Data Beats Guesswork: Noel Christopher on Distressed Assets, AI, and Better Real Estate Decisions

Noel Christopher (00:00)
I believe it’s a misnomer. Turnkey real estate investing is a misnomer unless you’re buying a Walgreens triple net ⁓ building that you don’t have to do anything. You have to make decisions on a

monthly and weekly basis when you own an investment property or investment portfolio. You can hand it over to professionals and say, take care of this for me. But the fact is you’re still going to have to make decisions on a consistent basis.

Scott Bursey (01:59)
Welcome back to the Real Estate Pros podcast. I’m your host, Scott Bursey. And today we have a fantastic guest who is at the forefront of innovative investment strategies in real estate. We’re joined by Noel Christopher, a leader with Genstone Companies and the FAY Group. Noel, thank you for being here.

Noel Christopher (02:19)
Thank you. I really appreciate it.

Scott Bursey (02:22)
It’s going to be a good, fun conversation. So Noel, for our listeners who might not be familiar with Genstone Companies and the FAY Group, can you give us a brief overview of the mission and the focus of your organizations and what niche you’re primarily serving?

Noel Christopher (02:41)
Yeah, absolutely. mean, you know, the Fade group is a group of nine…

⁓ different business units that are focused around the real estate investing journey. so, ⁓ Group started out as a loan servicer. So back in the great financial crisis, they were default loan servicer. They’ve grown now. We have grown now to nine different business units, and those business units cover everything from lending to title insurance to property insurance to asset management to construction.

⁓ acquisition services, property management, ⁓ repairs and maintenance business, ⁓ as well as ⁓ a marketplace. We cover the entire landscape of owning and investing into real estate. That works with small investors or larger institutional investors. These are all independent ⁓ business units that all fall under the Fay Group and then under the Genstone brand within that.

Scott Bursey (03:44)
That’s fascinating. Focusing on distressed assets brings its own unique set of challenges and opportunities. What are some of the biggest macro trends you’re seeing right now in the residential debt market, especially as we navigate the current economic landscape?

Noel Christopher (04:04)
Yeah, sure. mean, you know, things changed at the end of 2022 with rates and what was happening with the economy. And there’s a lot of investors who are struggling a little bit. I really firmly believe that it was so easy with debt being so cheap that there was a lot of ROI that was left on the table that people didn’t realize until things got a little bit tight. rates went up. Insurance premiums have gone up.

Exponentially, taxes have gone up with this great appreciation that everybody benefited from. The municipalities took advantage of this as well. I think there’s record hiring on tax assessor ⁓ websites ⁓ for different municipalities. The cost of doing business generally with repairs and maintenance and materials. Wages have also gone up, right? So that’s helped a little bit, but it hasn’t quite offset.

the additional costs. so that’s put a lot of investors

in some trouble. And whether you’re a large institutional investor who can weather the storm, they’re still figuring this out.

And what’s happened is some of the bigger operators, what they focused, they turned inward and focused on their operations and becoming more efficient and figuring out where the inefficiencies were, where they were leaving money on the table. Everything from what are you going to do with the repairs and maintenance? How quickly do you reply to a tenant? If something major happens to that house within three months of a lease being renewed, and then you go to renew the lease, you try to raise the rent and they look at you and think you’re crazy, right? Because they just had a bad experience. So little things like that.

A lot of groups were turning inward and they were also then looking at, what do we do? Well, a lot of groups were building, a rent to provide more housing because there’s a need for housing. So all of those things have put a lot of investors in some weird spots. And so what we’ve seen on the default side is investors just not knowing what to do and not really understanding what happened.

or why that they’re having trouble. And sometimes it comes down to one or two assets that they just need to get rid of and recapitalize themselves or recapitalize that money into fixing up their portfolio. Because what we do see is, and we saw this after the great financial crisis where we see a lot of accidental landlords get into real estate investing. And a lot of them wanted to sell at one point because they looked at one big thing that happened and they said, oh my gosh, I want to sell. And so then it’s about educating and going, well,

Let’s look at this in five years. Invest some money now, and in five years, what does your investment look like? What does your investment look like in 10 years? How can you own maybe more homes in order to spread the risk?

that you have so that one vacancy or one issue in one house isn’t totally destroying your cashflow. Because frankly, a lot of the smaller investors really look at cashflow and they’re not always thinking about your return over time and what that means as you get into some depreciation because regardless of what happens in the ups and downs of housing, it’s generally trends upwards.

