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In today’s episode, we have Maxwell Wu, the visionary founder of Fulcrum Lending, a direct balance sheet lender specializing in multifamily properties nationwide. Maxwell’s extensive background in real estate investment and operations, particularly across prominent Wall Street firms, sets him apart as a true expert in the field.
Maxwell’s journey in the real estate industry is marked by his diverse roles, including fund manager, investment banker, and principal investor at various esteemed firms in New York City. His career began at C-III Capital Partners, and he further solidified his expertise by obtaining a Masters in Real Estate from Columbia University.
During our conversation, Maxwell shared his wealth of knowledge, having managed institutional private equity funds exceeding $1.4 billion in Assets Under Management. His impressive track record includes underwriting real estate acquisitions totaling over $10 billion. Drawing from this wealth of experience, Maxwell has successfully built scalable PropTech platforms and products across various real estate verticals.
Whether you’re a seasoned real estate professional or an aspiring investor, Maxwell’s journey and expertise are sure to provide inspiration and actionable advice to help you navigate the intricate world of wealth creation through real estate.
Tune in to this episode to gain valuable insights into Maxwell’s experiences, strategies, and the innovative solutions he has implemented throughout his impressive career.
In This Episode
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Maxwell’s extensive background in real estate investment and operations
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His current market perspectives and in-depth analysis of the current real estate cycle
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How institutional capital plays a crucial role in managing large-scale investment funds
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Advice and strategies for navigating the complex world of real estate, catering to both seasoned professionals and aspiring investors
Hi, everyone. Welcome to today’s show on Wealth Strategy Secrets. We’re joined by Maxwell Wu. Maxwell is the founder and mind behind Fulcrum Lending, a top lender for multifamily properties nationwide. His career began at C-III Capital Partners, and he later earned a Master’s in Real Estate from Columbia University. He has extensive experience in real estate investment and operations, and Maxwell has overseen over $10 billion in real estate acquisitions.
He even manages institutional private equity funds worth over one and a half billion. Maxwell has developed cutting-edge PropTech platforms and products for various sectors in the real estate industry. Before founding Fulcrum Lending, he held significant positions at reputable firms in New York City; including fund manager, investment banker, and principal investor.
We thought it would be great to have Maxwell on the show today to talk about the latest in the lending environment, what he is seeing, and some of the innovations taking place in the space. Welcome to the show, Maxwell.
The key to building any business is fostering friendly growth and creating an environment where success can thrive.
Thank you for having me, Dave. Glad to be on.
This is going to be a great conversation. I know this is top of mind right now, but as we’re at the beginning of 2024, we saw significant rate hikes – the unprecedented rate hikes by the Federal Reserve System last year. Lots of talk already about making significant drops this year. I know you don’t have a crystal ball, but you’re closer to the lending industry.
I’m also curious about innovation. When we’re looking at deals and we’re vetting deals, investors need to understand how important lending is on the capital stack, and how should they evaluate deals based on that. Because sometimes, those terms aren’t necessarily as advantageous.
And we’re running into some significant headwinds for people in the industry, who did their underwriting a couple of years ago. Before we unpack that, why don’t you tell the audience about your background in getting into real estate investment banking and what led you here?
There’s a lot to unpack between interest rates and the current environment. I started in real estate in distressed private equity and focused on buying distressed assets – distressed from control, going through either no purchases or REO (Real Estate Owned).
From there, I went into investment banking and venture capital and ultimately found true love within estate and real estate operating companies. From early on, I was fortunate enough to see the various forms of structural leverage, aside from capital being used as leverage; what I mean by that, is seeing the power of what investment management firms and lending businesses can create as they’re the primary conduit for capital entering the market. So if you’re at the gates there, there’s a lot of interesting things you can do as a business and a lot of leverage – operational leverage, and structural leverage.
