#9 How to lead community and economic development with Jorge Newbery

 
Hannah Gay Blog #9

This is the second of my series of Impact Boss™ Profile interviews. My aim is to show various case studies of how passionate individuals all  over the place have found opportunity to integrate social impact into both their personal and professional lives.

Introducing Jorge Newbery

Jorge and I first crossed paths when I discovered his impact investing hedge fund, which helps homeowners who can’t afford their mortgages with real solutions.

What I didn’t know upon first meeting Jorge was his journey to AHP Fund – one that included being $26 million in debt himself – yes, $26 million. He shares his story from his earliest days of leaving high school at sixteen, making it to the Olympic trials, his coining of the term “burn zones,” to and through his various ups and downs in real estate, his leadership in the Occupy movement, and news of his exciting new venture that provides legal services for anybody struggling with unaffordable debt of any kind. Talk about having been there done that . . .

Jorge Newbery

Jorge Newbery

 

Hannah: In the most basic terms, tell me what AHP Fund does.

Jorge: AHP started as a nonprofit organization with a mission of keeping families at risk of foreclosure in their homes. We have evolved into a for-profit investment fund, but we still have the same mission now with the addition of generating attractive financial returns as well.

We purchase pools of defaulting mortgages sold by big lenders (banks and hedge funds) and buy these at big discounts primarily in low to moderate income neighborhoods in every state outside of Wyoming – but we’ll eventually buy there as well. We even have loans in Alaska, Hawaii, and Puerto Rico. Once we buy a family’s defaulting mortgage, we reach out to the family and offer them three options.

 

Ok. What are these three options?

If they want to stay, we’ll offer them a modification, where we take some savings from the discount we received when we bought the loan and share it with the families so they get reduced payments. We typically forgive a great deal of their delinquency, provide a reduced principal – whatever it is that makes sense for them to stay in the home, if that’s what they want.

We also offer them a lump sum settlement that is typically at a big discount off what they owe.

The final alternative is for when homes are vacant or families don’t want to stay. We simply pay them a cash incentive to sign a deed-in-lieu-of-foreclosure and get the property. These properties are typically vacant and contributing to blight, so we in turn sell that home so a family moves in and helps resettle the neighborhood.

 

Awesome – you explained that super well. Let’s shift a bit to your personal story. I know you have a lot of other twists and turns along the way, some of which were super low points.  Tell me your personal journey to where you are now and how you turned some of those low points into an opportunity – an opportunity to help not only yourself but the communities you now impact as well.

Sure. So I’m a high school dropout – not in a bad way, but I was eager to get going in the real world, so my parents allowed me to leave high school when I was sixteen. I started a record company out of my parents garage in California while getting my GED. I explored some different ventures; I was a bike racer and made it to the Olympic trials in 1988, but after racing bikes for about six years I eventually settled into real estate after realizing I needed to get a real job. One of my teammate’s girlfriends was a mortgage loan officer and she helped me get a job at her company, and that’s where it all started.

 

Ok, so you made the jump from bike racing to mortgage lending. How did that evolve into real estate?

I was twenty five, and had all the focus and determination and capacity for hard work that comes with bike racing; I applied that to my job originating loans. I rapidly rose through the ranks. In six months I was the top producer in my department eventually out producing my manager, got promoted a few times, and eventually said “hey, I could probably do this myself” so I split off with one of the other loan officers and started a mortgage company.

Eventually I transitioned to buying real estate. I always had that bike racer mentality: Overcome all obstacles, if things get tough keep going. And that translates to life. I get into predicaments as we all do, and I start feeling doubts, feeling I’m not prepared or can’t get through it. All this makes knots in my brain. As a bike racer I learned to find ways to get through these periods, which I termed the burn zones: It’s going to get better; I just need to get to the other side.

