys to open up a little bit more and offer terms that maybe they wouldn't if they were working directly with a borrower. So I think those are really two of the big advantages that we bring to the table.

Speaker 2:

As far as what type of deals we're looking for, it kind of depends on property type and what it is. We do basically every property type, from multi-family um to, you know, industrial self-storage, uh, which are doing a lot of car washes, hotels, stuff like that. Releasing is something we typically are looking for in, like retail development today, right. So anything that that wouldn't be pre-leased would be speculative. I don't need that with multifamily, clearly, really don't need that with other stuff like storage, car, you know, hotel, stuff like that. But if we're talking about industrial and retail, certainly you know having pre-leasing going in is a huge advantage. If you're gonna end up having to do it spec, it's probably just going to result in a lower leverage point and more equity going in to mitigate that risk for the lender.

Speaker 1:

Interesting, and so hotel multifamily. Obviously you had no pre-release and going in makes it a lot easier. So we look a lot at retail and industrial and, yeah, that that's the biggest hurdle, you know. What about? You know, looking at the industrial, do you guys ever deal with it in a speculative term and phasing it out? So if we're looking at, you know, let's say, a 60,000 square foot industrial development and we're just doing small bay flex, you know, so those you might pre-lease one or two spaces on like a six unit building before you break ground not going to cover your net debt ratio. So then something like that, what are the terms going to end up looking like on a speculative build like that? How much? What's your leverage basis?

Speaker 2:

Yeah, absolutely. I mean a lot of this depends on what sub marketmarket you're in, right, let's say we're building some industrial building and a market whose vacancy is basically zero, you're going to get a lot more people comfortable If you're doing something that's a little more pioneering like, for instance, I've seen a lot of industrial builds wanting to do small bay stuff that in some of these markets is kind of pioneering, right, and they they're building it because there is no supply for small bay. But you know it's not really proving. You know that there's a huge demand for it. I think you can make that entrepreneurial like decision.

Speaker 2:

But you know banks still really you know work on a profile right. They're mainly going to go off of what data is already in the market. If you're going to build something speculative, typically I see you know lenders start to get comfortable around like 60 to 65%, just a little bit lower LTV. So that you're right, I mean they can hit debt service constraints a little bit earlier and that there's more equity in these things going in. Just in case you know your assumptions don't work out exactly how you thought, there's a little bit more panic going in.

Speaker 1:

And for someone that's looking at that, what type of prerequisites should they be prepared to bring to the table for you to even, you know, start working as a client for them? Do have they had? Have they had to have a successful track record of developing and building something? What if they are new to it?

Speaker 2:

So typically we do see people that are building things have a track record. We do work with, you know, first-time developers and a lot of times the way we're able to get around that kind of lack of development experience is by putting together the right team right. So let's say, the developers come in and say, hey, I think it's a great idea to build some you know small bay industrials, for instance, but they have no track record of development. Well, we can put together or, like you know, work with them to put together the right team Right. Maybe you get a GC that has a rock solid GMP and they've got a ton of experience. And then also there's other people on the team you know that you know have tons of experience that they're able to bring on as consultants for development.

Speaker 2:

So you can kind of build out this kind of sphere of influence of people with experience to make up for that. But at the end of the day that is still going to be a little bit of a concern. I do see private lenders get a little bit more comfortable with just project level economics and stuff like that, maybe with a little less development, getting more comfortable with the general contractor or the construction company that's building it, especially putting a third-party management company in there that knows what they're doing. So if that does become an issue using a lot of lower cost of capital lenders like banks, there may very well be some private lenders that would pick it up.

Speaker 1:

Fantastic. So what he's basically speculating on saying is here he's telling us you know you've got to get a good resume put together. So when you put this team together, if you're new at it, you want to get someone with a resume already doing property management or somebody that's already developed or raised a bunch of capital. You're going to put that resume together. You can get on the deal. But you're going to need to get a couple of teammates that have done something would give you that first passage into the deal and putting that resume of a couple of experienced team members with you. You might not get the full deal, might not get as much, but you get that leverage of experience to get the deal to go through and then you know you can build from there.

Speaker 2:

Exactly Like saying hey, I don't have as much experience, but my GC, it's got a ton of experience. They have a huge balance sheet. They're guaranteeing it gets built as soon as the thing gets built. You know, here's my manager company. They've got a ton of experience in the exact project. They're taking over the operations of it. Stuff like that we can point to everyone involved here that is building or managing has a ton of experience in what they're doing. I think that says a lot. It goes a long way.