I’m not saying that it always goes up, but it’s a misnomer when people say what goes up must come down in real estate investing. That’s not necessarily true. When you have unbelievable appreciation that just doesn’t make sense, of course, there’s going to be some calibrating. But overall, most real estate has stayed up since 2019. There’s a few markets where it’s adjusted. But some of those investors have gotten in trouble that bought

more recently and bought really based off of a lot of trust and not really astute investing. So we need to get back to that. So we’re helping them get back to that astute investing and really understanding their thesis of what they want to buy and why and where they want to buy.

Scott Bursey (08:40)
That is great perspective, Noel. And I got to ask you, how does your deep vertical integration specifically mitigate risk when managing distressed assets?

Noel Christopher (08:55)
Well, managing distress assets is one thing. We like to call it spitting the flywheel. We have all of these ⁓ different touch points that we can have on an asset, but we’re not just about distress assets. Distress assets are some of the things that we do manage in our overall pool of loans. We are experts in managing distress assets. ⁓

lean holders and servicers come to us and say, we have this distressed book of homes. What should we do with them? Well, the first thing we do is we just figure out what’s going on, right? And that goes with whether it’s distressed or not, whether we’re talking to somebody as a performing pool or performing ⁓ portfolio of homes. We want to look at it and say, okay, what can make it better? How can, do you want to grow? What’s your long-term plans?

And then the same thing on the stress assets. It’s understanding just what’s going on and what can we do to mitigate this? And then does this fit with another one of our investors that we already manage in our loan portfolio or that we’re managing in property management? Maybe there’s a mitigation for that lean holder

saying, hey, instead of going in this foreclosure, let’s get this person out. We have somebody that could buy this and do something with this house. And maybe this person just is tapped out or whatever it might be. So it’s really about working together.

within our customer base and figure out how they can create some liquidity between themselves.

Scott Bursey (10:52)
That focus on controlling the variables in the servicing process is a massive advantage, And I got to ask you this as well. Go ahead and elaborate on that if you’d like.

Noel Christopher (11:02)
Absolutely.

I was just going to say, have the controllable costs and the non-controllable costs. There’s a nuance to all of that of stuff. Really for us, again, it’s about where can we help them? We have all these different services. It doesn’t mean that they have a need for every one of our services, but we find insurance, for example. Somebody has maybe built a portfolio of 20, 40, 50 homes and they’ve got

15 different insurance policies and five different lenders and six different property managers. And they’re just trying to figure out what to do. And there’s a lot of inefficiencies there. So the idea is to allow, you know, with all of our different services is to just take some of that load off of them. It used to be, for example, in property management that it was, we’ll just do the easy thing, the hard things for you and we’ll collect the rent and we’ll kind of be an order taker. But now it’s about more about asset management.

and either teaching that investor to be a better asset manager or for us to be an asset manager for them. And it’s really looking deep into that, into their portfolio and what they own and helping them understand what can they do to optimize.

Scott Bursey (12:15)
curious, what are your most successful or non-traditional resolution strategies for diverse, non-performing loans?

Noel Christopher (12:27)
Well, there’s a lot of different strategies that somebody could take when they have a non-performing loan. ⁓

A lot of lien holders don’t want to foreclose and would like to figure out if there’s a way to work through something. When a lot of these loans are taken out, they’re looked at as saying, well, here’s the value of this home with a tenant in it. And then here’s the retail value of this home if we’ve decided to sell it to a homeowner. That’s always been the hedge. Well, the problem is when you have a tenant in a house,

⁓ in many, many municipalities, especially the last several years, they’ve it more difficult to evict. ⁓ You want to start thinking creatively on how can you not only kick the tenant out, but how you can rehabilitate this home and how you can get somebody else in there, another investor, for example, in there that can own this house and take care of it the way that needs to be taken care of if maybe the current investor is just not for them, or it’s looking at it and saying, what were the circumstances? ⁓ How can we…

get the loan to a point that it’s a break even so that we can sell this house and either fix it up and sell it to a homeowner or sell it to another investor. So there’s a lot of different strategies, but it’s really just taking a holistic view of what can be done. And usually there’s just a lot of inefficiencies that have been happening and the owner got upside down and just couldn’t figure it out. When you take out any of the fraud cases, which are some of those, it’s really just a matter of

⁓ what can be done. And sometimes people have equity in their entire portfolio that you can shift a little bit of that equity to those, you know, those distress assets, get them up to par and then help them ⁓ dispose of them.

Scott Bursey (14:10)
And that highlights the specialized expertise of the FAY Group’s asset management team right there. Nice description. Let me ask you this. How do you structure your capital to balance, you know, yield potential against the illiquidity of residential debt?

Noel Christopher (14:33)
Well, mean, look, it’s no secret that the cost of debt has gone up. ⁓ And that has pushed a lot of these smaller investors out currently. It’s made it very difficult for them because they don’t own enough assets to ⁓ de-risk the entire portfolio across multiple homes. There’s just a lot of different issues there.