That’s when I became intrigued with operating companies within real estate and my background within just investing in real estate and also understanding the debt component – investing in credit instruments. It gave me a unique perspective on building a business around a solid environment, and that environment has strong real estate fundamentals.
The key to building any business is it’s got to be friendly growth, and fostering an environment to be successful there. But if you’re going to send something to the moon, you have to make sure that the launch pad is solid enough – to use that type of analogy. I’ve been fortunate enough with the economic climate, the backdrop there, and being able to provide a lot of opportunities within London.
It’s a story that when you look backward makes a lot more sense than when you were going forward. We’re excited about the opportunity ahead and what we’ve built thus far with my co-founder and CTO (Chief Technology Officer).
That’s cool. Why don’t we pull up to a 30,000-foot view, and talk about debt at that macro level? We’re always trying to help our investors become smarter and more sophisticated. We’ve had syndicators and PE Firms (Private Equity Firms) in here that have said they don’t take on any debt, literally zero LTV (Loan-to-value ratio), and they think that’s the secret solution to other people who’ve levered up to 85% to 90%. Some of those may be too aggressive. Is there a sweet spot in terms of the actual right LTV, or the right mix of debt, or when is it appropriate for an opportunity?
Choosing the right lender is about more than just finding a product; it’s about selecting someone who truly understands your needs.
You have to be smart about the leverage you take on. It’s an obligation that’s senior to the cash flows you’re receiving from the property. And you’ve got to pay these lenders back – back on those dollars used. As you mentioned, it takes up a lion’s share of the capital’s debt so you have to make sure you’re choosing them.
Choosing the right lender involves more than just finding a product; it’s about selecting someone who understands your needs. It’s oftentimes being prudent and eyes wide open – managing your leverage. Taking the approach of evaluating upside, base case, and downside scenarios requires you to assign probabilities to each outcome as you look ahead.
You have to understand that things don’t always go right. If it does go wrong, what do you do if you’re prepared for what things go bad? Then it’s not bad when it happens, and part of that foresight is not taking on tremendous amounts of leverage.
That being said, there are certain investment strategies for real estate where it makes sense for bridge debt. But if you’re able to take on higher leverage loans that don’t have such a short fuse. Because it’s the time that kills some of these investors or these investments because of these bull and maturities – let’s call it a ‘two-year bridge loan’ – high leverage 80%, you’ve got 24 months to execute your business plan.
Sometimes there are headwinds, and sometimes there’s some drag in the predictions or the assumptions you have in your business plan. Sensitizing for that, saying, “If this happens, will I be in a good position?” It all comes back to managing that initial leverage you put on.
That’s a great point. It’s that time horizon. When you look at some of the best Family Offices and how they invest, they’re always looking at least a five-year cycle with an investment that you can manage through any given cycle, so you don’t have to be a seller in today’s market while we’re having some pressure on cap rates. But you have that longer-run rate, then you can sell in two years when rates start to come back down – that’s great flexibility.
You bring up a great point in terms of cycles – that’s one of the first things you learn in real estate or one should understand in real estate. It’s a cyclical business and understanding where you are on the cycle; is sometimes just as important as finding the right investment. Going back to building a business and a hospitable environment, similarly, you want to make investments in a supportive environment for that. Having an eye on where we are from where we work is important.
Why don’t we go into that? Where do you think we are in terms of the real estate cycle in the debt markets as we enter 2024?
We’re certainly not in the early innings and we’re certainly not in the middle. We are squarely towards the end of the cycle. It’s a matter of when the music stops. That’s a fairly draconian way of putting it. To be clear, I don’t think it’s going to be as draconian as I may make it sound. But, as you are in the later part of the cycle, you have to understand what happens on the value reset, going in eyes wide open, taking this scenario and approach – upside, base case, downside.
If things were to reset, where are you? The thing is, there’s been a bull run for eleven-plus years. We look at cycles – seven to ten-year cycles. We’re at the edge of what a typical cycle would be – there are some more heuristic assumptions. Also taking a look at historical data, and the cycles there allows me to make that assumption. But how you navigate, how you invest, and how you put money out in these cycles is a shift from equity exposure to debt or credit.
