text: Noble Capital: A Texas-Based Story of Survival - Originate Report
  September 1, 2018by Cathleen Yates - Originate Report Staff
  Since 2002, Noble Capital has provided funding for residential real estate rehab and new construction projects across the state of Texas. The company's investment model offers substantial growth and predictable income to its network of private lenders and fund investors without the high level of volatility inherent in the stock market. All investments are supported by Noble Capital's construction control and loan servicing professionals, mitigating risks associated with other investment models.
  As a young entrepreneur, Jadon Newman learned about the private lending industry during a family dinner. He was intrigued by the intricacies of finance and the success of an uncle in the industry, and so inspired he envisioned his own future in private lending. After learning the ropes from his uncle and various private lending groups in Southern California, he was determined to create his own company. In Austin, few competitors existed on the landscape. Newman thought Texas was ripe for the private lending industry and launched Noble Capital, one of the first companies to offer private lending in the region.
  Since its launch in 2002, the company and the industry have blossomed. Noble Capital is not the only private lender in town anymore, but Newman still sees the company as a pioneer in its business model and lending and investing practices. It is not simply a private lending firm; it markets itself as an alternative investment firm specializing in private lending, retirement strategy and real estate with a $150 million portfolio. Noble Capital has built an extensive network of private lenders and real estate professionals in Texas and is rapidly growing its portfolio backed by the most stable real estate market in the country. With lessons learned from the 2008 financial crisis, Noble Capital aims today to be a leader for others to emulate and learn from — even if those "others" might be competitors — to improve industry standardization and ethics.
  To prove the business model was viable, Newman enlisted friends and family as initial investors, and later found additional investors by advertising in business periodicals and radio. With the first deeds of trust used to secure the loans, investors engaged in the model. That, says Newman, is the beauty of asset-based lending and the primary reason investors placed their trust in the company: Creating a track record and having security with collateral.
  The company quickly increased to 30 employees before the financial crisis of 2008 hit. At its impact, the crisis created a sobering time for Newman and his staff, and presented an obvious fork in the road: folding the company or pressing forward with a revised set of company ideals.
  Newman's choice, after consulting with staff, was to press forward and not give up. Against the advice of attorneys and counselors, the company did not file bankruptcy. "We stayed true to ourselves," says Newman. "One thing I am so proud of is we didn't change our name. We didn't reinvent ourselves. We're still Noble Capital. They say you can't trust a man without a limp; the same is true for a company because they're not battle hardened and tested by fire, but we are. We stood up and faced the test and we're very grateful we were able to get through it. We had a lot of help and a little luck."
  The strategy for survival was to transform the company into something far more nimble, incorporate the ability to respond rapidly to the marketplace and create additional capital resources.
  First, the company decided to stop providing commercial loans and instead concentrate on one asset class: residential investment property. Second, the company completely eliminated its debt. And third, the company dialed in its REO strategy.
  "We are 100% unleveraged today which is going to come across as very surprising to readers of this article," says Newman. "We built our $150 million portfolio unleveraged. That's one of the remarkable things we've been able to do.
  "REO strategy is really an ugly part of the business. It's one thing to be a desk jockey and shuffle papers and write loans from the office; it's another thing to roll up your sleeves and manage broken assets. We had to learn the hard way the best formula to deal with REOs, and that's come through trial and error for sure."
  Newman then brought in three partners: Chris Ragland as chief operating officer, Romney Navarro as chief lending officer, and Grady Collins as chief financial officer. "That's been an amazing ride, because now I've got four of us giving it 100% every day and we have a special partnership," says Newman. "Not all partnerships have the dynamics and the strengths that we bring to the table as the four owners of Noble Capital."
  After the crisis, Noble Capital found itself as one of the few who made it through. "Very few operators today that are private lenders were also private lenders before 2008," explains Chris Ragland, chief operating officer. "Because of that, we have a lot of lessons we bring with us from that time. It was not your normal run of foreclosures but most of the portfolio was in trouble. How do you operate a business when you don't have revenue coming in? A lot of that comes down to your relationship with investors…we relate to the investors, the guys on the ground, the flippers or the new construction or loan originators. We understand their business because we've done it too."
  What started as a deal shop became much more. The last 16 years have been spent perfecting the business model when no existing model fit. "While it's still not perfect, it's far beyond anything we imagined when we started doing 'deals,'" says Romney Navarro, chief lending officer who runs Noble Capital's lending company, Streamline Funding. "It's no longer a deal shop; it's an operating business with systems, people, processes, platforms, you name it. Others can do this, but they need to be disciplined and put a lot of time into it."
  Raising capital from high net worth individuals always has been and will be the core of the company, but it has developed other sophisticated vehicles that skew more toward wealth building for investors and borrowers: the syndicating of loans and loan strategies; a fund on an institutional platform, Fidelity, that is known for generating substantial returns; and a partnership with investors on Wall Street. "We are unique in that we don't have one capital partner," says Ragland. "We're able to have different capital partners that complement each other and help us grow the business in ways that wouldn't be possible otherwise."
  The company's growth over the years sparked the creation of additional internal business units that provide predictable income and greater financial security for its clients: its private lending, retirement, and real estate divisions. This wealth management approach encapsulates not just one ideal but a lifelong plan that includes private lending and real estate as part of an individual's investment and retirement portfolio.
