Welcome to Sterling Vision™

Whether you're an individual investor, real estate developer, adviser or fund manager, you're likely thinking about many of the same issues we are. Join us as we discuss our perspectives on today's investing environment, with an eye toward:
* Achieving true diversification
* Financing community growth
* Restoring retirement savings
* Leveling the investment playing field

There are definitely perks to specializing in one thing and becoming really, really proficient at it. But that can also result in a sort of myopic focus that precludes one from handling things outside the norm. At Sterling Pacific, we elect to handle all parts of the private lending lifecycle, from loan origination, to servicing, brokering deals, and management. We feel strongly that this allows us to better serve both our investors and borrowers in a multitude of ways.


One-Stop Shop

By handling the entire process ourselves, we prevent a lot of the drag that can slow down conventional or even some other private lenders. Rather than a 30-90 day period, we can close a loan in as little as 10 days from the issuance of a commitment letter. For the borrower that needs the money on a shorter timetable, this can be a large boon, and one of the most evident advantages of using a private lender, and Sterling Pacific Financial specifically.


Cash to Cash

We believe strongly that by making the process as simple and straightforward as possible, we are able to maximize returns for our investors. Rather than losing continuity along the way and incurring fees or expenses from other firms for things such as servicing and management, we are able to ensure that money makes it back to investors. We call this the cash to cash cycle, in which cash from investors comes in for their selected deal, and then comes back with their accrued interest and minimal fees. This stands in stark contrast to many of our competitors who source out everything along the way. Using outside servicers can have its benefits, but by maintaining our involvement in every deal, we are given a much higher level of flexibility for a variety of situations, and a better understanding than an outside 3rd party.


Whether you’re a borrower looking for an alternative to conventional lenders, or an investor looking to avoid the growing asset bubble of other investments, we’d be more than happy to hear from you. Head over to sterlpac.com, or follow either of the links below to find more resources for both borrowers and investors.




Last month Sterling Pacific Financial celebrated our 10 year anniversary. It was a great opportunity to reflect on where we’ve been, what we’ve been through, and look towards the future of the firm. Our self-reflection allowed us to consider the services we provide for our clients, and to think about what we can do better moving forward. Something we had discussed and wanted to put into practice was original research; a resource that would prove useful when making decisions, forecasting trends, and help to not only understand markets better but also to help educate investors as to what’s going on in the local market.

When making the real estate deals we do, it’s important to not lose sight of the forest for the trees. The data and research we’ve compiled and will continue to amass help us to better understand the big picture and outside trends that may affect the market beyond this singular deal. This foresight has served Sterling greatly in weathering the previous recession, allowing us to remain strong when several lenders were unable. This ongoing project will continue to grow, giving our investors a direct view of the pulse of the market, on a local, state, and national level, all in order to better understand what’s happening and where things are going.

The Sterling Pacific Financial Research Page

As this project continues we’ll regularly release write-ups giving our take on the data we’re collecting and releasing. This commentary by members of the Sterling staff will serve to give a new perspective on the numbers, and help to make sense of it all. For this post, we will examine The Federal Housing Finance Agency’s House Price Index for California, and explain why the oft-touted bubble isn’t all it’s made out to be.


House Price Index for California Metros

Many of you have undoubtedly heard grumblings of another bubble. As home prices reach pre-recession levels it’s an easy conclusion to make, but one that fails to take into account a number of factors. Below we see the movement in several metro areas throughout the Central Coast and Central Valley, the two main regions in which we lend. While the clutter of having so many MSA (Metropolitan Statistical Areas) makes it a little difficult to follow the course of individual markets, it does provide a very clear view of movement on the whole. The graph starts at the first quarter of 2005, and immediately after we can see the sharp rise of the HPI, with the sudden descent in 2006. Not a single market was spared though some weathered it much better than others. As the data continues, we see a much more steady rise heading into 2015. This has been a key difference between the bubble in 2006-06 and the current rise in prices. A slow and steady rise in prices is normal for a market, and while it cannot rise infinitely, this controlled and steady rise hardly the smoking gun for a new bubble.CA_HPI

Other Factors

Beyond simply looking at the growth of the housing market and rising prices, we can examine a few other factors that help to explain why the housing market is on much better grounds now, but one in particular stands out in its importance. CoreLogic recently reported on the significant difference in performance between legacy and current mortgages. Following the previous bubble, lending requirements tightened significantly. This has resulted in current mortgages performing much better than those issued before the crisis, and the extremely low foreclosure rate is indicative of stronger overall market health.