So I’d started buying real estate. Pretty soon I owned 500+ units in Southern California. I was always looking for a challenge. Here’s an example of the type of stuff I bought: I bought this property called the Ford Hotel on Skid Row in Los Angeles; it had sold six years earlier for $4 million. But then the guy who had bought it went to jail for slum violations, so he sold it for $2.5 million. That buyer then also went to jail, so he sold it for $2 million to another buyer who also went to jail. Ever the optimist, I bought the property for $850 thousand, cured all the violations, and eventually sold it at a huge profit. It was a mixed blessing; that success emboldened me, and made me believe I could take on any project everyone else had failed at and be the one to turn it around.

 

Get past the burn zone – but in real estate investment.

Exactly.  

 

You were making profit in low income neighborhoods – which is fine, but comes with some icky connotations. How did you approach these transactions empathetically?

I embarked on this mission across the country. I started buying the most challenging properties; in areas with high vacancies and high crime rates. One of the reasons I was really good at it was because I am really cheap. I didn’t want to rent an apartment or stay at a hotel, so I’d actually stay at my properties as I was renovating them. My goal was to truly make them nice places to stay for the tenants, so I wanted to feel what it was like to live there. I was in there. If the tenants didn’t have hot water, I didn’t have hot water.

 

I’m assuming that wasn’t a common practice.

No, no it wasn’t.

 

So what happened next? How did all this success eventually land you $26 million in debt . . .

I eventually ended up in Columbus. The property I bought there was nicknamed “Uzi Alley” and had the highest crime rate in the city. It was a low income apartment complex that backed into one of the highest income neighborhoods in Columbus.

 

Did you move in?

I did move in. It was big news, and it kind of helped change the perception – like, ok, this guy might be a little different. But I was also the guy from out of town, and the city was definitely skeptical of me.

I turned it around, but then this ice storm came through Ohio on Christmas Eve of 2004. It was awful; my property was devastated.

The city had been eyeing this property for some time. There was pressure to take control of it for a lot of political reasons. When the ice storm hit, the city seized on that as an opportunity to displace me as owner. They took the property from me and still own it today.

 

How?

The City did everything they could to ensure I failed. I have been told that city building inspectors were instructed to fail me, no matter what I did. So, we spent millions trying to rebuild after the disaster, but the city kept finding excuses to fail us. Towards the end, they tried to evacuate the buildings because a prior owner had taken an alleged construction shortcut which rendered our buildings “subject to imminent collapse” according to the city. We had to go to court to get Temporary Restraining Orders (TROs) against the city. We had an engineer with calculations demonstrating  that the buildings were safe and the city had nothing but speculation. The court gave us our TROs.

 

And then came the “slumlord” press.

Then came the press. The mayor’s spokesperson advised the press that there was a criminal investigation into me, which wasn’t true. They labeled me a slumlord, schemer, public enemy #1 . . . it didn’t end. I’d gotten accolades in the press earlier for turning the property around, but after the city and press went through their theatrics, I went from hero to zero in the public’s eye.

The harder I worked, the bigger my downfall. I ended up with this enormous debt. Everything that had helped fuel my success turned around and hit me. I experienced shame, embarrassment, feelings of failure, and was searching for how to rebuild myself.

 

This was all at the horizon of the housing crisis and Occupy movement in 2008 . . .

It was. I began to see stories of financial collapse similar to mine – although maybe not quite as huge debt loads – pop up everywhere.

I got the idea for American Homeowner Preservation in 2007. I’d figured out a way to resolve distressed mortgages at big discounts, and this was the the beginning of the AHP nonprofit in 2008. We eventually landed on a for-profit business model in which we bought the mortgages at discounts from banks. The only losers are the lenders –  but they’d be selling these mortgages at a discount anyhow; that risk is a calculated as part of their business.

During this period, I started writing for this blog called Shame the Banks. In September 2011, I wrote about Occupy Wall Street and ended the post with a call to action for my readers to start Occupy movements in their home cities; at the time there was Occupy Wall Street and about 4-5 others. As I was putting away the dishes that night I realized there was no Occupy Cincinnati, where I was living at the time.

So I started an Occupy Cincinnati Facebook page. At first, there were a couple hundred likes. After a week, we had two thousand likes and our first meeting with over a hundred attendees. A week later, we had ten thousand likes and a march with over a thousand attendees that was covered by major media outlets. The movement just exploded in size.

