Spotlight with Socotra Capital’s Adham Sbeih

Adham Sbeih is the CEO and founder of Socotra Capital. Adham has taken the same passion that drove him as a professional athlete and turned his focus towards helping individuals and companies realize their goals in the challenging real estate market of California and Nevada. We sat down with Adham to learn about his inspiration for founding Socotra Capital and his insight on the current economic environment.

What led you to a career in finance?

Adham: I was a bike racer, and my bike racing career came to an end. I had a good friend who was in commercial real estate finance. He had never graduated from college, but he made a really good living. I had graduated from college, but in this business, you don’t have to be brilliant. If you work hard and hustle, you can make a good living. He hired me as an intern. That was the start.

What was your inspiration for founding Socotra Capital? Did you see a specific need you could fill with your organization?

Adham: I was in the commercial real estate finance world and was watching what was happening in the housing market. In May 2005, I sold my house and I thought things were getting kind of weird. For Sacramento, July 2005 was the peak. In 2006, I started noticing the subprime and stated income markets were dominating residential lending. Things were super loose. I talked to a few people who had done some private money loans and what they were doing didn’t quite make sense to me – second deeds of trust, third deeds of trust, huge land development loans. In 2007, the banks were just barely starting to tighten up. It was just before the mortgage meltdown.

I had an idea that when these banks tighten up more there is going to be a great opportunity for private money. I really had no idea how bad it was going to get. In early 2008, I had a commercial real estate client who needed to complete construction of a strip center, and he couldn’t get a bank to finance him. I started cold calling for money for him. I found a pension fund up in Northern California that ended up financing the project. That was the first time that I placed private money into a loan. At the time, I remember wishing that I had a greater involvement with the pension fund, because I knew they would make a solid 9% on their money. That moment was actually the inspiration for our Socotra Fund, our flagship fund that has proven to be highly profitable for our investors.

Towards the end of 2008, Lehman Brothers and Washington Mutual collapsed. I took my own money and made a few private money loans on residential properties, and really appreciated getting the monthly interest payment. At about that time, I connected with my current partner John Ingoglia and explained to him what I wanted to do. He immediately understood the concept and have been partners ever since.

Are there a lot of companies doing what you do in California, and what makes Socotra Capital stand out? 

Adham: There aren’t many companies doing what we do. What makes us stand out is that we are the direct lender. It’s our capital that we are lending out. None of our capital is leveraged. It’s literally cash sitting in a bank account that we lend out. And we close loans quickly. Typically in ten days or less. Believe me, when we make a $3,000,000 loan in 72 hours, borrowers are extremely grateful. The key for us is to use common sense underwriting. At the office, we jokingly refer to ourselves as “Caveman Capital” – you know, it’s so easy to understand even a caveman could do it. It’s a joke. I have had a fair amount of formal training both from community banking and commercial capital companies, so I am able to get to the brass tacks and figure out the deal quickly without all the bureaucracy. Everything is streamlined. Our company is designed so that the borrower can take advantage of what is going on in their local market or on a specific project or property. There are a lot of companies out there that pretend that they have the capital, when in reality they are actually brokering the loan. It’s a single person who makes the decision – me. I make the loan.

What areas do you serve?

Adham: All of California. Socotra Capital Nevada is licensed so we can make loans in Nevada as well.

Can you tell us about your philanthropic work?

Adham: We are big on philanthropy. I am on the Sacramento Zoo board, so we do a lot there and donate to the zoo. We do a lot with the children’s home because John Ingoglia’s mother is involved with the local Sacramento Children’s Home. We have also given to the various arts groups and the theater. We do some big stuff but some smaller little projects. We have done a lot of micro philanthropy.

What are the challenges for people looking for private lenders?? 

Adham: We call ourselves the lender of last resort. We are not going to beat the pricing of the banks; however, we are much more flexible. People really come to us for three reasons – either the property doesn’t qualify with the bank, the borrower doesn’t qualify, or the timeline is too tight.

For instance, if a property is a vacant commercial building, or a fix and flip project, or an REO that was vandalized, then banks don’t want to touch it. Earlier this year, we financed a fix and flip that would not qualify for conventional financing because the in-ground swimming pool pipes were leaking. We financed the purchase and allocated $5,000 of our loan to fill in the pool. It was a simple solution that allowed the borrower to fix and flip the property at a significant profit. Banks won’t do that.

Borrowers also come to us with impaired credit from the downturn. If the borrower had a bankruptcy, short sale, or foreclosure, then banks don’t want to lend to that borrower. We take a more common sense approach – if the borrower had good payment history until a certain event – the great recession, medical issue, lost job, or whatever, then we will give them the loan. We aren’t FICO score-driven.

Finally, borrowers come to us for speed. A lot of people use our money to make cash offers. They will say, I am going to buy this house with cash, and I will close in five days. They don’t actually use 100 percent cash. They will come in with a small amount of cash, and we will finance the majority of the project for them. That is a pretty typical scenario for us actually: the quick close.

The best timeline for us to close a loan is ten days, but we have done plenty of loans in two or three days. The borrower is in a spot where they are going to pay more for our money than with a traditional lender, but they need to calculate the additional cost into their pro forma or their projection. The borrowers that have learned how to effectively use us in these situations have literally made millions of dollars.

What do you see happening in this space with the coming election and everything? Do you see major changes in the way people will obtain mortgages or financing?

Adham: I don’t know. Dodd Frank (The Wall Street Reform Bill) had a huge impact on our business and our industry. There is some talk of repealing some of the provisions in Dodd Frank. They are extremely restrictive for our industry. Any kind of change in the legal framework is just going to shift where we are making our loans because we are just looking for that margin between what the banks are willing to do and what is a logical loan where we will get paid back.

Do you take on a lot of risk?

Adham: That is the perception, but the reality is that we very rarely foreclose. Our foreclosure rate is less than one percent. The biggest piece of every loan is the equity. As long as there is equity in the project, there is an exit. The borrower is able to sell it and exit out of our loan and recover as much capital as possible.

What is the most satisfying thing about what you do?

Adham: Giving people an opportunity to make money. Borrowers tend to graduate out of us. It is always fun to see when they start with us and they figure out how to use our money and make money with us. Once we make our first loan to a borrower, they tend to come back for the second and third loan, and they make referrals to us. We are a very useful tool for them.

Then they get to a point where they don’t need our money anymore. We have made quite a few millionaires. They tend to come to us early in their real estate career. As they make more money, they are able to self-finance off the profits. We have borrowers we have made 40 or 50 loans to, and they have made a ton of money. Then they stop coming to us and we ask them why and they say, “We have enough capital.” It’s really fun.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.

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