Ed Mathews: Greetings and salutations, Real Estate Undergrounders. It is Ed Mathews and The Real Estate Underground. Thank you so much for listening as always. If you get a lot out of this, this interview with my friend, Ben, we'll get into him in a second. Please like, share, follow, and subscribe to this podcast. So Ben Fraser from Aspen funds.
Thank you so much for joining us today. It's really good to see you, my friend. I've been aspiring to get into your business for a while, and I'm pretty darn close. I'm a few days away. So. But, uh, you know, I've been, uh, paying attention to your business for quite some time and it's a pleasure to have you on the show.
Ben Fraser: Thank you. Yeah. Thanks for having me on. I'm looking forward to chatting, man.
Ed Mathews: So I know you, cause I stalk, I stalk you on LinkedIn and a few other places, but you know, for those folks that aren't familiar with you and your firm, um, why don't you lay out who you are and what you do?
Ben Fraser: Yeah. Yeah. So I'm the chief investment officer at Aspen funds.
And so Aspen funds, Private Equity firm by a lot like you, we have a few different verticals we focus on and, uh, really actually started about 11 years ago, coming out of the last. Uh, cycle last recession and found a unique opportunity in, uh, distressed mortgages. So, you know, a lot of us wanted to hit the delete button in our brains back then, but you may remember there was a lot of, uh, distressed mortgages, you know, coming out of 08, 09 and yeah, it was, you know, from a timing standpoint, getting the market is a good, good timing.
Uh, you could pick up these, uh, mortgages at very deep, uh, discounts. It really carved a niche out there. So in doing that about 11 years, we purchased well over 5, 000 mortgages in all 50 states and continue to operate that as a core business line. But as with, with most investments, things go through cycles, right?
And so it's, it's something we continue to grow, but it's a shrinking market in the sense of for us to grow, we have to keep, you know, pushing out other competitors. And so it's, it's a harder business to stay in, but what really allowed us to do is have a pretty unique perspective into the market.
And then many years ago, kind of shifted our approach to, Hey, what worked well with our approach in, you know, coming to this opportunity in the last cycle and understanding the kind of macroeconomic factors, driving the opportunity and coming at the right time has helped us form our thesis for other verticals that we've now built out.
And, uh, really leveraging kind of our macroeconomic research, some of our kind of top down analysis to understand where do we think the, the next good opportunity is going to be and how do we position and build out the vertical, build out the internal teams or external partners to do that. And so we, we have about four primary verticals that we run right now, uh, mostly in real estate, but also in energy investments, do a lot of energy investing as well.
And, uh, so yeah, we're seeing a pretty big opportunity right now, you know, debts in a great place. And I know you said you're about to launch a debt fund, which is awesome. We think it's a great option for investors that are looking for yield and want to kind of reduce their risk of capital loss.
Especially right now, there's a lot of, a lot of turbulence going on in the commercial real estate markets. Yeah. Going, going down the capital stack makes a lot of sense. Get, get yield, protect capital. And depending on how you structure the deals, potentially even get some upside if they perform. And so that's where we're seeing a pretty big opportunity and happy to chat more about, you know, why we think that is, but that's a little bit of the background.
And my role is CIO. So I do a lot of the acquisitions, also run a lot of the capital markets. So help raise capital and form the debt and the whole capital stack for all of our funds. So, so walk me
Ed Mathews: So, so walk me through what a target acquisition would look like. You know, what, how much distress What's the size? Uh, obviously you operate in all 50 states, so we don't have to talk about geo, but no, I'm just curious what a deal looks like for you specifically.
Ben Fraser:
Yeah. So it's evolved, right? When we started in the original debt fund, that we continue to operate, it was, we had two different strategies. One was buying non-performing mortgages and then having some kind of exit strategy, usually one of five options that the, the worst. Or not the worst case, the last case that we would kind of go after would be the asset.