You want to invest in a supportive environment while keeping an eye on where you are and where you work.
Take a more fixed-income approach because you’re at the later parts of the cycle. You’re going to be on this downward slope, then there’s going to be a slow recovery portion, then it’s going to go back up on this portion – what are you supposed to do? Right on when you’re heading down on the cycle, down to the through point that you can’t sit on, you want to be able to put money out and make a return credit – is a great place for that.
There’s a current cash on the deal right now debt risk. That’s a unique place to be in the economy. We haven’t seen rates this high since the 80s – the 70s don’t match it. It surpassed where we are today, but that’s a good reminder of where we are relative. What we do as investors, it’s all relative value. You have to be able to understand relativity.
Zooming out, zooming in, understanding where you are, allows you to understand that context and position yourself appropriately. I’m not saying I can call the top or I can call the bottom, but when you can identify shapes appropriately, make directional choices, and know that those directional calls have some links to them or some duration on them, then build a solid investment strategy to withstand those periods of uncertainty.
That’s a great point because as investors, by recognizing that cycle, you also have to map that to your Investor DNA, your risk tolerance, and where you are on your cycle. You might be 62 years old, or you might be 38 years old, and you have a different viewpoint on those cycles – how you’re going to allocate capital, what’s most important for you to structure that. How about from a lending environment right now, have the requirements become a lot stricter? Will the standards loosen if they start reducing rates?
When we think about tightening and loosening credit standards, that’s a mechanism to win more business volume for banks in particular. You’ve probably heard this term, ‘cuff lite’ or covenant light – terms of loan documents. The covenants there require borrowers to maintain the property in a certain way to have certain structural aspects that manage cash, or certain qualifications for the borrower as a sponsor. You’ll see these tighten and loosen in up and down markets – typically in the up markets. There’s going to be a loosening because there’s competition for loans.
To answer your question, covenant or lending standards are tightening a lot of cash out and a lot harder to get a lot of lenders. A lot of credit investors want to see that there’s still skin in the game that sponsors have not cashed out and that they’re playing with house money. They want investors who are going to be with them side by side.
It comes down to simply just alignment of interest, knowing that their dollars are going to be the first thing to be gone – the downside scenario. Then the lender position – first mortgage, first lane, it’s going to be protected. That’s the whole point of lending and credit investing. It’s always principal preservation and then making sure you’re getting a fair risk-adjusting return.
That’s it in that order. That also goes towards an investor- sometimes some people are a bit more risk, and some people are risk off. Banks, in particular, protect your money – they hold your cash, they hold your life savings, your kids’ college funds, and they can’t lose that. So they’re doing the right thing by tightening the standards and making sure that they’re protecting your cash.
What do you think about asset classes specifically within Commercial Real Estate? Is there anything that you’re bullish on right now? Industrial, multifamily, Build-to-Rent – any areas in particular you like?
When you can appropriately identify shapes, make directional choices, and understand that those decisions are linked to time, you can build a solid investment strategy that withstands periods of uncertainty.
I’m biased. We only lend on multifamily and that’s for a variety of reasons. But in terms of what we’re focused on, we like the multifamily asset class because of the deep amount of liquidity in the market. What do we mean by that? There’s a large amount of government support through the likes of Freddie Mac, Fannie Mae, and Multifamily; In addition to the federal – FHLB (Federal Home Loan Bank), which provides liquidity to banks for mortgages that they hold on their balance sheets.
There’s a lot of recognized value in the asset class that provides you liquidity in the case that you need it, in case you need to sell the loan, in the case that you have to take any impairments. You’re seeing it right now with how things are unfolding. The Multifamily book as a part of the larger CRE (Corporate Real Estate) book has certainly held up its marks.
