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Show Summary
In this episode of the Real Estate Pro Show, host Erika interviews Matt Zonies, CEO of Bluestone Loans, discussing his journey in the lending space, the unique aspects of his business, and the challenges and strategies involved in private lending. Matt shares insights on emerging trends, memorable deals, and the importance of communication in borrower relationships, as well as future plans for product expansion.
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Investor Fuel Show Transcript:
Matthew Zonies (00:00)
You know, a common misconception isprivate lenders, you hear about these loan to own type scenarios where lenders are trying to charge these high interest rates and foreclose on a property. You know, I personally haven’t seen that since I’ve been in the business and I’ve been in the business about, you know, 12 years now. ⁓ You know, I think the vast majority of private lenders are truly trying to partner with their borrowers. You know, if the borrower succeeds, the lender succeeds.
They’re trying to get them from point A to point B, help them do whatever they’re going to do. And in that sense, they are very much partners with each other.
Erika (02:08)
Hey everyone, welcome to the Real Estate Pros show. I’m your host, Erika, and today I’m thrilled to be joined by Matt Zonies, the CEO and founder of BlueStone Loans. He is a powerhouse in the lending space. Matt, it’s awesome to have you here on the show today.Matthew Zonies (02:25)
Thanks for having me. Nice to be here.Erika (02:28)
So let’s get started and jump on in. How did you get started in the lending space? What was that journey like?Matthew Zonies (02:38)
Yeah, so my background was originally as a commercial finance and real estate attorney. ⁓ So I was in private practice for about eight years prior to starting Bluestone in 2017. ⁓ And so during that time in private practice, did a lot of commercial real estate transactions, leasing, worked a lot with small business owners, and then also served as counsel to a family-owned private lending company. ⁓ And they originated short-term business purpose loans, all secured by real estate, which is primarily what we do here.So I started working with them around 2013. And then in 2017, that company was sold. And at that point, I spun off and started Bluestone.
Erika (03:20)
Yeah, that’s really cool. it can be a competitive industry for you. How do you stand out compared to other lenders?Matthew Zonies (03:32)
Yeah, you know, I think one of the things that differentiates us is that we are a balance sheet lender. We are lending our own capital. We’re managing our own portfolio. So, you know, a lot of the private lending space involves the capital markets. A lot of these lenders are selling off loans and the borrowers are dealing with third party servicers or third party buyers post-closing. So it’s nice that we’re able to keep everything in-house, ⁓ deal directly with the borrowers.We’re doing all of our funding in-house, all of our credit approvals, we service all of our loans in-house. So it creates kind of a streamlined experience for the borrowers and it helps us because we don’t have that kind of outside noise involved in the business. But I think it makes it a better experience from the borrower standpoint too.
Erika (04:22)
Yeah, absolutely. you know, there’s so many things going on as an investor. You know, one thing that you want to, you know, go in line is, is your lending and with Bluestone loans, would you say that, you know, ⁓ what are some of the challenges that you’ve had, you know, running your your own business and how have you overcome that to achieve your success today?Matthew Zonies (04:48)
Yeah, you know, when we started the business in 2017, and especially starting our own private credit fund on the lending side, we were a new fund manager, and that’s always a challenge. There’s a lot of investment options out thereon the capital raising side, some very big firms. So that was certainly a challenge for us getting into the private credit space. And then the fact that we’re managing our own portfolio, ⁓ you know, we really have to put a lot of
focus on managing risk. ⁓ And we do that by looking at asset type and concentration limits and obviously underwriting each borrower and the project involved. But I think, you you asked about overcoming it. I think focus is a big part of it, staying focused on what you’re trying to do, making good loans, not stretching on loans that might not necessarily fit the box, but you you want to book some more loans in any given month. So you got to be careful about that.
But I think managing risk helps us to kind of grow steady and slowly and then obviously serve those borrowers at the same time.
Erika (06:41)
Absolutely. When it comes to managing that risk other certain tools or strategies that you use to make a calculated decisionMatthew Zonies (06:51)
Yeah, so we have a couple research tools that we use, a couple different pieces of software for looking up, you know, comparable properties. If we’re underwriting a piece of collateral, we use, you know, servicing software, loan origination software. So it’s definitely a tech enabled type ⁓ model and we rely on that. But also, you know, you need human eyes on this stuff too. So we can’t entirely rely on the technology to, to, to underwrite these loans.So I think it’s a combination of the tech that helps us do things more efficiently. But then we also have a great team here who underwrites and services and ⁓ communicates with the borrowers. And so I think a combination of those things, good people and good technology helps us do that.
Erika (07:37)
Now for our listeners, ⁓ many of them are sometimes building their own team, although it might be a different aspect of real estate. What kind of advice would you give to someone building their team? How do you find someone that’s a good fit?Matthew Zonies (07:55)
You know, I think people that are hungry and want to learn are probably, you know, the best, the best characteristic, even if there’s not necessarily a ton of experience in the space or, you know, a super ⁓ relevant background. think people who are eager and willing to learn and specifically people who like to be part of a growing business and part of a small team, ⁓ you know, because we’re small.you’re not dealing with a of a big corporate like structure where everybody here has a very focused and narrow job description. Everybody’s doing a little bit of everything. And so people who are willing to help out and maybe go outside of their comfort zone and be part of the team and be part of the culture, that’s probably a huge selling point. You really want that alignment of interests and making sure that everybody’s working towards the same goal.