Speaker 1:

And how are you seeing the market today? Are you having a lot of deals go through? Are you hitting a lot of roadblocks with stuff coming through?

Speaker 2:

We are getting a lot of stuff done. Yeah, we're doing a ton of construction right now for just various assets. That seems to be a lot of what you know where people are finding value is, you know, new construction. You know, in addition to that, we are doing just your typical refinances and acquisitions. But I think people are still having a little trouble making those numbers work on the acquisition side because of the cost of capital. So a lot of what we're doing today is construction or maybe some value-add bridge. As far as our deals a little more difficult, I would say. There's definitely more scrutiny than there may have been in the past, for sure, and you have to do a little bit more legwork to find the right capital sources to get people to say yes, to get the deals done. But we're absolutely busy and we're absolutely getting stuff done.

Speaker 1:

Now, how are you guys? How is it when someone comes to you at a capital stack where they've got you know where they're doing it as a GP role and they're bringing on limited investors? What are you doing? Structuring deals that have people coming to you with that mindset, where they're bringing private investors, they might not be putting a lot of money into the deal themselves. How do you guys work through that?

Speaker 2:

It's a good question. So I deal with this a lot. Right, we do a lot of syndicated GPLP equity structures. A lot of the direction we go depends on what the GP is comfortable with. You know, a lot of times the GPs do sell their LPs on, you know, lower cost bank debt, which means recourse. So if we're building something and the GP needs a bank loan and it's got to be recourse, they're going to be on the hook for the whole thing, even though they may not with the first deal. But if you have a syndicator that's doing multiple successive deals, you can see how, if they're guaranteeing the whole loan but only owning a small portion of the property, that, like, their liabilities start to kind of outweigh their assets pretty quickly. So that does become a problem eventually. The other issue there is global underwriting. All these banks are going to do global underwriting on you as a GP, regardless of your ownership of the property itself, because you're guaranteeing all the debt. So that does become an issue as well. So we do see a lot of times, if you know, with syndicators again doing multiple construction deals or value add deals that have, you know, no cash flow going in right, but they do have these you know liabilities out there that need to get paid. That can become an issue too. When those things start to become an issue, most of the syndicators I see turn to yourecourse debt, something that's more contained on a per property basis, where these lenders don't have to go into their global underwriting just to make this deal work. We do see that happen, probably like the third or fourth deal that's going on at the same time is a need to start pushing towards non-recourse debt, and that's in the private capital markets. So that's where you're going to find that type of stuff and that's really where it's built.

Speaker 2:

You know the first question. I asked somebody to really understand which direction to go to right, because our capital sources are banks, credit unions and private debt funds for the most part. I mean, yes, insurance companies and stuff too, but as we looked at it in pie chart, the vast majority of it is banks, credit unions and private debt funds. When I'm trying to determine which direction to go, the first thing I ask is what does your equity look like? And if their answer is, oh, we're doing a GPLP, chances are we're going to a private debt fund. That's not true for everybody. I do a lot of work for a couple of real estate companies and we're doing the exact opposite. I mean it's GPLP and it's all bank debt stuff like that, and we're definitely making those deals work. It may take reaching out to more banks to make those deals work, because some of them just don't get comfortable with the globals.

Speaker 1:

Yeah, and I've seen you know talking to a lot of different indicators. I've been amazed to see you know their debt ratios. They're, you know, three, four hundred times their net worth on debt and I don't understand how anybody's lending to them when you've got that much. Because, yeah, if something goes awry, what does it matter? They don't have the money and they're signed on the debt. Well, what does it matter? I mean, I don't understand how anybody lends on them when they start doing that.

Speaker 2:

I mean it's. You know you've got it's secured by an asset too, right, so that's your first line of defense. But they're really these banks are leaning on people not as much for to just say like, oh, we'll take back the property. What they're really after is, if there's an interest rate deficiency, they want somebody to come in with money. Right, an interest payment deficiency, they want somebody to come in with money. And that's what they're looking for. That's what they're looking for for this guarantor Saying hey, if this property is not making payments, we're looking at you to come in with the payments.

Speaker 2:

Not necessarily. So I mean, I think some people approach it where you know, whatever, sure, I'll sign on it. But you know, you know push comes to shove, they're just going to take the property. But that's not necessarily what they're after. You know, right off the bat. I mean, eventually that will happen, right? You know scenarios where people you know have been syndicators and built up large portfolios and have them collapse quickly because you know you start getting a couple of days that go bad and it depletes your confidence very quickly.

