The Money Issue - Profile: Bankers South
Amid the financial meltdown, Brian Philpot and Rob Harper have turned profits from a real estate firm into a lending source, helping borrowers who can't get conventional loans.
Philpot says he initially underestimated the depth of the financial crisis and expected to begin acquiring property again as soon as the market cleared. “I don’t think anybody comprehended how bad the banking system was going to be impacted and how long term it would be and how fundamentally it would change.”
The extent of the financial chill quickly became apparent. Hampered by increased regulatory costs and looking to trim their loan portfolios, banks tightened lending. Unable to get conventional financing, farmers and small developers began coming to Philpot for help. “There was no financing available to buy a development tract, let alone a hobby farm or a cash-flowing agricultural operation,” Philpot says.
As part of their real estate business, Philpot, now 41, and Harper, 46, had experience providing short-term loans to buyers. They also were shareholders of Platinum Bank, a community bank in Hillsborough, Polk and Pinellas counties. Harper sits on the bank’s board of directors, and Philpot is a member of its Lakeland advisory board.
Initially, Harper says the two decided to start a high-yield lending company “that could help people out and bridge them” until the economy turned around. They quickly decided, however, that the lending business, called Bankers South, was a longer-term, full-scale proposition.
In 2010, Harper and Philpot created Bankers South High Yield Fund A, which has since funded more than $100 million worth of mostly high-yield loans. Rob Teston, former longtime COO of Farm Credit of Central Florida, runs the day-to-day lending operation and the underwriting process, says Philpot.
Farmers make up approximately 80% of Bankers South’s customers, typically turning to Bankers South when banks won’t renew loans. In some cases, funding from Bankers South has given farmers time to stabilize their incomes enough to get a conventional loan. In other cases, loans have served as a bridge for the farmers until they sell their properties.
Bankers South also caters to investors acquiring bank-owned land that they plan to develop over three to four years, providing five-year loans at interest rates of between 9% and 12%, says Philpot. “Some of that period of time can be interest-only; some of it can be an amortization. But we’re providing them capital they would otherwise have to bring in another partner to get, and that partner would dilute their profits at the end of the day.”
Bankers South takes advantage of its ability to move quickly, closing some loans in as little as 10 days. That quick access to capital can be worth higher interest rates for investors working within a tight time frame.
While Philpot runs most of the day-to-day activity at Bankers South, Harper concentrates on finding deals. “He’s good at establishing relationships, creating good deal flow. I’m for the most part in the office, dealing with potential clients, putting together structures, evaluating deals and doing analysis.”
Philpot and Harper say they see continued growth for their private finance business. While there is significant demand for high-yield loans with a “lower risk,” Philpot says he doesn’t expect that to always be the case, and they have recently ventured into conventional lending on land deals — a move that puts them in direct competition with banks and farm credit banks. “If you forecast that markets are going to normalize at some point, you’ve got to have products that you can give to your customers,” says Philpot.
Philpot doesn’t expect to return to real estate investing in the near future. He says he feels he owes it to potential borrowers not to compete against them on deals. Beyond that, he says he’s had enough of boom-bust real estate cycles. “Your returns being a lender are not as close to where they were if you’re an actual investor in deals, but it’s more stable.”
Lending, the sixth-generation Floridian says, is his sole focus. “It’s been evident for the last two years; it’s a permanent business. It’s what we spend our full time on now. We’re all in.”