What we found is we’re telling a lot of, in the last few years, we told a lot of people that they shouldn’t buy, then they should buy sometimes because the deal either works or it doesn’t. Being able to use leverage is very important and it’s huge benefit. We’ve got to make sure that you’re buying a home that is for one, sustainable after you remodel it, that you’re putting enough

capital into that house on the front end so that it is sustainable and you can continue to get the rent that you need. And then you’re also stress testing how the rate looks today and how it could look tomorrow. ⁓ You’d be surprised how many people have come to us thinking that the rates were going to go down because the rates went down. It doesn’t really work that way. They have to refinance. ⁓ There is still a lot of capital out there. There’s a lot of private lenders out there that have good debt.

and that are flexible that you can get into and buy a house or buy investment property, but the deal has to work. So have to be willing to look for the deals that work and not just look at yield because sometimes a higher yielding markets aren’t necessarily the best markets. There’s a balance. So you just have to decide what your investing thesis is. And what was interesting in the last few years, what’s happened is it’s really weeded out a lot of the ⁓ fly by night.

investment groups and investors that didn’t really know what they were doing. Now it’s requiring people to be innovative about their operations and what they’re doing and work with groups that are innovative and also just be more astute in their investing.

Scott Bursey (17:27)
Understanding the capital structure is key for professional investors entering the space. Great point. And Noel, interested to know, given your vertical integration, how important is private technology or data analytics in your day-to-day decision-making process for asset resolution?

Noel Christopher (17:51)
Yeah, absolutely. I think that we live now in a world where data is king and it’s available. ⁓ And there’s still a discrepancy between different data sources. So getting the right data, being able to understand that data, whether you’re going to use AI and things like that is a personal decision, a business decision. I mean, we’re going all in on AI on our lending, which allows us to then flow into asset management and things like that. ⁓

⁓ There’s so much data out there for you to make an educated decision that there’s no need to be guessing. Real estate is a ⁓ combination of that gut feeling of, you doing the right thing and buying in the right area and all of that, but that should all be backed by data. You’re taking out of the…

you’re de-risking things quite a bit by really looking at the data down to what the taxes are going to be if the appreciation goes up a certain amount per year in the next three four years. There’s all kinds of data out there on those uncontrollable costs, taxes, for example. You can’t control that, but you can understand what they’ll be. And a lot of people went into investing with a blind eye to taxes, for example, and that’s come back to haunt them. So the data is so very important.

Even the data on your assets, understanding the condition of your assets on a consistent basis. ⁓ One of the worst things ever when you go to sell your portfolio, if you don’t know the age of all your mechanicals and your true condition of your assets, you’re not going to get the best price. so having that information and data available, being ⁓ in the homes as much as possible to understand their condition can help mitigate those things, and that’s all data driven.

You get that data to be able to save it, to have it, to understand it, to pass that on if you’re going to sell the portfolio or not, or even refinance it. It’s really important. on the front end, the data and analytics on the markets, what’s happening in those markets, where they’re heading, what’s happening on the regulatory side in those markets, what’s happening in the industry inside those markets, what’s drivers for jobs, what’s drivers for people to move out. Those are all really important things to understand.

Scott Bursey (20:13)
That level of operational control is clearly a massive competitive edge. And Noah, if you could walk us through this. Since ⁓ you deal with distressed assets, what is your philosophy regarding finding win-win solutions for the existing homeowners as opposed to solely focusing on investor returns?

Noel Christopher (20:21)
Absolutely.

Thank

Well, it depends. To be clear, only part of our portfolio and what we deal with is just distressed, but we do manage some FHA portfolios, FHA loans, and things like that, and that’s much more regulated and there’s specific waterfalls and guidelines. But it’s always about finding a win-win. That win-win is sometimes

investor is not going to get the return that they thought they were going to get and it’s helping educate them that it’s not what you thought, you’re going have to let go, but we can help them live another day as far as their journey on investing. Sometimes that requires you to let go a little bit, a lot. There’s a lot of pride. A lot of people don’t want to accept that they made a bad decision. ⁓

And once you get past all of that, ⁓ then it’s just about showing them the right path and helping them get there.

Scott Bursey (21:45)
That’s a great perspective on things. That is a real good perspective on the win-win and how you look at it. Looking ahead, what emerging markets or specific real estate sectors is the FAY Group most interested in expanding into over, let’s say, next three to five years,

Noel Christopher (21:54)
Yeah.

