Anchor Loans Navigates House-Flipping Waters

#2: Anchor Loans Inc. Calabasas CEO: Stephen Pollack Growth Rate: 539% If you’re looking to re-sell a residential property and you need a bridge loan to renovate the house, who are you going to call? Most likely, Anchor Loans Inc. in Calabasas. The non-bank lender specializes in loans to house flippers, a business model that landed it at No. 2 on the Business Journal’s Fastest Growing Private Companies list. The company, which bills itself as the nation’s leading private direct lender to fix-and-flip investors, grew revenue from $19.2 million in 2015 to $122.6 million last year, representing a 539 percent spurt in three years. The company lends more than $1 billion a year, and more than $6 billion since opening shop in 1998. Stephen Pollack, the company’s president, ran a successful optometry practice in Stockton prior to co-founding his Calabasas-based company in 1998 with fellow entrepreneurs Jeffrey Lipton and Daniel Harrington. Under the trio, Anchor Loans rapidly expanded from a home-based startup into a leading private mortgage lender operating in 46 states. The company has pioneered technologies to streamline the loan application, approval, funding and servicing processes. More than 85 percent of Anchor’s customers are repeat borrowers, according to the company’s website. And the system seems to work, yielding infinitesimal foreclosure rate on loans of 0.21 percent on 14,000-plus transactions funded since 2010. “Our borrowers are always successful if they can realize the profit,” said Pollack, who works with the client so that they can return the loan, minus their expenses, and still wind up well in the black. Downturns One of the challenges in funding house-flipping is navigating the boom-and-bust cycles of the real estate market. Pollock said he anticipated a market downturn in 2006; it hit full force in 2008. “We had scaled up to where, in 2005, that was a highwater mark for our company,” Pollack recalled. “The most in terms of revenue, origination. Business was good. By year’s end, we were all concerned about the real estate market. … “We tracked a number of indicators but the one that gave us extreme pause — three straight years of 15 percent appreciation in the real estate market year after year. That had never happened before.” His reaction to the subprime crisis was to have Anchor scale back lending, returning a significant amount of capital to its investors. After managing to break even during the 2008-2009 crisis, Pollack saw business bounce back. “The opportunity for our type of lending is significant,” he said, “There’s a base for this in good times and bad times. In a 2010-type of environment, there is a tremendous amount of properties you can acquire and with relatively minor work, you can turn it around. In a mature market, (flipping projects) takes you a little bit longer; they might be more profitable, but they’re not as straightforward.” Pollack quickly noted that he didn’t anticipate or understand the forces inviting 2008’s subprime crisis. However, he could see a bubble poised to burst. “We could’ve done another 25 percent growth but we actually tightened our underwriting and did 15 percent less business for two years,” he recalled. “We were being conservative.” “After the downturn as we continued to grow, we were working with the less experienced buyer,” Pollack continued. That said, even these less-proven purchasers had track records. “We don’t deal with Fred the plumber who wants to purchase a house and fix it,” he said. “Most of our borrowers are repeat borrowers. (And yet,) every experienced real estate investor will have their (bad) moments. Nobody is always successful; it’s a numbers game.” The house-flipping market stays robust, Pollack said, noting how it’s a $40 billion to $50 billion annual business, even in mature times. “Every year, every house gets one year older,” he observed. “That’s one year less of maintenance. Or people die and leave properties to their heir.” National presence The year 2015 became a game-changer for Pollack’s company, propelling it from a regional to a nationwide lender, and seeing the company’s profits steadily rise ever since. That year, Anchor aligned itself with New York-based private equity firm Wafra Capital Partners, giving the company access to big capital. Revenue increased 49 percent in 2015, and the following year, originations went up 55 percent. From its headquarters at 5230 Las Virgenes Road, Anchor began to expand beyond California, first to neighboring Arizona and Nevada in 2016, then Florida a year and a half later, followed by dozens of states. Currently, Anchor has dealings in every state except four — Vermont, South Dakota, Idaho and Utah — because those states have more intense licensing processes. For this year, the company has enjoyed a year-to-year 20 percent hike and Pollack expects to finish 2018 with growth somewhere around 23 to 25 percent over last year. He noted that, thanks to technology, “we’ve become way more efficient, closing more loans per person.” Since the company’s founding 20 years ago, Harrington has retired while Lipton is active on the company’s board but not in the day-to-day operations of the company, leaving Pollack to run the lender. Anchor has a staff of 110 employees in Calabasas and two satellite offices in Nevada and Arizona, and another 20 people in the field at other locations. Moving forward, Pollack does not appear worried about the next recession, which industry pundits believe could hit with the recent rise of interest rates. “If and when the downturn arrives, we’re prepared to react to it,” Pollack said, likening the market’s current status to the top of a baseball game’s sixth inning. “I don’t see very much of a change between last year or this year. … For now, the market is maturing but it feels stable.”