Occupy inspired me. There was no real leader and nobody was looking for recognition or pay; everyone just showed up and asked “what can I do to help?”

 

How did you keep the mission of impact in AHP as it grew?

Well, when it comes to our business model, impact is infused in there. We started in May 2008 in Cincinnati with me and two others; we now have a twenty person team in Chicago and just hired a new CEO.

With hiring, I refer back to the Occupy days and that energy, because there I saw people who wanted to be part of something and recognized that the system was broken. I have tried as best as I can to infuse AHP’s hiring with people like that – people who want to do public good and make a reasonable living. That said, we need people who get the mortgage business and finance. It’s been a challenging balance.

 

And since the Jobs Act of 2012 you’ve had this crowdfunding model that allows anyone to invest as little as $100. Tell me about that.

Our vision was to build an investment model that the families we helped could participate in. Our funds have typically generated returns of 20% and higher, 12% of which is paid to investors – and yes, investors don’t need to be accredited and can put in as little as $100. We were the sixteenth company utilizing Regulation A+ to raise capital; now there are hundreds.

 

How much have you raised?

We have raised over $25 million (and can legally go up to $50 million right now).

 

Wow. So if I told my mom I was interviewing a hedge fund in the mortgage lending sector she’d think I’d sold my soul. How do you either deal with or help change the perception that finance and banks and lending institutions are or have to be pure evil?

Unfortunately the reputation is oftentimes deserved, so we need to show that we’re different. We started as 501c3 nonprofit – that gives credibility and demonstrates that we’re not just doing this [helping families] as window dressing. So, we keep doing the work we do and continue to provide sustainable solutions to struggling families and attractive returns to investors. We can only prove we are different by our actions.

 

How many families have you helped so far?

We have succeeded in delivering sustainable solutions to thousands of families, eliminating over $100 million in negative equity, and saving families over $5 million on their payments each year.

 

Let’s backup. You just mentioned you hired a new CEO. That’s a really difficult thing for founders to do. Can you walk me through that decision?

As AHP has grown, I realized that the biggest impediment to growth was me. I’m not good at building and inspiring teams;  I’m good at building and inspiring myself.

We needed to find someone who had the qualities I lack. I want AHP in 5 years to be publicly traded, and I’m not the one to get us there; I can map the vision but can’t build an organization of 1000 people.

So we did a big search, found the right woman who came from a publicly traded servicer – what we want to become – and I’m now Chairman. Originally, I envisioned that I would be President and she was going to be CEO. But she made it clear that for her to do what we’ve hired her to do, I could not be involved day to day. So I stepped away and am starting a new venture.

 

I had no idea! What is this new company?

I’m talking to you right now from our now empty former AHP offices; AHP just moved. I have space here to grow this company that provides access to legal services to families facing any type of debt – mortgage, medical, student, credit card, whatever. This started at first as a blog post based on my own experience facing real estate debt and our company’s expertise there, then a book, and now it’s a company called Debt Cleanse Group Legal Services.  

 

Who do you want to hire to fill that office?

When I was involved with Occupy Cincinnati, attorneys would come out and ask “how can I help?” This is also the mindset of the attorneys that are helping with Black Lives Matter or who showed up at the airports during the Muslim Travel Bans. These are the attorneys I want to train so they can help the millions of families across America facing unaffordable debt. We hope to launch this summer (2018).

So exciting. From dropping out of high school and starting a record company to professional bike racing to real estate and falling hard to impact investing and now legal services, you’ve had quite the journey. I’m pumped to see what Debt Cleanse grows into.

I am too.

And that wraps up my conversation with Jorge. To connect with Jorge, you can find him on LinkedIn, Facebook, and Twitter. You can find his books, including Burn Zones (which dives much more into his personal story) and Debt Cleanse – the inspiration for his new venture – on Amazon. Thank you to Jorge! Stay tuned as I continue to dive into more Intention Driven Impact throughout the year.