While some pundits may continue to wail about the real estate market and stoke fears of another bubble, the numbers simply do not back this standpoint. While tighter lending laws have made things tougher on lenders, they’ve also provided a better foundation from which to grow the housing market. And although we are reaching pre-recession levels in many markets, the growth has been at a controlled pace as opposed to the skyrocketing price jumps we saw a decade ago.

The third quarter was interesting to say the least. With the recent market volatility, we’ve received a lot of questions from investors about our own personal feelings towards investing in the stock market. There’s been a lot said about this recent period of unease: from some calling it a market correction, to the often touted adage “It’s only a loss if you sell”. To be fair, it’s advice that’s not too far off the mark.


Historical returns of the S&P 500 since inception has been 7% after adjusting for inflation[1], and some individual stocks have done even better. All this news and data is little comfort for investors counting on regular income from their investments in the short term, or who remain heavily vested in the stock market through their various retirement vehicles. In this post, we want to examine the effect volatility in the market has on individual stocks and indexes, and compare how that fits into our own philosophy.

It’s pretty common that anyone with a retirement account has some level of exposure to the stock market. Whether it be direct through mutual funds or bonds, or indirect exposure as a result of annuity income levels tied to market indices. Some folks even go above that level of exposure and choose to buy shares of companies they believe in or whose products they use. Several members of the Sterling staff hold shares in companies such as GoPro (GPRO), Ford (F), and Disney (DIS). We will examine how these companies performed over the recent months or longer relative to their performance.

INDU 1 Month INDU 1 Year

August 24th saw a 1,000 point drop in the DOW, most major indices from around the world closed down this quarter, and each of the three stocks is trading lower than they were July 1st. The past year has seen a nearly 3,000 point gulf between its highest and lowest traded value, a 16% deviation in value that it hasn’t been fully recovered. There’s a variety of things in play here that have pushed markets downward, but the most succinct explanation is uncertainty. Fear in the Chinese stock market is largely a result of the government’s seemingly random reaction, from heavy intervention to hands off, even currency devaluation. The Greek debt crisis was another chapter in the continuing saga of “Will the EU Stay Together”. Our own Federal Reserve Bank seemed all but set to raise rates in September but after a hectic August had decided it was best not to. All of these things have different underlying causes, but all result in uncertainty. And above all, traders hate uncertainty, and as a result, we have market volatility.




As of writing, it’s October 1st, and trading hasn’t been off to a great start for the stocks we mentioned earlier. Each is trending down for the day, Dis down .27%, Ford down 1.16% from its opening, and GoPro down 4.43%. The three-month average shows even bigger drops for each, despite recent successes. Disney released several successful summer movies, including Inside Out and Avengers: Age of Ultron, as well as revenue growth for both its networks as well as theme parks[2]. Ford had a solid third quarter in U.S. sales based on all estimates, which has been the biggest indicator of success lately[3]. GoPro recently released two new cameras to add to their arsenal, a low and high-end version of their already popular Hero4, allowing them to capture even more of the market[4]. All three are trading down, largely due to the external forces outside their control. Even when they’re producing well-known and popular products, companies are as much a subject of the market as investors. This is why much advice steers investors clear of individual stocks. A price goes deeper than just the products being sold by a company; it relies on the fundamentals as well. How the business is run, confidence in its leadership, moves by competitors, impending regulation all affect valuations.

Those of us here at Sterling are not isolated from the stock market. Some of us hold the above stock, and all of us are participants with our retirement savings. For some, retirement is nearer than others and the volatility in the market is highly concerning. FFF, LLC

We strive to ensure our trust deed investments always retain solid foundations, with the philosophy that slow and steady wins the race. The Foundation Fund, LLC, our mortgage pool for California residents, has seen a 9.13% return on investment since inception in 2007. The chart above demonstrates a largely consistent monthly return per share over the entire life of the fund. A single $10,000 share would have more than doubled in value with reinvested dividends. By focusing on sound fundamentals, and lending locally, we’ve been able to provide steady returns over the lifetime of our mortgage pools, while minimizing large fluctuations over time. For the investor looking to shield themselves from uncertainty, this can be an excellent alternative to more volatile markets.



[1] (Investopedia, 2015)

[2] (Munarriz, 2015)

[3] (Rosevear, 2015)

[4] (Sparks, 2015)

The economy has hit full blown recovery mode. Economic indicators are up almost across the boards, and look to be continuing that way for the foreseeable future. The Federal Reserve is gearing up to end its assistance and raise rates as more and more positive news comes forth. So why isn’t this being felt by the average consumer? As most of you reading this know, a large portion of that has to do with stagnant wage growth. Employment numbers are up, but wages haven’t been able to make any real sustainable growth. But there’s another major factor that isn’t discussed with the same regularity as wage growth, and that’s home price.