Speaker 1:

Right, and when you're that far upside down, it's you definitely don't, wouldn't have the money to cover those issues.

Speaker 2:

So right, If you have a million bucks in the bank, how many $10 million deals does it take to go bad before you're done?

Speaker 1:

Right, not many. So let's talk a little bit about other stuff that you do. So you not only do the lending, you guys also do some other items. So one of the things is insurance. So what type of insurance services do you provide?

Speaker 2:

So I'll give you the thesis behind here, right? So we started out as just capital markets doing financing. And several years back the idea was, hey, we have at the time, 10 years worth of contacts of commercial real estate owners. How else can we help these guys out? And I took a look at a closing statement of a deal and I was like, well, first, right off the bat, there's insurance, and a lot of times that fits really well in with financing. Right, because it's a serious cost, it's got to get done. Insurance works hand in hand to the lenders.

Speaker 2:

So we built out an internal commercial property insurance company and what we do is property and business insurance for any commercial properties. And what we found, especially recently now, is there is a huge need for people to approach insurance differently. I think for a very long time people were just the insurance was an afterthought, like yeah, you got to have insurance. I don't really understand that whole thing. You know we just get a guy and he gives insurance and it renews every year, um, but what we're seeing now is, you know that, like kind of sitting back and just taking those renewals. It's not three or five percent, it's like three days before your renewal it went up 150%, right. So the days of just sitting there with auto renewals, they are over. Especially in, let's say, florida. That property insurance market is just upside down. Yeah, the.

Speaker 1:

Carolinas is tough too. I mean in Florida. We've heard that you can't even get insurance on these.

Speaker 2:

A lot of people can't Try to get flood in Florida. We've heard that you can't even get insurance on these. A lot of people can't try to get flood insurance in Florida.

Speaker 1:

Yeah, and here in the Carolinas, I mean, it's doubled. So it's definitely something to be conscious and aware of when you're underwriting a property.

Speaker 2:

Anywhere there is flood or wind.

Speaker 1:

Yeah, those areas are getting I mean basically anything cold, right right, those areas are getting tough yeah and so you know is it, are you guys able to connect with all the carriers I get?

Speaker 2:

I assume you're being in the area again on that, yeah, so it's very similar to the finance side, right, I mean we're anary, we're an agent on that side, so it's extremely similar. It's just the insurance market is just much less transparent than the finance side, but the process itself is pretty similar. And, yeah, I mean we have wide market access. And what we do quite often what happens is we'll get somebody that says, hey, I've been with this agent for 10 years and it's usually a pretty big company, maybe like a top five, top 10 company, and we take business from those guys all the time.

Speaker 2:

Right, because if you're at a company like that and you know, let's say, you have like a $20,000 insurance policy, honestly they don't really care, they don't really care about that. I mean they're just they're't really care, they don't really care about that. I mean they're just they're not really going to do a lot of work to market it for you, you know, year over year. And so we quite often, you know, are doing wide marketing, you know, for those types of policies and we've taken people from getting thinking they were getting 100% increase to either par or sometimes we've actually been able to lower the rent. It just takes the effort of doing it and you shouldn't just take for granted that you're thinking that your agent is going to go out and market your deal every year. They're not going to, they're just going to auto-renew it and that's just kind of a disservice and if you're on of that type of path, you're going to end up with really high insurance rates.

Speaker 1:

Now, and do you also do? Did you say, you do business insurance as well?

Speaker 2:

Yep, Any commercial insurance, property general liability. So we do a lot of hotels and stuff too, so you get a lot of just general liability and works comp and all that stuff in there Anything that's business or commercial insurance.

Speaker 1:

That's awesome. Anything that's business or commercial insurance, that's awesome. And then another thing that you guys are doing that we were discussing is you're working as a 1031 intermediary as well. Is that correct?

Speaker 2:

that's right. Yeah, we are. We are the actual qualified intermediary you guys got.

Speaker 1:

You got a hands and a bunch of stuff here so, yeah, what we're trying to do is be Be a one-stop shop.

Speaker 2:

Right throughout the life cycle of property right. So we're working on adding a brokerage side. That's definitely a tougher business than adding a 1031 QI, but what we want to do is be involved from acquisition, financing, insurance, all the way to disposition and then transitioning from like, a 1031 deferred exchange back into another property right. I mean, that's the ideal of what we're looking to be able to do.