You know, I think it’s a little bit of everything. I think speed of execution is important. So from the beginning of, if we’re lending the speed of execution and the ability to underwrite very quickly and effectively and efficiently is important. And then on the backend, the operational side, being able to manage, I mean, we manage, we property manage homes for investors as well as ⁓

you know, our real estate marketplace. So one of the things we’ve invested a lot of time and energy in is some native AI platforms. And then also the data on all of our customers and understanding what they have, what they need and what we can provide for them and giving them those tools to self-serve themselves. you know, as the market shifts a little bit and

there’s going to be, believe, some opportunities to buy. Giving our customers the tools to efficiently ⁓ analyze and acquire homes, I think, is really important for us. for us, rather than just building a marketplace that you say, hey, come to our marketplace and hopefully you’ll find something to buy, we’re being very specific and matching our properties to our customers combined with ⁓

lending and title and insurance and all those different things so that they can kind of press the easy button and have all that data and information available to them. So it’s really around data and speed to execution, whether that’s on the title side or the acquisition side or the lending side.

Scott Bursey (23:48)
Excellent insight. It sounds like there are still plenty of opportunities on the horizon for those who know where to look.

Noel Christopher (23:57)
Yeah, absolutely. And the data is there. So we’re trying to provide that data and then give them the tools to ⁓ confidently and efficiently invest.

Scott Bursey (24:11)
It sounds like precision is definitely the key. For those listeners who are looking to invest in this space, what advice would you give them about getting started? And what are the two or three most critical metrics, you know, they should be focused on when evaluating an opportunity with non-performing loans, let’s say.

Noel Christopher (24:32)
Yeah, well, mean, non-performing, performing, whatever it might be, ⁓ you need to look at the underlying asset and the location and what you’re comfortable with as far as the tenant living in that house and what are going to be the fundamentals that will drive value in the future because

Just because a house looks like it has this great return, frankly, it in a good area? Is it in a good municipality that is easy to manage? What’s the regulations there? Two, is that house in an area where it’s safe and it is a good place to invest and you’re comfortable owning a home there? ⁓ It’s more than numbers. It’s really about the location.

and the city, the neighborhood, the area. Look, we work with lot of investors that focus on investing in workforce housing. ⁓ That is not an investment for everybody. It takes a lot more operational ⁓ expertise and costs. What we do see a lot is investors who say, well, I invested in this home, it was supposed to be a 10 % return, but now it’s a 5 % return. What happened? It’s like, well,

If you realize what you’re investing in, you would have known always that it was a 5 % return, not a 10 % return because it costs more to operate a house in a lower income area, for example. It’s a great place to invest if you know what you’re doing. Newer investors, would say starting out picking

a more of a middle of the road type of investment that is going to ⁓ have less risk and maybe a little bit lower return, but it gets your feet wet a little bit. I always recommend people being heavily involved in their first few investments as far as understanding the remodel, understanding what it takes to fix up a house and why you do and don’t do certain things because you’re not living in that house.

you’re building it to be durable for renting, and unless you’re doing a fix and flip, which we do plenty of those as well, and also understanding what it takes to operate.

believe it’s a misnomer. Turnkey real estate investing is a misnomer unless you’re buying a Walgreens triple net ⁓ building that you don’t have to do anything. You have to make decisions on a

monthly and weekly basis when you own an investment property or investment portfolio. You can hand it over to professionals and say, take care of this for me. But the fact is you’re still going to have to make decisions on a consistent

And it is an active sport, real estate investing. It is not passive, in my opinion. There is passive investing, but I don’t believe in, especially in residential real estate, it’s as passive as some people may advertise.

Scott Bursey (27:42)
Point well taken. And no, we’ve covered a lot of ground here today. And I know people are going to want to tap into your brain. For the listeners who want to build with you or just follow the play by play of your journey, what’s the best way for them to reach you?

Noel Christopher (28:00)
Honestly, the best way to reach me is on LinkedIn. I’m very active on LinkedIn. I put a lot of content out there. ⁓ I will respond. ⁓ My time is sometimes limited. I’m very busy, but I also enjoy having, ⁓ like we talked about earlier, having meaningful conversations and understanding the different ⁓ models and different things that people are doing and happy.

If somebody wants to get engaged with us more to point them in the direction of our team and the right entry point, sometimes that could be, you know, whether or not it’s insurance or our real estate brokerage or property management or whatever it might be to get them in there, you know, put them in the right spot and then to help them along in their journey. So LinkedIn is usually the best way to get ahold of me. Just search me, Noel Christopher. You’ll be able to find me very easily.

Scott Bursey (28:50)
Thank you for joining us today, Noel. This has been awesome.

Noel Christopher (28:55)
You’re welcome. Thank you, Scott.

Scott Bursey (28:57)
And for our listeners, we appreciate you. If you got value from today’s episode, please subscribe. We have more conversations coming up with operators just like Noel. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.