We discuss today with John Femenia. John Femenia has over 15 years of finance experience, in both investment banking and real estate.
John Femenia began his career in the maritime industry, first working for Military Sealift Command, a civilian transportation company for the US Military, as an engineering officer. He later joined SEARCOR Holding, an oil and gas services company, as an associate working directly for the CEO. At SEACOR John was responsible for evaluating acquisition targets as well as various other business development opportunities. John then transitioned to investment banking, working for several bulge bracket banks. While working in investment banking, John was focused on raising capital for the rail, trucking and maritime industries, where he raised over $2 billion of equity and debt capital.
John Femenia founded Source Realty Capital in 2019 to help real estate investors get the capital they need to close deals. In the wake of the Great Recession, many traditional banks backed away from smaller real estate investor loans. This created a huge void in the market, as many experienced real estate investors were unable to get funding for their projects. Many of these real estate investors turned to hard money lenders to fund their deals. As the market for hard money grew, so did the interest from institutional investors. Source Realty Capital bridges the gap between real estate investors and institutional money.
At Source Realty Capital, John Femenia has overseen the Company’s growth from a start-up to over $100 million a year in originations. Source Realty Capital focuses exclusively on 1-4 family and small balance multi-family properties. This has allowed the Company carveout a niche for itself and effectively deliver capital to experienced real estate investors.
John has an undergraduate degree in engineering from the United States Merchant Marine Academy, and MBA in finance from Columbia Business School. John served as an Officer in the US Naval Reserve, and was Honorably Discharged in 2011.
John, we previously spoke in 2022 for an article in Totalprestige Magazine. Start off by telling us what you have been up to since then.
When we last spoke in the fall 2022, we were just beginning to see the effects of higher interest rates on the real estate market. That trend has obviously continued through 2023, with mortgage rates currently sitting at levels not seen since the early 2000s. While the industry has seen overall deal volume come down due to higher rates, valuations in the 1-4 family market have generally held, and in some cases, have increased. The market is still undersupplied in terms of the number of houses available. We’ve been focused on trying to put capital to work in those undersupplied markets, in the form of capital for both property renovation as well as the new construction properties. Additionally, we’ve been very active in raising capital from new investors. We launched a new fund in 2023 and have been actively closing new investors. The additional capital has been key to expanding our borrower base.
With 2023 coming to an end and 2024 on the horizon, what does the new year look like in the world of real estate investment? How is Source Realty Capital preparing for the next 12 months?
Private lending is obviously very sensitive to interest rates. Our view is that rates are likely at peak levels or very close to peak levels. We strongly feel that a drop in rates will likely cause a wave transaction volume in the space. We’ve been really gearing up for that increase in volume. We’ve taken on a few additional Account Managers as well as expanded our investors looking to purchase both whole bridge loans as well as long-term rental loans from us. When the deal volume comes back to the market, we’ll be in a great position to take market share.
In your opinion, what are some of the key trends or opportunities in the real estate market that investors should be aware of in the current market landscape?
Investors really need to be versed on the impact of macro factors in the market, mainly interest rates and population migration. We’ve had some big shifts in these since Covid-19. Interest rates have come full circle and then some since Covid. Population migration has slowed, but will it continue or reverse? The ability to predict what will happen going forward will determine the winners and losers in this market.
What sets Source Realty Capital apart from other real estate investment firms? What unique services or approaches do you offer to your clients?
The biggest thing that sets Source Realty Capitals apart is that our lending “box”, or criteria for loans, is very flexible. If a deal makes sense, we’re able to get it done. Other lenders have very strict credit boxes and have a hard time deviating. Since we have such a wide range of capital sources, we only really turn down deals that don’t make sense. Additionally, we offer a very high level of service compared to other lenders, especially larger lenders. We pride ourselves on delivering for our borrowers.
Real estate investment often involves significant financial commitments. How does your company help clients manage risks and maximize their returns on investment?
We manage our risk by doing a rigorous underwriting on every deal that we fund. Since we’re an asset-based lender, determining asset value is the most important factor in managing risk. In a situation where we need to take back an asset, we need to ensure that the value of the asset is enough to cover our loan plus interest. We also look at other factors when managing risk, such as the borrower’s experience, liquidity, credit and background.
Image credit: EA Photography
Could you share a success story or case study that illustrates the positive impact Source Realty Capital has had on a client’s real estate investment portfolio?
At Source Realty Capital, our biggest lending product is a value-add bridge loan. A value-add bridge loan is used by borrowers looking to buy and renovate properties that are in need of restoring. One borrower that we’ve funded numerous deals for focuses on buying and renovating brownstones in Brooklyn, NY. This borrower uses our value-add bridge loan to purchase and renovate the properties. Once the properties are completed, the borrower rents out the units and then refinances our bridge loan with a permanent long-term loan. Since the borrower was able to create value during the renovation, they’re able to pull out cash with the refinance. This borrower then uses the cash-out from the refinance as a down payment on their next purchase. This process has allowed our borrower to build a portfolio of over $15 million worth of properties in Brooklyn. And in addition to our borrower building equity, the neighborhood that their invested in has benefited from the addition of newly renovated properties.
As a leader in the real estate industry, what advice do you have for individuals who are interested in getting started in real estate investing? What are the first steps they should consider?
Focus on areas that you know well. There are deals in every market, but you will have the most success investing in the market that you know the best. Before we fund a deal, we always make sure that our borrower has experience in that area. Additionally, start small with simple deals. If you’re a newbie, don’t start with a deal that’s very complicated, like a new construction or a large multifamily. Having solid experience is key to success.
Real estate markets can be volatile and subject to various economic factors. How does your Source Realty Capital adapt to changing market conditions and help clients make informed investment decisions?
We put a lot of effort into staying on top of market conditions. We’re constantly attending conferences and reading research, as well as talking to various experts in the field. As I mentioned earlier, the rapid change in interest rates over the past 18 months was unprecedented. During these times, we were in constant communication with not only our borrowers, but as well as our investors, credit providers and note buyers. While our borrowers understand their respective market, they’re not always up to date on the capital markets. We made it a point to keep our borrowers informed about what was going on in the capital markets when interest rates were rising fast. This allowed our borrowers to make informed decisions on their own investments.
Your educational background includes an engineering degree from the United States Merchant Marine Academy and an MBA in finance from Columbia Business School. How have these academic experiences influenced your career in finance and real estate?
Without my background in finance, I don’t believe I would have ever ventured into real estate finance. There are multiple sides of real estate finance. Lending money to investors is just one side of the business. The other side of the lending business is obtaining the capital necessary. That capital comes from numerous sources: retail investors, institutional investors, credit lines and even note buyers. Having a background in finance is key to successfully understanding and managing these sources of capital.
Finally, what advice do you have for aspiring entrepreneurs looking to start their own businesses in the real estate or financial industry, based on your own experiences as a successful founder and CEO?
Developing good relationships is key to this business. We view our borrowers as our partners. If they’re successful, we’re successful. The same goes for our investors. Our success is their success. We’re all in this together.
To know more about John Femenia and Source Realty Capital, please visit https://sourcerealtycapital.com