Effective Equity
Similar to the larger economy, most real estate indicators have been generally positive. And a glance at the numbers paints a fairly rosy picture. Home prices are up, the sales of distressed assets are down, and construction has gradually been picking up. So why does it not feel that much improved to the average person? The percentage of homes with negative equity rests a hair below 17 percent nationally. Which is fantastic compared to the height of the recession when it was closer to 31 percent. But as it is with most statistics, these numbers hide certain realities. Enter effective negative equity. Selling and buying a new home is a costly affair, and as a result, even having some positive equity may not be enough to cover the costs. In cases where homeowners have less than 20 percent equity in their homes, they generally cannot afford to “move up” and act as a driving force on the economy. When you count these homeowners with minimal positive equity, the rate of effective negative equity stands at 35 percent, even higher than the 31 percent earlier. And therein lays the crux of the problem for this recovery in the eyes of the average American. Things are getting better on paper, but not by enough for the average consumer. A rising GDP, increased retail sales, a record setting stock market: all of these are indicative of a resurgent economy, but these hardly affect the daily lives of most of America.

The Local Picture
Despite being one of the strongest housing markets in the country, the Bay Area and Central Coast are not immune to these forces. The number of “underwater” homeowners is below the national average, with Santa Cruz County at 8 percent, Santa Clara County at 4 percent and Monterey County at 16 percent. Yet those numbers jump dramatically when factoring the effective negative equity. Santa Cruz County more than doubles to 19 percent, Santa Clara County nearly triples to 11 percent, and Monterey County reaches 28 percent.
Despite the bleak picture, it’s not all bad news. Prices have continued to climb, albeit at a slower rate than they had been earlier in the recovery. Analysts are forecasting the negative equity rate to keep falling and hit 15.2 percent by the end of Q3 2015. Local numbers have remained strong and are consistently better than the national average, which is promising moving forward. According to Zillow, Santa Cruz County grew at 7.8 percent this previous year, and has been forecast to grow by 5.4 percent. This is in contrast to the national average of 6.6 and 2.9 percent respectively, putting property values in the region well above average.

With recent numbers coming out on the housing market, more and more research is showing that millennials haven’t been entering the home buying market place at the same levels they did prior to the housing bubble. There’s a whole host of different factors that contribute to this, and we’re going to take a look at how the delayed purchases as well as the barriers to entry for first-time home buyers affect investors.


Why Millennials Matter

So why does it matter if the younger generation aren’t entering the market? As long as houses are being purchased that’s good right? Well, not quite. Young buyers are generally the dominant demographic for first-time home buyers, and often are a driving force to keep things afloat such as the national home ownership rate. Young buyers also put pressure on the new construction  market when they enter, simply by increasing the demand. The average age of a first-time homebuyer leading up to the bubble burst was around 26, yet now lies closer to 30. While a seemingly small bump, the scenario is playing out nation wide, with especially profound examples in states that have the most rapidly increasing home values. So why is all this happening?


Barriers to Entry for First-Timers

There’s a lot going on currently that keeps this generation of young home buyers out of the market. Faltering confidence is often cited as a cause for concern, but consumer confidence has been steadily increasing, and becoming less and less of an issue. Yet the larger economic climate that produced this lowered confidence is still exerting its impact. Allow us to focus on recent graduates, since historically, this is generally the demographic most likely to purchase homes in their mid-20’s. Unemployment and underemployment rates are generally far higher for recent grads than the national average. While unemployment sits around 6.5% currently, recent graduates are seeing numbers above 10%. Factor in underemployment and it gets somewhere closer to 18%. Those that do have work are generally making less than their counterparts from previous generations, largely as a legacy of the recent recession and mismatched labor market. Add on top of this those students graduating with large amounts of student debt due to rapidly increasing tuition costs and you have a generation of potential homebuyers kicking the can of home ownership down the road due to high upfront costs that can’t be met with the all too prevalent financial reality of being a recent graduate in the United States.

The financial situation of recent graduates is only one factor though. Another legacy of the recent crisis has been stricter lending regulations. An undoubtedly beneficial move in response to the mess that occurred, yet it presents some of its own problems. Due to tighter lending standards, it’s more difficult for first-time buyers to build the credit needed. Yet even more relevant to this particular discussion, has been the large number of cash buyers that have flooded the market. With less money being lent, cash purchases are becoming increasingly popular, especially from overseas investors looking to buy up property as it appreciates in value. A buyer with an all cash offer vs. a first-time buyer with financing (first-time buyers still account for a high share of financed purchases) is an easy decision for most sellers, especially when these buyers are often coming in above asking price.