We would try to work out a deal with the borrower, um, get them paying again, get them back on track. Uh, you know, do cash for keys, do all these different kinds of strategies, but we have to take back the property. We will. Um, and then we had another fund that was a re-performing mortgage fund. And so what ends up happening most of the time with these non-performing borrowers is they, want to stay, they get back on track and they start paying again, but banks can't hold these mortgages because they have to risk rate them higher clients reasons.
It doesn't make sense. So we hold those for yield. And so we've kind of built a big, a nice big pile of assets that are producing a nice yield and they're performing mortgages. So it's, it's distressed in the sense of, they had a historical blip on their payment stream. And we, you know, can manage around that though, usually from, you know, our basis and equity protection and, uh, different underwriting things.
Okay. It was kind of evolved. That's, that's been a business we've been operating for over, over 10 years now. And we've kind of taken that same approach. Where we've really learned it. That's all residential housing, all kind of consumer owner occupied mortgages. And we've, we've shifted the approach toward more commercial opportunities because we're seeing a similar thing happening that we saw in kind of the last cycle where, you know, credit tightening cycle where banks are not wanting to lend as much investors are reticent to put more cash into deals.
And it's creating this huge gap where you know, good deals, good locations. They have a clear path to stabilization, or they have a clear path to make it to that next point to where they can hold it and get through the kind of turbulence here. They need a capital injection. And so that's really where we're seeing a huge opportunity.
And because there's less capital availability, we can drive what we think are much higher risk-adjusted returns and still stay lower in the capital stack. Preserve capital, reduce risk of loss, but still earn pretty high yields. Yeah. Because what the market's kind of driving right now.
Ed Mathews: So, you know, I'm curious about size of deals, you know, obviously you probably live in the, you know, seven, eight figure world, but, uh, you know, I'm curious about, you know, the smallest end deals, right.
The, you know, the million, 2 million portfolio deals where somebody owns, I don't know, 50 units gets into a little bit of hot water. Is that too small for you? Or are you more focused on something else?
Ben Fraser: Yeah. So we have a fund. So the advantage of a fund is we have the committed capital to go and be flexible and be quick to move.
And so, you know, because a lot of people are seeing the same thing we're seeing, right, of where there is some stress, there is credit tightening. You know, preferred equity opportunities, mezzanine debt opportunities are becoming a lot more common. Well, what we've, what we found is that most bigger players at our size and above will only do a deal if it's 10 million or more, right?
They don't want anything less than that. And the reason is the overhead to do a small deal is. pretty much the same as the overhead to do a bigger deal. And they make 10 times more money, right on a 1 million. So why would I go do a small deal? But what we found is because most of, most of those are not usually funds are kind of individual syndications or they're kind of go raise the capital for that deal.
And so what we're doing is because we already have the capital and we can. Yeah. Kind of reduce the overhead, we get economies and efficiencies through, um, rinse and repeat, you know, some of the smaller checks we're actually targeting sub 5 million checks. So usually a one to 5 million capital injection, and that allows us to play at a part of the market that is, uh, less efficient, has less capital availability.
It allows us to negotiate good terms, but also provide a solution for, you know, borrowers and sponsors that have good assets, have good deals, then something then just Didn't go according to plan because, Hey, there's a lot of that going on right now with interest rates where they're at and, you know, construction and labor and rents and all these kinds of things.
Ed Mathews: Right. So that makes a lot of sense. So instead you're counting on doing more deals rather than larger deals, at least in that space. Right. Exactly. And so when you look at a potential opportunity, you know, Ed comes along and says, hey, I've, you know, I've got 4 million in assets, uh, across, you 10 different buildings.
And I'm in trouble here, here, here, and here, you know, what happens next? Is it one asset that you're looking at, or would you take this at a portfolio?
Ben Fraser: We generally look at asset by asset, right? We don't, we're not, we're not buying any kind of securitized portfolios. We're not right. Investing in, in pools, right?
We're investing in individual deals and we usually want to be straight. Directly to the asset and we're directly to the borrower of the asset and get some kind of pledge either pledge a collateral of the asset if we're going to be secured or pledge of the the membership interest in the borrower so if it doesn't you know, if it doesn't work out we have some kind of recourse.
