ALFIE Loans: Keeping It Local

Todd Fowler and Jon Sarver bring together accredited investors and borrowers for the good of the WNC community

Traditionally, when a real estate investor needs bridge funding to finance a new project, he or she has been limited to a pair of options. The investor can approach a bank for a loan, or they can seek out partners to provide the needed cash in return for a stake in the project. But as explored in a previous feature, "Creditworthiness, Collateral, & Capital: Entrepreneurial Funding," a third way is gaining in popularity. Direct lending is a means of financing that eliminates intermediaries. For small- to medium-sized investors, direct financing is an attractive option with several significant advantages over other approaches.

In the wake of the Great Recession of the last decade, direct financing has grown in popularity, though hard figures as to its share of the lending market are difficult to come by. But on a micro level, the results of community based direct lending are easier to observe. In the Western Carolina region, ALFIE Loans offers a means of short-term financing that's faster and more flexible than traditional lending. And on the other side of the equation, the ALFIE ("Alternative Lending For Inspired Entrepreneurs") business model provides opportunities that allow accredited investors a way to profit while watching their money work toward the greater good of the community in Western N.C. and beyond.

The firm's principals -- CEO Jon Sarver and CFO Todd Fowler -- come from different business backgrounds, but their shared goal of developing viable community based direct lending in their hometown helped bring ALFIE into being in 2015. In a few short years the fund has made more than 400 loans; current assets under ALFIE management are $26 million, with related loans totaling an additional $5 million.

The business entity that makes the loans is ALFIE Investors. "ALFIE Investors provides short term, common sense real estate financing to entrepreneurs in the community," says Sarver. The fund draws upon private capital from a pool that currently includes 225 investors, many of whom are local to Western North Carolina. "We help local real estate entrepreneurs by providing a simple form of capital," he says. Sarver brings to ALFIE his deep background in real estate; he notes that the kind of alternative financing offered by ALFIE is greatly needed. "Capital is really hard to find since the banking debacle of the last real estate downturn," he says. The firm provides loans to those who don't fit inside the box of traditional lending arrangements.

ALFIE fills two purposes, says Fowler, a former accountant. "When the banks froze up, that gave us some real opportunity to loan money," he says. But ALFIE also provided opportunity for investors. "People put lots of money in CDs and earned a quarter of a percent," he points out. "They weren't very happy with that." ALFIE offered the prospect of safe investment with greater return. "Those two things came together," Fowler says. "We were able to bring investor capital to good people [who are] good credit risks, who had some equity, and who were buying things right and fixing things up right."

ALFIE's beginnings
Born in Hickory and raised in Burlington, Todd Fowler went on to major in real estate and finance at Appalachian State University in Boone; after graduation he worked as a property manager, sold real estate and owned rental properties. "I had years where I sold timesharing in Boone," he says with a grimace. "I'm not sure I'm proud of that; you just did what you had to do."

"And then when '08 happened," he says, "I said, 'Well, I'm not going to make good money at this rate now.'" He earned his enrolled agent certification so he could become an accountant and do tax work. "I always managed to stay in the [real estate] business; as an accountant, real estate people needed my services."

"I kept pestering Jon to be a client," Fowler says.

Born in Louisiana and raised in Cambridge, Massachusetts, Jon Sarver moved with his parents to Chapel Hill in time for high school. At age 19 he came to Western North Carolina as a freshman at Warren Wilson College; there he majored in environmental studies with a concentration on environmental policy. As part of his studies, he spent four months in India.

Sarver had won a patent for a cup that "had a carabiner for a handle," he says, "But it turned out it was a weak patent." The experience ("one of my first business ventures ... and first business failures," he says) taught him a lot about intellectual property and the concept of first-to-market.