Erika (08:46)
Yeah, absolutely. Matt, when it comes to lending, what are some common misconceptions that you see that you want to set the record straight for our listeners today?Matthew Zonies (08:58)
Yeah, so, you know, private lending has definitely evolved over the past 10 to 15 years. ⁓ You know, it’s grown into a sizable institutional asset class on the investment side. And obviously, the borrowers have benefited because credit becomes more widely available. If you’re trying to buy a property and fix it up, ⁓ you’re have more options out there from lenders. think the,know, a common misconception is
you private lenders, you hear about these loan to own type scenarios where lenders are trying to charge these high interest rates and foreclose on a property. You know, I personally haven’t seen that since I’ve been in the business and I’ve been in the business about, you know, 12 years now. ⁓ You know, I think the vast majority of private lenders are truly trying to partner with their borrowers. You know, if the borrower succeeds, the lender succeeds, right? The borrower is able to complete a successful project, hopefully turn it into a profit.
and the lender makes a successful loan.
And so I think there’s this maybe adversarial misconception between borrowers and lenders. think borrowers are a little bit protective about that. But the truth is that lenders want their borrowers to succeed. They’re trying to get them from point A to point B, help them do whatever they’re going to do. And in that sense, they are very much partners with each other.
Erika (10:58)
Yeah, absolutely. And speaking of wanting to see these investors succeed, are you seeing any emerging trends in lending or private capital that they should be aware of right now?Matthew Zonies (11:12)
You know, I think the one to four family ⁓ rehab space continues to grow. Obviously, there’s a huge capital market for it. Billions and billions of dollars are originated in that space each year. You know, something that we focus on that I think is kind of an underserved gap in the market is the small balanced commercial real estate sector. ⁓ You know, these are borrowers that would have historically gone to a community bank. They would have called up their local banker.asked for a $800,000 loan, and in a couple of weeks they would have had an approval. And so the number of community banks has shrunk significantly over the past 10 years or so. ⁓ Not a lot of new banks are getting charters, and so that leaves a big gap in the market for private lenders to come in and fill that space. There’s still a demand for credit. There’s still a lot of small business owners, a lot of real estate investors looking for capital, looking for credit to help them acquire or rehab or…
get a bridge loan to buy them some time to market a property and sell it. And the traditional lenders, the community banks, ⁓ aren’t really in the space anymore. If you ask a banker, they’d probably rather do a $10 million loan than a million dollar loan. And so ⁓ we do our best to fill that space and serve these borrowers that aren’t really getting access to traditional capital in a way that they did maybe 10 or 15 years ago.
Erika (12:39)
Yeah, absolutely. And when it comes to connecting with those business owners and investors have there been networks that have been a game changer for your business and have helped with that.Matthew Zonies (12:54)
Yeah, so, you know, our business, probably 90 % of our business comes from referral sources, and most of those are loan brokers. ⁓ And so, you know, in turn, those loan brokers usually get their business from banks. And so, you know, in a way, we’re helping these banks kind of maintain relationships with the borrowers. Obviously, we’re not a depository institution, we’re not taking deposits away from banks.⁓ So, you know, banks, attorneys, CPAs, loan brokers, they’re all great resources for us, given the fact that we are originating short-term loans. ⁓ You know, these borrowers are looking to refinance with a traditional lender at the end of our loan term. And so, if a bank can refer us business in the form of a borrower, and we can take that borrower and help them acquire a property, and usually these are time-sensitive transactions. So…
A typical borrower for us, they might be a bank borrower. They usually are a bank borrower, except they have to close on an acquisition in a couple of weeks, maybe two, three weeks. Now, as good as a bank might be, they probably can’t close that transaction in two weeks. And so we serve as kind of a bridge and we’ll help that borrower acquire the property. And then in six, nine or 12 months, they return to their banking relationship and they refinance into something more permanent.
Banks are a great resource, loan brokers are a great resource, and really anybody who touches a real estate transaction. Realtors, brokers, title companies, appraisers, environmental firms, anybody who’s involved in one of those.
Erika (14:26)
Matt, Bluestone Loans has helped with a lot of deals. Can you walk us through one of the most memorable ones that you’ve done and what made it stand out for you and your clients?Matthew Zonies (14:42)
Yeah, so, you we’ve done about 150 loans ⁓ since inception. ⁓ You know, I think one of the ones that we did ⁓ recently that stood out was ⁓ we helped somebody acquire a food specialization ⁓ warehouse ⁓ and we’re based in New Jersey. So this was a deal that was also based kind of in our backyard.It was something that was nice because it helped the community. mean, this was a company that was helping distribute food to the local community down in this area. ⁓ It was a property that was being underutilized at the moment. so, or prior to us kind of helping the borrower make the acquisition. So that was nice to see that we were able to provide financing for a property that was ultimately gonna produce jobs, ⁓ help feed the community.
and obviously take an asset that was otherwise not really being used and turn it into something that hopefully will move forward and be successful over the next 10, 15 years.