  The growth of the industry has led to significant challenges for Noble Capital and others. Since the market crash, the company is still hamstrung by lack of capital despite the amount of money raised and the size of their portfolio. "We have not been willing to change who we are or our underwriting profile or borrower clientele," says
  Additional challenges are inherent for newcomers who bypass the established ethics and standards and create their own random processes, and the real estate industry suffers. This is where the Noble Capital team sees itself as a guide for newcomers. "The new competition coming into the marketplace that doesn't really understand the business, they structure or price deals wrong, bad things end up happening on those deals or in the marketplace because they don't know; they just don't get it," says Ragland. "What happens to businesses like ours that have been around a while — and we're very predictable in terms of our structure and pricing — but the marketplace gets disrupted by a new entrant who hasn't learned any of these lessons. They end up getting burned. It's a really interesting struggle to find balance in the marketplace and still structure our deals in a way where we know that if things got really bad, we can survive."
  Some of these competitors are fresh graduates of a crash course in private money lending and they expect to get rich quickly. These courses may cost upward of $30,000, but the partners believe they provide far less of an education than experience provides. After one or two failed deals, they exit the market and leave in their wake a negative reputation for the industry. This is where the desire for industry leadership comes in. "We're big on educating; we want people to be successful," says Ragland. "Yes, we're trying to set the table for these guys, so they don't fail. That very fragmented marketplace — the onesie-twosie guys — exit the space after one or two unsuccessful deals. As an industry, we could be gaining so much more market share if we give them the tools and the resources. So, it's not only friendly, but we're literally extending a helping hand so people like us don't have to suffer the consequences of bad deals written by onesie-twosies."
  To further influence ethical practices, Ragland serves as a member of the education committee of the American Association of Private Lenders. The organization's goal is to create ethics-based business practice standards for this burgeoning industry, and AAPL does this by providing continuing education content for the Private Lender Certification program.
  At conferences, the partners often huddle with market competitors to share knowledge and information. "And it's not people from out of our service range," says Ragland, "it's people who work down the street from us. And we joke about it. 'We came all the way to Vegas to have a meeting when we're two miles away.' That's the spirit. One of the unique things to our industry is how much we truly stand to benefit by helping each other."
  The partners are enthusiastic about educating their peers and seeking ways to form alliances to further that ideal. One such alliance is Impact Hub's Affordable Housing Accelerator, in which Noble Capital and other Austin businesses partnered with community innovators to help solve the affordability crisis in Austin for low- and middle-income residents. Issues targeted included zoning laws, permitting processes and supply and demand of real estate. Noble's participation was to provide insight into the real estate and private lending industry to help guide the community in creating resolutions.
  Noble Capital has been a financial sponsor since the accelerator's inception. The company also provides mentoring support for its participants. Additionally, Noble works directly with previous, current, and prospective accelerator members to provide alternative financing options that are aimed directly at providing additional housing inventory in Austin and the surrounding marketplace.
  Affordable housing is important to Noble Capital because its employees, family and friends all live in Austin. The company gives preference to borrowers who are revitalizing housing stock in the high-demand, lower-price range by structuring its deals to take on more risk in the investment.
  Despite the housing shortage and increasing prices, the partners see great things ahead for the company and the Texas market. In March, the company received the issuance of its CUSIP Securities Identification and subsequent listing on Fidelity's alternative investment platform. This development makes the company's investment fund more broadly accessible to financial advisers and their clients nationwide. "If you're a financial adviser, and you're looking for an alternative real estate bucket for your clients, you can put your client in this fund through the Fidelity platform and make money on it," says Newman. "It's an interesting way for us to scale and create more access to our fund."
  For the next few years, Texas is poised to maintain its strong market. It was the last to go into the recession and the first to come out. The state is one of the fastest-growing populations in the United States and has three of the top 10 fastest-growing markets. With a low unemployment level, Texas is creating more jobs than the workforce can fill.
  "The good news in Texas is we have a lot of land, we can build fast, and new construction levels are just now getting to the levels of pre-crisis and keeping up with the population that's coming to Texas," says Ragland. "A lot of people will talk about Texas and Austin in particular as being part of these bubbles, and bubble is a poor word to choose because a bubble is something that bursts. What Texas has created is an expanding economy that is requiring an expanding workforce, and the economy is expanding faster than the workforce, which is creating the increased value in real estate in Texas. How long can it go? No one should be able to predict that.
  "There are so many jobs here, but for people moving here, there's not enough inventory. And that's the driver not only behind the increase in values, but also in our industry. That's what is creating the demand for fix and flips, and infill development where we're creating density where density was not present before."
  Noble Capital intends to grow along with the state. The company aims to grow its $150 million portfolio to $500 million and eventually identify other markets around the country to enter. "As we become more institutionalized and looked at as one of top national players," says Ragland, "we're preparing ourselves to go outside the state of Texas and that's part of our strategy: to figure out how to make that happen in an efficient way where it's going to be a win for the industry as whole.
  Adds Newman, "We are very blessed to be in the heart of Texas; our headquarters are in Central Texas in Austin. So absolutely the four big cities — Austin, San Antonio, Houston, Dallas — all major markets all within a 2-3 hour drive is a very dynamic marketplace. We are grateful to be in that market."
  What lies ahead for Noble Capital is more forging ahead of its own blueprint. With retirement planning, they're creating the next level of thought for investors and proving the alternative model: that private lending is the most forgiving and rewarding investment and should be a staple among retirement plans. With private lending, the company partners believe the open community in which they are inspiring, sharing and empowering each other will result in a stronger industry. And as long as Texas has jobs, the company will focus on filling the housing demand.
  Noble Capital's future looks bright indeed.
  To learn more about Noble Capital and its partnership opportunities, contact Romney Navarro, Chief Lending Officer, at rnavarro@noblecapital.com or 512-249-2800.