Um, so we're looking looking looking straight to the deal and you know if you're looking at an existing deal that is struggling it's either going to work or it's not going to work, right? And so you can usually pretty quickly establish you know what I call a basis problem, which is just, you paid too much for it.
And there's probably like, you should probably just realize your equity is probably wiped out if you have to sell right now and move on, or maybe there is a way we can, we can stabilize it. So we've seen a lot of those deals, you know, we've got to preserve equity. You got to, you know, hold on and see if we can make it through.
And the reality is a lot of those deals might not work, unfortunately. And so it's, you know, sometimes the line is a little bit fine, but there are a lot of situations what we're seeing where most of those deals are ones that have floating rate interest rate debt, right. In the Sun belt market that had aggressive business plans that that's, that's the common theme is, you know, deals that can't be rescued.
But there are deals that say we're purchased to the past couple of years. And they actually have fixed rate debts. They actually have good low rate debt, but they got surprised with insurance. They got surprised with property taxes. They got surprised with occupancy and probably the property manager that, you know, screwed up the business plan.
So they need, they need a capital injection to say, finish their innovation program, but they don't want to go get a refinance and they have enough equity in the property to go get new debt, but it's way more expensive now. So, Hey, we can come in. Behind that really good debt help finish the business plan.
It's not even really distress, so to speak, but it kind of solves that need of not wanting to go back to the capital markets when they're a lot more expensive now. And the weighted average cost of capital, even with us being a little more expensive than traditional debt on a smaller amount, actually.
Helps the deal out and gets them kind of that stabilization.
Ed Mathews: So say I own a 3 million asset, let's go with the property manager, the property manager blew the blew the deal, you know, in terms of executing on the, on the strategic plan, I now need to raise. 250 grand to, to be able to stabilize the additional units.
Am I creating a deal that looks like the one you're, you're targeting or yeah. Okay.
Ben Fraser: Yeah. Just make it 250, a million, but you're exactly right. Right.
Ed Mathews: the challenge is property and it's, I need a million bucks to finish the business plan.
Ben Fraser: There you go. Exactly. Yeah. The, the idea is, hey, we don't want to go get new bank debt because it's more expensive.
And hey, our investors are a little spooked. Or, you know, we've tried a capital call. It didn't quite work a lot of, you know, accredited investors. They still understand what a capital call is. They don't understand, you know, is this a good deal or not a good deal? It's hard because they're not professional investors to distinguish between the two.
And so then the sponsor stuck. It's like, I don't get capital. I can't do anything. And the deal is going to go bad, but I know I have a good deal here if I can make it through.
Ed Mathews: Yeah. I had a similar, I was on the other end of that with a capital call, uh, about six months ago. And, you know, I understood the numbers, but it felt like I was throwing Good money out for bad.
I really probably wasn't, but I absolutely understand the value that you bring. All right. Okay. So then, uh, once the, you know, the deal is done now, how do you get your money back? Are you just in second, third place in terms of how people get paid back or, and that's why you're able to charge a little bit more of the premium?
Ben Fraser: Right. So generally we won't come into first position periodically. We will do first-position loans that are more like gap funding and you'll say they got to close a deal, but either the senior lender fell out or it's too quick of a timeframe. We can go and help them close the deal while they go shop the debt and pay us off and say 90 days that happens periodically.
Those are great too because they're usually lower leveraged or secured and it's a short kind of. timeframe of getting paid off, but a more normalized deal where, you know, the example we're talking about or another very common example we're seeing is a new acquisition with a loan assumption, right? So it's a very popular transaction right now where you're going to buying an asset at a good basis.
And it has a Fannie Mae or Freddie Mac loan associated with it. You can actually assume as a new borrower at a low rate. So we have one right now where we're investing in, it's got a 2. 9 percent interest rate on the senior. And it's a great asset in a great area, a multifamily property. The only problem is the, uh, the senior debt is at a 45 percent LTV.
