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Home-Grown

After graduating from Florida State University with a finance degree in 1994, Brian Philpot expected to follow in his father’s footsteps and become a lawyer. He earned his law degree from the University of Florida in 1997 and joined his father’s civil litigation practice in his hometown of Lakeland.

He didn’t like it. “I was a few months into it and had to sit down with my dad and say, ‘This isn’t going to last. Something’s got to give,’ ” says Philpot.

Continuing at the law firm for another year and a half, Philpot began to focus on an earlier passion — real estate. Philpot’s father had invested in agricultural and timber properties, and as a child Philpot had ridden with his dad on long weekend drives down Florida’s back roads hunting land deals. As an undergrad, Philpot had earned a real estate license and had even bought and sold a timber property while in law school.

With his family’s backing, he formed a real estate company and began purchasing and selling land in north and central Florida and around Atlanta. In 2001, he bought a property from Rob Harper, a fellow Lakeland native who had, like Philpot, begun investing in real estate shortly after finishing college at age 23.

Philpot and Harper impressed each other enough that they decided to go into business together, forming a real estate investment firm called the Land South Group. Starting with an initial purchase of 6,200 acres of timberland in South Carolina in 2002, the firm amassed 350,000 acres across the Southeast.

By 2004, however, the duo sensed a bubble. Pastureland that traditionally traded at $1,000 to $1,200 an acre, for example, had spiked to $15,000 an acre and more. The “fundamentals were getting out of whack,” Philpot says. “We decided that the pricing just didn’t make sense, and we needed to sell out all of those properties that we didn’t want long term and that had any debt associated with them.”

By the time the market crashed in 2007, Philpot and Harper had sold off all but 13,000 acres of income-producing ag and timberland. The sales generated returns of more than 200% — and more than $300 million in cash.

Lasting impact

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.”

Hitting It Off

Rob Harper and Brian Philpot bring complementary skills to running their businesses. Harper provides the trader’s instincts, and Philpot has the legal and organizational skills. “Rob’s strength is thinking on his feet,” says Philpot. “He sees an issue very quickly and sees where something is going to run into problems and identifies those problems early. I jump in and come up with a solution and structure that works.”

The two first met when Philpot bought a property from Harper. While both turned a profit on the deal, Philpot says he was impressed with how much more money Harper made from it. Harper, who ran a development firm, says he suggested a collaboration after a prospective seller tried to play them against each other. The combination clicked from the beginning. “I needed someone who’s organized — that was sort of the part of my company that was missing,” Harper says.

So far, the biggest challenge to the business came after Philpot began suffering from flu-like symptoms in 2002. Over three years, he lost about 30 pounds and ended up in the hospital, where doctors diagnosed Lyme disease and Brucellosis. “It was a scary and frustrating time,” says Philpot, who had to take antibiotics for 18 months to recover. “I was in my mid-30s and in great shape, and it was all taken from me. It helped prioritize what’s important.”

Building a Partnership

David Rancourt, co-founder of the lobbying firm Southern Strategy Group, first became involved with Land South seven years ago when he led the governmental affairs strategy to sell a large tract of land owned by Land South to the Florida Forever conservation program. His association with Land South continued when he joined Philpot and Harper in purchasing Cypress Gardens in 2007 for $16.5 million. Based on advice from management consulting companies, Land South initially tried to operate the theme park itself, before realizing it lacked the talent and experience to make money in the amusement business. Land South eventually sold the 150 acres of lakefront theme park land to Merlin Entertainments, which turned it into Legoland Florida. Rancourt, meanwhile, joined Land South’s management team in 2011 and relocated from Tallahassee to Lakeland. He works with financial institutions from which Bankers South occasionally buys loans and also handles investor relations at the firm.