Erika (16:28)
Yeah, were there any lessons learned from that deal that you’ve applied to your business going forward?Matthew Zonies (16:38)
You know, I think that deal was, it was a typical transaction in terms of the underwriting and the borrower. I think the situation and, you know, where it was from a geography standpoint kind of stood out to us. You know, something that we’ve learned from, you know, it’s funny, I think you learn more fromfrom harder deals than you do from easier deals, right? That’s where kind of your lessons are learned when something goes wrong. And we’ve certainly had those, right? Like any other lender, ⁓ we have loans that go into default. We have some borrowers that are less than cooperative with us. I think it goes back to the transparency. And I tell borrowers this right from the beginning, the more you communicate to us and the more transparent you are with us, the easier we’re gonna be to work with. ⁓
And so I really stress that from the beginning. Oftentimes you have borrowers that start off on a project and it’s not going as planned and they’re afraid to communicate. Whether they’re embarrassed or they’re not sure what’s going to happen, they might not return your phone calls or emails. And so that’s super important to us because if you communicate, and this is, I think this is true for any lender, a borrower relationship. If you communicate with your lender and you’re updating them and you’re fully transparent on what’s going on, it’s going to make the
it’s gonna increase the probability of that transaction being successful.
Erika (18:08)
Yeah, absolutely. Matt, let’s dive deeper into your expertise here with interest rates and market conditions constantly shifting. How do you stay competitive in providing solutions for real estate investors?Matthew Zonies (18:25)
Yeah, so that’s kind of more on the ⁓ fund side. you know, we, the fund side, our goal is to reduce our cost of capital. And so while we’re lending to borrowers, we obviously have our own creditors and our own investors. And so lowering our cost of capital is vital to being competitive in the market from a lender standpoint. And so, you know, with interest rates where they are, ⁓We’re hopefully expecting a cut next month, we’ll see, but all signs point to that being true. We’ll do our best to pass those cost savings on to borrowers. So as our cost of borrowing goes down, we try to pass that on to the borrower and stay competitive within the market.
Erika (19:14)
Yeah, absolutely. And I know you guys are looking to grow and scale, which is exciting. What are your plans going forward and how do you plan on getting there?Matthew Zonies (19:28)
So part of our expansion plans really focus on our product offerings. ⁓ Right now, our core product is our bridge product. So it’s a 12-month interest-only bridge product, and it serves as kind of ⁓ getting a borrower in a better position, whether it’s a timely transaction or maybe they’re waiting on tax returns to come in and they can’t go to a bank. We’re trying to solve some type of problem for the borrower.We’ve seen an increasing need for longer term financing, kind of more like bank financing, five, seven, 10 year terms. So we’ve been working on launching that product. We hope to do that later this year. And so that gives our borrowers, ⁓ you know, another way to work with us. And so we’re not just kind of a one or two product organization. We’re able to kind of offer a breadth of products to those borrowers.
And then continue to scale the business. We’ve never been kind of a, and I think this is true in general for this space, especially if you’re ⁓ managing capital. The idea is not to grow as fast as possible. It’s kind of slow, steady, measured growth. And I think we’ll continue to do that. Stay disciplined, stay focused on what we’re trying to do, ⁓ and just continue to grow the business over the next five, 10 years.
Erika (20:52)
Yeah. Well, Matt, it’s been incredible hearing about your journey and strategies in the lending space. Before we wrap up, is there anything else that you’d like our audience to know about your business?Matthew Zonies (21:08)
Yeah, so I think we covered most of it. know, BlueStone is a private credit fund manager. We started it in 2017. We focus on investing in small balance commercial real estate loans. So our loans go anywhere from 250,000 up to four and a half million. I think we are unique in that we are a balance sheet lender. So we do have discretionary capital. We are holding these loans on our balance sheet. We’re a direct lender. I think that’s kind of becomes more more rare these days.But yeah, I mean, we’re looking forward to kind of the continued growth and seeing how the market evolves, especially within this private real estate credit space over the next few years.
Erika (21:48)
Yeah, absolutely. And for our listeners who want to connect with you and maybe they need a loan, where can they find you?Matthew Zonies (21:58)
Yeah, so you can find our website at www.bluestoneloans.com. We’re on Instagram at bluestonecommercialcapital. ⁓ And obviously you can find our email addresses and phone numbers on the website.Erika (22:13)
Awesome. Well, thank you so much, for joining us and sharing your insights. And for our listeners, if you got value from thisMatthew Zonies (22:19)
Thanks, Erika. This was fun.Erika (22:24)
make sure that you’re subscribed to the Real Estate Pro Show. We’ve got more pros like Matt who are out there building incredible real estate businesses. We’ll see you on the next episode.