All the other assets of office retail hospitality are trading at huge discounts and that’s a reflection of the economic environment. That’s one element of why we like multifamily – not only from a credit perspective but also from an equity perspective that there’s always going to be liquidity in that space.
Second is, if you’re taking a look at the hierarchy of spending for the individual and you look at a consumer’s wallet, multifamily housing, often referred to as shelter, is a basic necessity, yet it’s frequently overlooked, even though it typically takes up at least 30% of a household’s budget. I don’t know any other portion of spending that takes up that much.
The other side is that, to change your living situation, there’s an incredible amount of friction related to it. You’ve got to get a mover, pack up the house, find a new place, find a new school for your kids, find a new job. There are a lot fewer vacations, maybe eating out less, and all that goes to impacting industrial performance, retail performance, hospitality, and office. All these things are interconnected.
If we’re taking a scrutinous look at where we want to invest, this seems like a safe area to be. Speaking for ourselves and not providing advice for others, it’s something that we have understood well and through our time. A lot of data has come up with a compelling thesis for multifamily credit investing.
That’s what we do. We do that all day, we don’t do any other asset class. I know that there are other more opportunistic spots in CRE. Office is the thing that everyone’s been reading in the headlines and do I think there’s been a severe sell-off? Absolutely. And do I think that there are going to be some diamonds in the rough there? Absolutely. But that’s what happens when there’s a big scare like that – you have this contagion effect. That’s where you find some nuggets. That’s a niche play, a niche investment avenue to be going.
What we like is scale, we like stability, and we think that we can do it a little better than the next person. That’s what gives us our advantage, a lot of data technology that we use, and financial products. We’re using a different way of – I’ll back up and say, depending on what you want to do – which is to find niche opportunistic deals or find a lot of down-the-fairway safe deals.
You have to ask yourself what your personality type is. For myself, it’s always been going back to principle preservation first and a fair risk-adjusted return for me. It’s a personal preference. Given my personal preference for the latter – safe investments, and steady investments – that’s also why I think multifamily makes sense.
We would concur with that conclusion. What you did is highlighted. The macro fundamentals are important to look at as an investor. The fact from a supply-demand perspective, some markets, especially Southeast and Southwest, continue to have a huge influx. They don’t have enough products in place in many of these markets.
If you can position yourself that way as you said, it’s housing – which is a basic need in Maslow’s hierarchy. People need a place to live and we can all relate to that. The friction component of having to move even if times get tough, is probably the last thing you might cut down on. That goes for a B and C class – all of those different classes as well.
If you want to build wealth, concentrate; if you want to preserve wealth, diversify.
To me, I see a lot of that as risk mitigation. The more stable the acid is, the more things you have in your favor that are going to mitigate the risk. You can then manage through cycles, you can manage through different things that are going to come your way.
Absolutely.
What do you think about institutional money? It’s been interesting because Multifamily, especially the past – I would say five to ten years ago, I’ve been investing in multifamily for almost twenty years now. But in the past five or ten, there have been big surgeons and deal flow operators, and people are getting interested in the asset class.
It’s also interesting to look at how institutional capital moves between Real estate investment trusts (REITs) and pension funds. Are they getting more of that capital being shifted into the multifamily market? And are you seeing a trend that’s on the rise?
Institutional interest in multifamily has always been there. But recently, it’s starting to show that this is where they should have allocated more dollars. Smaller balance multifamily properties, typically those with fewer than a hundred units, are considered the less institutional part of the multifamily sector. Everything from five units to one hundred, right institutions aren’t touching that and that’s for a variety of reasons – including scale and operational difficulty. But for us, we help de-risk these smaller deals for institutions.
Going back to the amount of data – the amount of diligence we’re able to put through, and also in terms of understanding the de-risking the deal and finding these bright operators, strong operators, that often can be hard to find in this space.
In terms of institutions lending to those people, we’re bringing more capital into that space which should bring the cost of funding down and provide more liquidity to what we believe is an underserved market. In terms of equity, they’ve been invested in multifamily because of its steady returns.