So it's very low leverage. So we can kind of come in and in that scenario, we're bringing it up to about 60 percent loan to value. So our last dollar in is only 60 percent of the capital stack. They still have a lot of equity above us. The business plan there is, hey, they have three years left on the, uh, the senior loan before it matures.
So they can go finish the business plan and then they'll refinance us or they'll sell the property to pay us off, pay our fees and interest. And we can help bring up the overall leverage. It helps their investors earn a little bit more. And, uh, that's how we, we get paid off. So it's, it's usually we're, we're always looking to.
We usually have a two to three year kind of timeframe and we are going to get taken out through a refinance or an early sale.
Ed Mathews: Gotcha. And so are you charging an interest rate that is payable on a monthly quarterly basis or are you accruing and getting paid on the back end on that liquidity event? Like how does that work?
Ben Fraser: I get paid when I come in and get paid along the way and get paid when I get out. So everyone's right. So we usually charge it an origination fee, we'd have a current, a current pay portion of what we're doing, usually somewhere in the 6 to 10 percent range. And then we have a back-end fee that gets, that accrues and gets, uh, added on to our principal.
And then we have usually some kind of exit fee as well.
Ed Mathews: Gotcha. Okay. Alright. So, you're not, you're not basically crushing cashflow. You're, you're simply infusing cash, giving them a little bit of oxygen so that they can get to that liquidity event. I gotcha. Totally makes sense. Okay. So I'm always curious about, uh, process systems and teams and all that.
So what does your team look like?
Ben Fraser: Yeah. So my background is actually as a commercial banker, I was a underwriter and a banker for a long time before I. Came into the private equity side. So this is really kind of core expertise for, for me. And then our, our team, and we have 30 staff over half of them are involved in the debt part of our business.
You know, the other kind of piece that we, we haven't brought in house yet, but likely will is legal, right? Cause, uh, in this space to be able to negotiate and understand the legal docs and the operating agreements. It's kind of everything right. And making sure you have the right, the correct rights and the correct mechanisms to execute those rights.
So that's where we've been, uh, we'll likely bring that in-house later this year, but we've been working with great third parties to, to work with that right now. And yeah, we've got a full back office, full asset management team and origination team.
Ed Mathews: So. So back office, does that live here in the States?
Does it live offshore? Um, how does that work? I'm always curious about, you know, firms that use like virtual assistants and yeah.
Ben Fraser: Yeah. So one of our, our founding partners, uh, kind of ran the finance side for, for most of the past 10 years. And it's only been really recently where our business has got more complicated as we've done more things.
Right. And it's like, hey, I'm, I don't want you to be doing more work. I'm trying to, you know, do less and be more impactful. So we've actually hired a controller internally who comes from a big four auditing firm, and then we've allowed that person to actually hire out a whole staff under them to do it.
And so we do have some virtual assistants, bookkeepers, but you're not going to get the like high-level strategic insights that you would get from. You know, someone that's a CPA and accountant that's, you know, here in the States. And maybe, maybe you can't get that. I'm not, I'm not 100 percent sure, but it's in our experience, it's more difficult.
Right. And no, one's going to know your books as well as someone that works for you. And so, you know, it's not, everyone has to start there, but we obviously didn't start there, but I think at a certain point, it makes sense to bring that in house.
Ed Mathews: Interesting. Okay. I'm just curious at what point does it make sense as, as a person who's launching a firm, a, uh, a fund in a couple, well, by the time this is live, it'll be, uh, by the time this recording is live, the fund will be live.
Ben Fraser: Yeah. Awesome. You know, it's kind of funny you asked that because I've, uh, I work with a lot of different sponsors, both from, you know, the deals that we do as, as our preferred equity investor, and also a co GP and raising capital. And honestly, I've found it being the biggest weakness for most operators.