In the middle '90s, Sarver -- a lifelong avid cyclist -- started a bicycle messenger service in Asheville. Launched in 1994, Asheville Bicycle Courier was, Sarver admits, "born out of a passion of riding bikes and wanting to stay in Asheville, which is a hard place to figure out how to make a living." As a full-time bicycle messenger, he realized that supporting a family with two kids would be difficult. He sold the company in 2000; in expanded form -- including trucks and a large warehouse -- the locally-owned company continues to this day. "I still ride bikes with the owner," Sarver says.

He briefly returned to school, enrolling at University of Tennessee, Knoxville, hoping to earn an MBA. "It was horrible," he says with a laugh. "I dropped out. I'm an entrepreneur, but I couldn't stand business school. It was not what I needed." He says that business school was an example of him "trying to improve my weaknesses, which really only makes you weaken your strengths." Lesson duly learned, he got into real estate.

After earning his real estate license in 2002, Sarver worked with his father as a consultant in the affordable housing arena for non-profits. "That's what my dad had been doing for years," he says. In 2005 he launched Sarver Realty Group, "a really small, friends-and-family company." Sarver describes his real estate company as "a sister company to ALFIE, because it gives us this great windshield; it taps us into the real estate market."

In 2005, Sarver bought a property with wealth manager Rob Rikoon; he continued to do some real estate brokerage and affordable housing development. When his father retired in 2011, Sarver shut down the consulting business and went into real estate brokerage full time. He says that it was not long after that when Fowler started trying to get his business.

Sarver recalls, "I told Todd, 'I'm not going to let you do my taxes, but I've got this partner; we have a little LLC. Why don't you do those taxes?'"

"So that's how I met Rob," Fowler says. "He said to me, 'I've been doing private lending to some people in Asheville. Will you collect the payments and make sure they have their taxes paid and their insurance and all that?'" Fowler said yes. That opportunity led to requests for more loan servicing; Sarver and Fowler worked together on those projects. "And then in 2015 we thought, 'We could consolidate this whole thing into a business and put together some [money] to fund this capital,'" Fowler says.

Using words one might not expect to hear in the loan business, Sarver says that running ALFIE is "super fun. I love Asheville. I love being an entrepreneur and being creative. And ALFIE really gives us all that. It's a feel-good business because it's very community-focused -- and in a strange way, patriotic -- to be able to help people who have a great project. Because the system isn't set up to serve them."

Sarver says that ALFIE "is the perfect result of being highly focused on growing relationships." Some of those relationships go back decades. "When our kids were babies, we were broke and looking for free housing so my wife could be a full-time mom while I was working," Sarver says. The couple got a gig as dorm parents at Sarver's alma mater in Swannanoa. "A lot of the students who were our dorm children are now business colleagues," he says. "They're local entrepreneurs, and we're doing business with them."

Though its focus is squarely on Western North Carolina and the South Carolina Upstate, ALFIE's roots extend to New Mexico. At its start, ALFIE was a pooling of investors brought together by Santa Fe-based Rikoon. He represented high net worth families all over the country. "The initial $3 million came from his family and his clients," Sarver says. Fowler says that Rikoon's investor pool "gave us a chance to get ourselves proven; then we started talking to people locally about it."

Today Rikoon -- a registered investment advisor -- is the head of ALFIE's advisory board. "Rob has a real affinity for direct investing for his clients," Sarver says. "He really likes direct investment: things you can touch. And a lot of his clients really like community-based investment, stuff that they can feel good about."

ALFIE Investors is the LLC of approximately 225 accredited investors -- individuals and retirement accounts -- and ALFIE Management LLC manages the accounts. "When our loan demand is high -- which it currently is, and has been for the four years we've been in operation -- we open up the fund to new investors," Sarver says.

In addition to Rikoon, the advisory board includes Austin Tyler, Director of Real Estate Management for Mission Health and Bryan Smith, former VP-CIO for Volvo Construction Equipment; both are based in Asheville. The fourth member of the board is New York-based David Huberfield, a member of numerous boards in the U.S. and abroad. "We rely a lot on those people and their advice," Sarver says. "And anyone else who we trust is smart. We surround ourselves with smart people."