Impact on Investors


So what does this all mean for investors? Well, a couple things. In the short term, it’s largely beneficial. The factors keeping first-time buyers out of the market, chiefly the large influx in outside investors buying up property, has a ripple effect. It drives up home prices due to keeping supply limited, but also drives up demand for rental properties as more people are having to rent rather than buy. This has caused a large construction demand for apartments which in turn buoys the overall housing market (builders confidence indexes, etc). Yet long term, this can be a source of concern. Lower homeowner rates can lead to a reduction in the middle class, since homes are generally the largest asset many people own. The current climate is slowly making that less of a reality for many, and this can potentially have a larger economic impact down the road.


Photo Credit: gmo3806 via Compfight cc


Interested in reading more on the subject? Here’s a couple of sources for the post. We’d love to hear from you and continue the discussion.

Kotkin, Joel.; “In the Future We’ll All Be Renters: America’s Disappearing Middle Class”; Aug. 10, 2014.

Timiraos, Nick, Stiles, Matt.; “Where Have the First-Time Home Buyers Gone?”; Aug. 18, 2014.

Zillow Inc., “As Millennials Delay First-Time Home Purchases, National Homeownership Rate will Continue to Fall“; Aug. 1, 2014.

Benefits of Borrowing from a Private Lender

When the majority of people consider getting a loan, their first thought goes to which bank to choose. It’s the natural association; banks have been lending money for years. But on occasion, certain loans don’t fit bank criteria. The borrower ends up in a situation where they still require the loan, but are unable to secure funding through traditional means. This is a scenario we see regularly, and with increasing frequency following 2008 and the tightened lending landscape. But what are the benefits of using a private lender?


The Pros of Going Private

Borrowers can get denied loans for a variety of reasons when using traditional lenders. Too short of a time span is often cited as a reason for denial. A potential borrower could need the loan closed sooner than the bank is willing to offer it, and can’t wait for the bank to run through the entire process. With a private loan, the window is generally 10 days depending on appraisal time frames. This relatively short time frame, for a 1-3 year loan, helps borrowers get the money they need quickly.

Credit is also a stumbling block on occasion. Increasingly, loans are being given to only those with the highest credit scores. With the bubble burst in 2008, those involved in real estate took a hit across the board, and more often than not, those in construction or development saw the effects most drastically.

For Sterling Pacific specifically, we pride ourselves in our local and industry knowledge. Our years of experience in hospitality and real estate, as well as a team with a diverse background in the ins and outs of the real estate lending industry. Our focus on lending in Northern California affords us the ability to be knowledgeable about the areas we’re lending in, and better evaluate the potential loan. Being located where we lend also gives us the potential for more personal interactions, allowing us to better serve those that work with us.


The Cons

This isn’t to say that it’s all rosy when choosing a private money lender. The interest rates are generally higher than those found at banks. A 12 -36 month loan also isn’t ideal for a long term funding solution, but instead a short term alternative to fulfill more immediate needs.


We hope this paints a better picture of what it means to use a private lender, and why it can be a viable option. If you’re in the market for a potential loan, and considering Sterling Pacific, we encourage you to check out our (Borrower) page. If you’re a broker that has a potential deal in mind and would like to refer it to us, our (Industry Professionals) page is the place to go. Either way, we hope to hear from you soon.

What Is Title Insurance

Insurance is a subject familiar to most people. Be it your car, health, life, home, travel, etc. insurance is something that helps to keep you or your investments safe. And while these forms of insurance and the companies that provide them are immediately familiar, there are more obscure forms of insurance that people may not have as much interaction with or understanding of. Chief among them would be title insurance. Chances are you’ve seen a title insurance company, or possibly had interactions with one when buying a property, and therefore have some idea of what it is. But since title insurance a relatively limited use product, generally a one off deal when buying a property and even then not in 100% of cases, it can be something people are unsure of. Yet for private lending and trust deed investments, it’s something we deal with on a daily basis.

There are two basic types of title insurance, owners and lender insurance. For our needs, we often utilize lender insurance for our deals. Title companies execute research on properties, going through county records, and investigating any outstanding debts on the property. Title insurance guarantees that the borrower does in fact own the property they’re borrowing against, but also looks for any liens on the property, and ensures that we are in the position we have been led to believe we are in (senior vs. junior loan), and these things go a long way in helping us evaluate a loan.