Really the biggest gap, right? Because you can be a good originator. You can be even a good asset manager, but if you don't have good back office, good, reliable books, um, and even understanding, and like what the property manager might be, might be sending you, if you're doing more of an asset play, it's, it's, to me, it's everything, right?
And you can solve so many problems that don't have to become problems if you have just good financials. And so I, I tell people as soon as you can reasonably pay the freight, do it. Cause you're never going to regret it. And it's going to buy you back a lot of time. It's going to make everything you're doing a lot better.
And I think it's where a lot of people miss the boat. Like when I, when I was a banker, it was, it was a crazy stat. And I think I'm going to get close to accurate, but it was something like, I did a lot of like small business loans, uh, like SBA type, type loans and 75 percent of businesses that failed.
Right. There's a high number of businesses that fail every year. 75 percent of them did not fail because a lack of revenue is actually a lack of cashflow. It literally just couldn't bridge between when they had to pay the bills and when they received the revenue. Right. And that's where I think a lot of people get into trouble is they just, they don't have an understanding of that, that gap.
Ed Mathews: Absolutely. Yeah. It's, it's interesting. I see that a lot in the, in the, you know, in my part of the world with the investors where, you know, they're collecting their revenue shows up somewhere between the 1st and the 10th every month, but their bills show up.
The 1st, the 7th, the 14th, the 21st, the 28th, right? And, you know, most of these guys are, are vendors that, uh, need to get paid. You know, there aren't any terms. So you're paying, you know, you receive an invoice on one day from a plumber and you're probably paying them, you know, that day or very soon after, if you want to keep that person returning your phone calls.
Right. So yeah, it's a challenge. It's it's, it really is a challenge that cashflow play is it, you know, I mean, even early on, we struggled with that. I was nodding when you were saying that, cause I was like, Oh, I know exactly what that looks like. That was, that was me, you know, 10 years ago. So, all right.
Well, Hey, I appreciate that. So, uh, we are about 20 minutes in, so we're going to, we're going to. Move on to the final four. It's appropriate given that we are recording, uh, on, uh, on the Thursday at the start of the NCAA tournament. And Ben is a KU fan and I am a Villanova fan and there's been a history there as well.
So, uh, fortunately, or unfortunately. Ben's guys play tonight. My guys are already done. So we'll, you know, we'll just let that go. But, uh, it's been a good run. So with regard to this, uh, four questions I want to ask, I really want to understand kind of what makes you tick and how you operate, um, on an individual basis.
So, uh, finish this sentence. My purpose is.
Ben Fraser: Yeah, it's probably multi-layered, but from a business standpoint, I think really democratizing access to alternative investments. I have a big passion for helping. People that are newer to investing in real estate and other types of alternatives, understand what's out there and the access to it.
So I think there's been a huge C change past 10 years with, uh, you know, some other regulations that have allowed accredited investors to invest in the things that we're doing. And I think we're just in the beginning stages. So I, I. Hope and expect that to continue. And it's from my podcast, Invest Like A Billionaire is one of my passions, just education around these types of things.
So that's probably the main thing in business.
Ed Mathews: Love that. Love it. So, you know, invariably executives like yourself have mentors and coaches along the way. Kind of throwing an arm around you. So I'm curious either out of personal or professional level, what's the best advice you ever got? And who gave it to you?
Ben Fraser: Oh, man, there's a lot, a lot of good advice. I think, I think fail fast and fail forward is, is something that I've always kind of clung to. I think, you know, from my background, I wasn't a hundred, always an entrepreneur, right? I mean, I've been entrepreneurial, but I spent a good amount of time in kind of the corporate world and banking, like I said, and that's not usually a mantra that, you know, bankers would say is.
Uh, you know, comfortable, right? But it's something I think as an entrepreneur, as someone who is trying to pioneer certain things, like you're going to make mistakes, that's okay. Just make sure you learn from it and make this feedback loop very, very short and make them quick and make them early. Cause I think, uh, if you let problems metastasize, it gets a lot worse.