Looking back, Fowler concedes that the paths he and Sarver took to arrive at ALFIE Loans might look linear. He says while both of them had the talents this kind of work requires, "for a long time I didn't know what would be the best use of those talents." With ALFIE, he believes he's found the answer.

ALFIE from the borrower's point of view
Typical loans fall into one of five main categories: fix-and-flip rehab projects, speculative construction projects, multifamily housing units, commercial/retail/office property, and cash out loans using real estate as equity. And the numbers reinforce the local focus: more than half of ALFIE loan origination comes by way of professional referrals, and more than 80% of assets are in Western North Carolina (the majority of those are in Buncombe County).

Loans from ALFIE range from a minimum of $500,000 to a top end of $5 million; lending limits vary within that range depending on the type of property being financed. Collateralized by real estate, the loans are designed to provide bridge financing for purchases and/or refinancing; terms are relatively short -- three to 24 months, with the possibility of renewal, and there's a minimum interest payment period of three months as well. Borrowers are required to come up with 10% of the sale price on their own, and the current lending rate is 11%. That's more than a bank charges, but for many borrowers, the benefits more than offset the additional cost. "And we're a lot cheaper than giving a partner a 25% or 50% stake," Fowler says.

"If you look at the cost of capital over a short term and the speed that we can produce and close a loan, it makes sense," Sarver says. "And the proof is that we have all of these really experienced real estate entrepreneurs who keep coming back. It works for a certain type of real estate transaction."

ALFIE only makes loans on investment property; borrowers and their immediate families are prohibited from living in the subject property. Origination fees are minimal, in the range of 2% to 3%. The borrowing process also includes a title report plus property valuation by an ALFIE designee. "There are a lot of examples of things he finds that the average buyer new to investing and real estate might not uncover," Fowler says. The timeline from submission of completed paperwork to loan closing can be as little as one week; that's far quicker than the processing time at most banks, Fowler says.

"Our philosophy on the borrower's side is providing a streamlined source of financing that's not at all predatory," Sarver says. "It's sensible." He underscores the point: "Many of our borrowers use our funds on a regular basis because of the speed and simplicity," he says. "We're in a private banking space, but our philosophy is based on people succeeding, not on people failing."

Sarver says that at ALFIE Loans, it's a point of pride that they're not hard money lenders. "That's the more predatory side of private capital, where lenders are kind of intentionally setting up borrowers to fail so they can take their property," he says.

In fact, Fowler says that it's not at all uncommon for ALFIE to help borrowers avoid losing money. "We talk people out of using us, sometimes," Sarver admits. Moments before our conversation, he was with Fowler at a potential project site in North Asheville. "We were talking through stuff with a potential borrower, and we said, 'Why don't you borrow less money, structure it this way, do it slower and phase it in?'"

If analysis shows that the expected margins will be very thin, they explain that to the borrower. "Sometimes we'll look at a project and we'll be very honest with them: 'You can't put that amount of money into this [and then] sell it on the market and make any money.'" In such cases, ALFIE either turns down the loan request or offers substantially less money. In doing so, the firm "hopefully prevents [a potential borrower] from making a mistake." Fowler says.

"And they thank us later," Sarver adds. "They'll say, 'I'm so glad I didn't do that deal; after what you told me, we went and found one that actually works.'"

Fowler tells the story of a South Carolina borrower. "We had been working with him for over a year, and for one reason or another, the deals he brought weren't great. He wasn't going to make any money [with them]. Finally, we found the right one, and we financed it. He's been dreaming of this for five years, and all of a sudden, he's doing it. It's the first house he ever bought himself to fix up and sell.

"And he just closed on his second one," Fowler says. "He's moving. And we've helped get him started."