Oftentimes, these institutional investors are managing pension money, insurance money, and endowment money. Going back to banks, safeguarding your life savings or your college savings, they must do the same thing for their constituents. They’re finding the most core investments, the most protected investments that can pay out a fair return for having them so that they can balance out the liabilities that they have come to.
How would you articulate the difference between an operator that has 300 million in assets under management versus an institutional player? How are you looking at those operators differently?
There’s a variety of differences there in terms of the asset classes that they’re going after, the asset characteristics that they’re going after – typically smaller unit counts, sub-hundred unit counts, typically as the $300 million group may have asset manager or someone heading acquisitions, someone on legal – if not the third party, the other in-house property management, or they contract third party.
Focus is key and paramount. It’s difficult to concentrate on multiple things while trying to find something you love, excel at, and that can be profitable. In uncertain times, it’s essential to evaluate your options with the expectation of headwinds and challenges, even if no one wants to confront problems.
A skeleton crew is periodically built out for the ones that have that institutional background and want to grow from three hundred million to a billion or three billion. They have to set up that base as I mentioned, so that they grow quickly and safely for the institutions. They have large teams of risk managers, asset managers, and acquisition teams, and a lot of access to data and deal flow.
That’s not to say that the $300 million AUM (Assets Under Management) Firm can’t get access to the same data or deal flow. There is that disconnect. As an institution coming in and lending to one versus the other, that’s the circumstances there that they’re evaluating. They also want to see that the institution has had experience going through cycles and understands how to navigate these headwinds, especially the ones that we’ve encountered over the past few years.
It goes to speak towards their ability, let’s call it their ‘acumen’ – investment acumen, operational excellence to deal with uncertainty because you don’t know what you don’t know. But that’s all apart from picking a horse, making sure that they can run through any storm that comes their way.
Whether those, let’s call it ‘heuristic assumptions’, make sense or not, that’s how they’re evaluated. We use those same evaluations – metrics or standards, but we’re also relying on a lot of macro data and market data to show these sponsors are investing in a supportive environment. Where there are positive tailwinds such as net population migration, strong AMI (Area Median Income) growth, a good balance in housing supply, and housing stock that’s being built.
There’s a variety of factors there that go into more quantitative qualifications of the market and also the property. It’s not just the sponsor, it’s much about looking at all three holistically and then making a credit decision there.
Good insights there. We are looking for asymmetric-type opportunities, or we can have the least amount of risk, but the highest amount of upside. While there are higher standards on the institutional side that do come with a price, there’s a lot of overhead in that institutional capital, which dilutes investor’s capital. Whether you’re trying to go risk-off and that makes sense for you, you are paying a premium for that.
We’ve certainly seen institutions as well have challenges, they’re not immune to challenges just because they have those additional resources. What we’ve seen is trying to find that sweet spot of operators that are unicorns and have some strategic differentiator in a particular market that their model is buttoned up. It’s a kind of rinse and repeat.
They know it well. It’s almost like angel investing in a way. You understand what they’re doing and they’re doing a great job. Interesting thoughts. Maxwell, if you could give one piece of advice to our audience about how they could accelerate their wealth trajectory, what would it be?
To gain that runway, you must plan and anticipate, and that requires focus.
Focus is key. Focus is paramount; it’s hard to focus on multiple things and find something that you love and that you’re good at, that is something that can be profitable. That’s the key because going back to expecting the unknown, expecting headwinds, expecting problems, no one wants to deal with problems or have bad things happen, but it’s going back to how you evaluate these sponsors in uncertain times.
You have to make sure that you’re budgeting for that or thinking about it, taking some precautions there. But you can only scenario out all of them and take a look at the broad spectrum if you’re fully focused on one thing. Yes, that’s a concentrated bet but at the same time, if you’re thinking about building versus preserving wealth, those are two different approaches. If you want to build wealth, you must concentrate. To preserve wealth, you diversify.