The other thing I would say too, like for people that are maybe listening and more career-oriented, cause I spent a long time kind of the corporate is always provide more value. Then you're getting paid to do. And I think that can apply not only as an employee, but in any scenario like with us, with we have investors and just other counterparties in our businesses, like always adding more value than what you're getting paid to do.
And with that, with that mindset of always leading with value first, I've been shocked at when you play the long game with that, it always comes back. It always comes back. And so that that's something that's been really helpful in my career.
Ed Mathews: Yeah. Uh, my, uh, mentor of mine, uh, the CEO of a company I used to work for Rob Bernstein, he told me once, look, every human being that we have in under our employee, it's a value exchange, right?
They're bringing their skills and talent and hard work, and we need to see a return or You know, we either have to make a change or, you know, make a change. So, yeah it's an interesting, you know, looking at human capital and, and how much value you need to bring to the table in order to, you know, frankly, justify the income that you're making is a, is a big deal.
So, leaders almost universally tend to be readers. And by reader, I mean, consumption, consumers of information, whether that be books, audio books, YouTube videos, conferences, whatever. Um, so I'm curious, how do you take in information and what authors or creators are you paying attention to these days? What are you getting a lot out of?
Ben Fraser: Oh man, that's great. Yeah. I love, I love podcasts, but I love reading and it's really became more of a discipline. I didn't, I wouldn't say I love reading early on, but I've grown to love reading. I'm not a huge audio book guy, just cause I like to feel it and to be able to engage with a little bit more. So, um, usually reading physical books, I usually try and read 15, 20 minutes in the morning and, uh, you know, 20, 30 minutes at night.
So those are kind of my, my times, but yeah, a couple of books I'm reading right now. One of it's really helpful from a business standpoint is, Buy Back Your Time by Dan Martell. It's been a really helpful. I've just been getting very, very busy as we keep growing and adding more staff and more things.
I have no time. So learning how to find ways to buy the time and to create more space has been very, very helpful. Recently I read 10X Is Easier Than 2X. Really, really cool frameworks on growth. I love reading a lot of historical biographies and other things too. And so I'm always, I always have a couple of those in the circulation too.
Ed Mathews: Give you a little perspective. All right. And, uh, the final. Question of the final four success means to me what?
Ben Fraser: Man, I mean, family is everything to me. So, uh, being a good husband, good, good dad and leaving a legacy for my family and, and, uh, kids down the road. And I'm still young, but I'm already thinking that way and don't want to waste any time that I got here.
Ed Mathews: So, yeah, well, it is finite, right. And, you know, my, my wife told me, so are we have older, our girls are older. We have a 21 year old and a 16 year old. And, you know, she had said to me a long time ago, she goes, we only get 18 summers with them, right? Yeah. And that is, that was like, boom, right between the eyes and it turns out I like these kids.
So I want to keep them around and make sure that I'm around for them. So that's a good thing.
Ben Fraser: That's awesome.
Ed Mathews: All right, man. So, uh, when not talking about real estate and saving the world from, uh, bad debt and poor operators, uh, or challenged operators, let's put it, what do you like to do?
Ben Fraser: You know, I have, uh, four kids, so I don't have a lot of free time, but, uh, I love, love, uh, anything to do with fitness sports.
I'm big into pickleball right now. Love, love cooking. Actually, I wanted to be a chef growing up. So that was like going to be my, my, my dream ended up, thankfully not, not pursuing that career path. And then music, I'm actually a musician and a songwriter. So I always love, uh, making music too.
Ed Mathews: Excellent.
Excellent. So if, uh, someone wants to learn more about you or your, your, uh, your firm. What's the best way to do that?
Ben Fraser: Yeah, so I mentioned our podcast, Invest Like a Billionaire. Also, our private equity firm is https://aspenfunds.us/ and you can see some of the things we're working on.
Ed Mathews: Awesome. Ben Fraser, thank you so much for your time today and it was a pleasure finally catching up.
Ben Fraser: Awesome. Thanks, Ed.
Ed Mathews: My pleasure.