The investor's perspective on ALFIE
When Sarver and Fowler launched ALFIE, they had definite ideas about how to approach potential investors. "Initially, I thought our whole marketing pitch was the rate of return on investment," Fowler admits. But he soon discovered that the recent recession meant that safety was a paramount concern. ALFIE's careful and thorough (yet at the same time quick and streamlined) vetting process means that its investments fit that bill.

Fowler emphasizes that ALFIE investors can feel good about the uses to which their money is being applied. "You can't put it into Exxon or McDonald's and really know what's being done with your money," he says. Operating on a local and regional scale, ALFIE is different. Its community based direct lending model means that there's not the typical disconnect between investor and borrower. A significant portion of the funding comes from the very community in which it is lent. Potential investors in the pool "can go to the courthouse, pull up deeds of trust, and see that ALFIE lent money to a guy down the street." And then they'll realize, "Hey, they did a good job fixing that place up."

Of course, they could ask Sarver and Fowler for that sort information as well. Theirs is a hands-on approach. "We take investors by and show them places all the time and explain to them, 'This is where your money is,'" says Sarver.

Sarver says that ALFIE's investor pool currently includes 225 private individuals and families. The minimum investment to join the pool is $50,000, and it's open only to accredited investors. That designation refers to an investor with a net worth of at least $1 million, annual income of at least $200,00, and a few other requirements.

Sarver explains that the pool is shared. "If you bring $50,000 to the fund now, your $50,000 is in 140 loans," he says. "It's diversified within itself, and that mitigates the risk to the investors even more." Calling participation in ALFIE's pool "a defensive investment," Sarver summarizes his firm's philosophy on the investor side: "it's preservation of investor capital," he says, "and then a safe, reasonable return on it."

Local focus means local expertise
Sarver emphasizes the advantages -- to both borrowers and investors -- of ALFIE concentrating on the regional market. "We provide financing anywhere in North Carolina and in South Carolina," he says, "but our focus areas are Western North Carolina and the Upstate." And connections are important, too. "Not only do we know the real estate market, but we know a lot of the players in it, the professionals. We know who to call: the surveyors, the septic folks, appraisers, people who have been in real estate here for as long as I have, or longer."

When the need arises for more capital, Fowler says that it's mostly phone work. "We call investors and say, 'We're trying to raise another $1 million or another $2 million.' It's about trying to work referral angles." He and Sarver are in the process of developing a more formalized and structured means of doing that. "We're growing to the point where we need that better system," Fowler admits.

"Our fund is open right now," Sarver adds. "We're in the process of a $3 to $5 million capital raise, so we're inviting new accredited investors." And there's seemingly no end to worthy projects to finance with those funds. The small-scale, in-person nature of ALFIE loans means that Sarver and Fowler get to see both the potential and benefits of projects up close.

"We have such turnover in our loans," Fowler says. "They're short-term; the average length of a loan is nine months. It's just to help someone get from A to B." But even among the hundreds of loans ALFIE has made, some projects stick out. And they're not necessarily the biggest or most high-profile ones.

"I remember a little loan that Jon and I did," says Fowler. "One of our first." A client had a rental property that she was selling. "The lady who borrowed the money got sick and went in the hospital, so she got late on her payments, and she couldn't take care of the house. Jon and I went over and we got the appliances out of it. We cleared tree limbs off of the roof, and mowed the yard so she could put it on the market.

"For me, That's the high point of what we do," he continues. "To really put your hands on what's going on in the world: that's what's really nice about what we do. Because I think it's hard if you sit with a suit on and just manage money all day."

"A lot of the loans are smaller ones that we do every week, every day, in and out," Sarver says, "where there is a community-based entrepreneur. They live here, they raise their kids here. And seeing them succeed is really fulfilling." The whole community sees some of ALFIE Loans' projects; Sarver mentions one that is more visible.