You mentioned someone 38 years old versus 65 years old are different. You want to at a hopefully earlier age, and I don’t think there’s a limit to that. But you do want to start as soon as possible, focusing on building something of value that you love and doing it consistently because I truly think with focus, success is a function of time.
You have to be able to give yourself that time. Being able to get that runway, you get that runway because you plan because you anticipate, and that all takes focus. That means I don’t have a particular trade, industry, or investment, but that’s what I would say is the shape of successful wealth building.
I love it. That’s some good pearls of wisdom there for people to think about. Time is your greatest asset. If you’ve got time and focus; if you don’t have capital, you’re not doing value creation, you can be focusing your efforts, learning, your education, your network, your relationship to capital, these other components. If people would like to reach out and connect with you to learn more about what you’re doing at Fulcrum Lending or look for lending opportunities, what’s the best place?
You can reach us at fulcrumlendingcorp.com. We have a suite of tools there that people can use to help find markets and evaluate properties. We can provide quotes within thirty seconds there. It’s much of a self-serve model, but we also have a white glove service where our originators will guide you every step of the way.
Understanding how much money you can secure and its costs is crucial when placing a bid or evaluating what to refinance in your portfolio.
It’s good to provide people with two options. Some people like to do it themselves – we don’t want to stand in the way of progress – or someone else getting a deal done. Because like you said, debt is a lion’s share of the cap stack. Knowing how much money you can get and how much it costs is important if you’re going to put a bid in or evaluate what in your portfolio you want to refinance.
These are in the most simple sense. Time is valuable there. Being able to get someone a speedy indication is key. But beyond that, you can reach us directly through the website and we can connect you directly with an originator to speak more about what we do and what we provide.
Awesome. Thank you for your time today, Maxwell. I appreciate it.
Thank you, Dave. Thanks for having me on.
If you’ve been enjoying the show and you found value in the show, please go ahead and follow us, give us a rating and review so we can continue to get great guests like Maxwell on the show and continue to spread the education. I appreciate it, until next week.
Important Links
Connect with Maxwell Wu
Connect with Pantheon Investments
Further Resources
Your 10-Step Actionable Checklist From This Episode
✅ Focus on choosing a lender who understands your investment needs beyond the product itself. Lender selection is critical for the success of a deal.
✅ Aim for investments with a five-year or longer cycle to navigate downturns effectively, especially in multifamily or commercial real estate.
✅ Lenders want sponsors to have significant skin in the game. Ensure that you, as a sponsor, are well-aligned with your lender’s interests.
✅ Focus on resilient asset classes like multifamily, which have liquidity and government backing, providing security during downturns.
✅ Prioritize investing in markets with ample liquidity, like multifamily housing, to minimize risk and access quick funding if needed.
✅ Evaluate macroeconomic indicators, such as population growth and housing supply, to identify favorable markets.
✅ Focus on investments that provide stable returns and mitigate risks, especially during market fluctuations.
✅ Look for operators with a proven track record and strong management teams, particularly in smaller multifamily deals (less than one hundred units).
✅ Prepare for unexpected challenges by creating a contingency plan and budgeting for potential issues.
✅ Invest time in building relationships, enhancing your education, and connecting with capital sources such as Fulcrum Lending to improve your investment opportunities.
About Maxwell Wu
Maxwell is the founder of Fulcrum Lending, a direct balance sheet lender for multifamily properties nationwide. With extensive experience in real estate investment and operations on Wall Street, he has managed over $1.4B in institutional private equity funds and underwritten over $10B in real estate acquisitions. In 2019, he served as Chief Underwriter at Greystone, leading the spinout of TapCap, a mortgage technology platform for multifamily loans, which was later sold to Walker & Dunlop. He has also held roles as a fund manager, investment banker, and principal investor in New York City, and he holds a Master’s in Real Estate from Columbia University.