Private lender Sequoia sees growing market for non-bank credit

SAN RAFAEL – Marin County private lender Sequoia Mortgage Capital is growing in what it sees as a key market niche – borrowers with real estate equity and good credit, but no documentation of income.

Five-year-old Sequoia specializes in lending to borrowers who can’t get a loan from a traditional bank and charges higher interest rates – 11 percent to 15 percent – in exchange for less documentation. And as the mortgage crisis has led many banks to tighten their standards, Sequoia sees its share of the market expanding.

“A year ago, you could fog a mirror and get a 100 percent loan,” said Jason Freskos, founder and president of Sequoia. “These days, you can have a good FICO score and 30 to 40 percent equity in your property and still not qualify for a conventional loan. There’s a whole segment that cannot borrow conventionally, and we are positioned to fill that void.”

Sequoia is among a number of North Bay private lenders that specialize in real estate.

Previously based in Mill Valley, Sequoia has purchased a new building in San Rafael, where it occupies 2,200 square feet. The company has grown from one to 15 employees and will hire about five more, according to Mr. Freskos.

Sequoia specializes in commercial real estate, but will also lend for residential property. The target borrower is a self-employed investor or business owner who has equity in a property and wants to make improvements or buy another building, Mr. Freskos said.

“They’re generally people who are making investments,” he said.

Sequoia manages its risk by placing its maximum loan-to-value ratio, the percentage of a property’s value that it will finance, at about 65 percent. Its average ratio is about 55 percent, leaving a lot of room for error if the company has to take possession of a property.

“We’re extremely conservative in our underwriting and we require a tremendous amount of protective equity,” Mr. Freskos said.

Sequoia’s model has long been used as an alternative to traditional bank lending, according to Tony Ghisla, chief credit officer for Santa Rosa-based Exchange Bank (OTC: EXSR).

“It’s a market that’s been around for a long time and I’m sure there’s a need for it,” Mr. Ghisla said. “Probably the best need is that a borrower needs a fast close and a fast transaction and doesn’t want to go through a laborious process of digging up all the documentation.”

According to Mr. Ghisla, it takes Exchange Bank least four or five weeks to fund a loan because it has to gather documentation and wait for independent property appraisals. Since private lenders are sparsely regulated and can do their own property appraisals, Sequoia can fund loans within days.

“We get a loan request for $1 million on Wednesday and we fund that loan on Friday,” Mr. Freskos said.

In addition to no-documentation real estate loans, Sequoia also provides reverse mortgages. The company did not disclose the size of its loan portfolio, but it has lent about $50 million in real estate loans during the last two years and about $100 million in reverse mortgages during the last five years, according to Mr. Freskos.

Sequoia funds all of its loans through a private mutual fund, the Sequoia Mortgage Fund, which is made up of about 100 individual investors and has a minimum investment of $5,000.