"Having our name on the Beacham's Curve project in West Asheville is another high point for us. The developers have intentionally created a project that's in scale with the local community and the neighborhood. They're local guys, local people; they understand." Sarver points out that the developers "could've done a hotel or some kind of hideous thing, but they really did a nice job." He says that the client is bankable and had other financing options, but went with ALFIE. "They found that what we had to offer from a common sense, speed and simplicity [perspective] just made sense. They could've gone another six months wrestling with a traditional bank."

"They closed the loan, had foundations poured and were putting up walls before they would've even been able to start closing on a loan at a bank," Fowler says.

"We've had a number of loans that were real job creators," Fowler says. He mentions an interim loan to a local company that had run into some cash management problems. With a bit of breathing room, company management was able to "right the ship," protecting as many as 50 jobs, he says.

Sarver cites another project, an old, dilapidated building near Carrier Park in West Asheville. "The owner couldn't get financing anywhere else. We lent money to fix it up, and now there's a bar and a restaurant there that employ people."

Eye on the future
In their four years with ALFIE Loans, Sarver and Fowler have found that some of their preconceived notions were wide of the mark. "One of the things that surprises me is how many people can use what we have to offer in any number of given situations," Sarver says. "From a beginning real estate entrepreneur doing their first project up to very sophisticated career real estate investors. And I've been surprised about the different types of people on the investor side. We have local professionals, retirees, physicians, attorneys ... all kinds of interesting people."

Sarver and Fowler feel a strong sense of connectedness, and the accountability that comes with it. "We have been in this community for such a long time," Sarver says. "So from a business standpoint, we can't do something that doesn't feel good to us. It feels good on the investor side, because we have folks in the community who are making a nice return." He notes that for the last few quarters, ALFIE Investors have been realizing a 7.4% annual ROI. "And that's all collateralized, first position, deed of trust," he says. "We don't do mezzanine financing or second position loans."

"Ours are the least risky type of any loan," adds Fowler. Potential borrowers and projects go through formalized vetting ("It's probably 80% objective," Fowler says), but there's still room for some subjective decision-making. "We try to make decisions based on common sense," Fowler says.

"To protect our investors," Sarver adds.

"And pricing it that way -- by making our loans based on that criteria -- we haven't had to take but one property back so far. That's out of more than 400," Fowler says with a smile. "If we're pricing it such that there's meat on the bone, then that person can turn around, sell their property and move on. Even if they make some mistakes. So, that's our goal."

Fowler makes it plain that he doesn't care for the term microtrend ("because it sounds stupid," he says with a laugh) but points out that hyperlocal market forces bear watching. He mentions Oakley, a community adjacent to Asheville. "Right now, Oakley has 26 brand new houses on the market between $300,000 and $350,000. We're responsible for some of those builds, but they're kind of overbuilt in Oakley right now. We're not going to loan money to someone building a $325,000 house in Oakley until that corrects."

Conversely, he says that projects in Candler and Canton are on the rise. "A lot of people are buying and fixing up out there," Fowler says. "It's just where people are finding value."

The long-term market for real estate is unknown, of course. And that adds an inevitable element of uncertainty to the business in which ALFIE Loans does its transactions. "We definitely keep an eye out and talk every week about the real estate market," Sarver says. "We've been in an up cycle for a long time; I don't know if it's the tail-end. That's something we talk about, and we anticipate how things are going to look when the real estate market adjusts. Which it will."

But he's generally upbeat, and convinced of the virtues of ALFIE's business model. "It's an unusual business," Sarver says, "because we do have two sides. We've got people who are benefiting who are accredited investors, and we have borrowers. There are not that many businesses that I know of where they have both sides, where you've got people whose money is going to work in their community and people who are using that money to better than own situation."

Jon Sarver attempts to sum up ALFIE Loans in just a few words. "We are highly entrepreneurial, but we're really community-focused. Every application that we receive is literally someone's dream," he says. "And we're a piece of the puzzle."

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