Speaker 1:

So in your brokerage, where is the? Are you trying to go nationwide with a brokerage side, or are you just trying to be in Chicago area?

Speaker 2:

No, no, no. Everything we do is nationwide. That's been the strategy from the beginning and it's got to continue it.

Speaker 1:

So interesting. You seem to have a great business mind and business model. Do you work under any type of business philosophy? Do you use EOSos like entrepreneurial operating system for your business, or how do you run and operate your business? Do you use any certain operating system when you with your business?

Speaker 2:

um, everything we do has just been put together through experience over time. I guess is the best way to say it. The way that we run things like interdepartmentally, like there's no employees, you know we put together the different departments right, like insurance or 1031 or solar and all this stuff. They're all you know. Everybody that works for these has an active stake in performance. They're all owners of those individual departments but it all rolls back up to the umbrella company, platt Campbell.

Speaker 1:

I think that type of structure works the best to keep everybody motivated and to give our clients the best service.

Speaker 2:

That's fantastic.

Speaker 1:

Plus, also, I don't want employees. Oh gosh, employees are tough. I got a lot, but they're all great, everybody's great employees here, so I can understand that layout, I think. So what you're saying is you're basically almost a co-op of companies all put together, in essence, partnering all with the same aligned vision and purpose so you can help everyone through the process, and it's basically a team membership where you're basically referring and tackling everything all under one branding, but they're actually separate companies.

Speaker 2:

That's right, and they need to be set up through different entities because there are different licensing for each one of these things. As it is regardless, so that I mean just the way that it needed to be anyways works the best for what we wanted to set up.

Speaker 1:

Well, that will. I think that makes more sense. I was like, goodness gracious, you guys are doing more sense. I was like, goodness gracious, you guys are doing all these things. How do you niche down? But it sounds like what we're talking about is they're specifically, they've got people that are niched down in each one of these areas and that's their sole focus, and then they're cumulatively working together so they can keep you streamlined as a company and offer you all the services.

Speaker 2:

Exactly right, which sounds better to me than doing it all under one umbrella.

Speaker 2:

Yeah, that's exactly right. I mean, I definitely learned very early on trying to do too many things yourself means you can't do anything. Well, so I really want to run one race, really right, Just finance and then use the contacts that we built through finance to basically cover all of the supply and marketing side of the other companies. Right, and that's really like the hardest thing, right, I mean, well, you know, getting building trust, authority and contacts and network, and once we have that built out, you know, I mean you just it's really just setting the other companies up and running them well, you know what I mean I mean that that's that's getting, getting the supply side.

Speaker 2:

That's the hardest part.

Speaker 1:

Absolutely so okay, yeah, I love that idea. So one other company that we didn't really dive into much is you solar. So what do you guys do with solar?

Speaker 2:

So on the solar side we had the idea to again it's it's more of an intermediary type of situation right, when what we do is again it's all commercial property owners and it's solar that's going on top of commercial property and what we do is we take these projects out to five or six different installers, right, and we bid the installers and we come back and put together the IRRs and come back with the lowest prices and actually on that side clients don't even. There's no cost, even to our clientele. They don't pay us. We actually partner with the installers and our compensation comes from part of just the total cost. So I mean there's really there's no risk to our clientele whatsoever about working with those guys on that side and they really just end up with the best, the best cost to get solar installation.

Speaker 1:

Well, I'm going to tell you what, jake, I'm pretty impressed by you. This is. This is awesome that you you have so many different avenues that you can help people. Obviously, being in the industry for 15 years, you have a lot of knowledge and experience. People, obviously, being in the industry for 15 years, you have a lot of knowledge and experience and have made all the moves in order to make sure you're helping your customers the best way possible.

Speaker 1:

When people want to get in touch with you. What's the best way to reach out to you?

Speaker 2:

Personally. You can call me directly or, you know, hit me up on LinkedIn I'm very easy to find or just through the website ClaptonCapitalcom we're always around.

Speaker 1:

And that's C-L-O-P-T-O-N, capitalcom.

Speaker 2:

There you go.

Speaker 1:

Jake, thank you so much for joining us. It's been a pleasure having you on today and please reach out to Jake if you have any need for real estate financing on your next commercial project. Real estate financing on your next commercial project, like you said, it can help you out with bridge debt, you know construction debt or just you know traditional fixed rate financing. Jake, thanks again so much, sir.

Speaker 2:

Thanks so much. Appreciate it, tony. Take care you too.