Why Lender Insurance Matters

The findings of a title company have clear implications for Sterling Pacific, and more importantly, our investors. Going through a title company allows us to protect our investments by ensuring we’re making loans with as much information as possible, and this helps facilitate a more sound underwriting process. But it also helps us protect ourselves and investors from claims of predatory practices and misrepresentation by giving borrowers an independent expert to help review any paperwork being signed.


Problems It Can Cause

Introducing a third party to the equation can slow things down a bit. Running paperwork through an intermediary naturally takes more time than doing it ourselves, but we feel it’s a more equitable solution for borrowers. Having a third party assist in the review of documentation and agreements removes the pressure and impetus of completing paperwork in a loan issuer’s office. Borrowers gain an opportunity to understand what it is their signing by having someone who works in the field explain the matters thoroughly and we avoid any allegations of misrepresentation of agreements. In doing so, we not only protect ourselves, but also account for the interests of the borrower. While this can cause minor delays in the completion of deals, it is a key part in our continuing efforts to find the fairest solution for all parties.

Making Sense of Mortgage Pools

One of the investment vehicles offered by Sterling Pacific is a mortgage pool. With two separate funds, and not a lot of information regarding what a mortgage pool is, it can be understandably confusing. So what exactly is a mortgage pool, and what’re the differences between Sterling’s First Floor Fund and The Foundation Fund?

Mortgage Pool 101

Mortgage pools aren’t particularly complicated to understand, but they do suffer from a lack of widespread knowledge that inhibits potential investors from jumping on board. One of the best ways to explain it is to make the analogy to a much more familiar investment tool: the mutual fund. In principle, these two work in much the same way. Investors pool their money into a larger fund managed by a service provider. This fund is then used for large investments than wouldn’t be possible for a single investor, and can produce greater returns because of this fact. The setup allows for great diversification of assets, and more reliable returns than an individual investment. At its core, this is how a mortgage pool operates, and it makes for a very attractive option. Rather than the stocks of a mutual fund, the mortgage pool money is loaned out for various trust deed investments. This creates a situation where even if one of the loans is repaid late that month, investors are still seeing a return on their investment. The higher level of diversification provides these more reliable returns, as well as a greater level of stability. There are inevitably some downsides as well. Investors don’t approve the individual loans as they could if participating in a whole note or fractional note investment by choosing to not partake in the loan. Since the fund is being managed by Sterling Pacific, the decision to execute a loan is left to the management team. Most people find this an acceptable trade off for the stability and diversification provided by a mortgage pool.


The First Floor Fund vs. The Foundation Fund

Now that we’ve explained what a mortgage pool is, some of you may be wondering, “Why does Sterling manage two funds?” While both funds are managed by the same team, and follow similar investment strategies, the geographic focus of the two differs. The Foundation Fund loans almost exclusively within California, and is subject to residency requirements for investors. The First Floor Fund is open to any U.S. resident, and has a license to write loans throughout the US. Due to these different lending regions, the target returns and investor requirements also vary. For the Foundation Fund, the target return is 10-11% and investors must have a net worth of $500,000 or a net worth of $250,000 as well as an annual income of $65,000. The First Floor Fund requires a non-home net worth of $1,000,000 or an annual income of $200,000 (for individuals) or $300,000 (for couples) with a target return of 11-13%.

While this is a cursory overview of our mortgage pools, we also have a more in depth look into the specifics of each fund. To download the guide, click the button below. All you have to do is answer a few questions that will help us deliver better content.


Big Ben Leaves the Bank

Ben Bernanke has handed the reins of the Federal Reserve Bank off to Janet Yellen; as the Fed chairman for the past 8 years, we felt it’d be a good time to reflect on his time in the role.

Road to the Chair

Bernanke’s background in economics was purely academic prior to his appointments at the central bank. His time as a professor at Stanford, NYU, and Princeton gained him the notice of the Federal Reserve. In 2002 he was appointed to the Fed’s Board of Governors, where he severed until 2005. In June of 05, Bush 43 named him Chair of his Council of Economic Advisors, a role that many considered him being groomed to replace Greenspan after his eventual departure. Sure enough, in February of 2006, Bernanke was named the 14th Chairman of the Federal Reserve in an initial 4 year appointment. His background didn’t inspire confidence from some, yet his response to these early critics was well reasoned, “I was criticized for taking the job without having been working on Wall Street…My interest is solely for the strength and recovery of the U.S. economy.”

Major Events and Crises

As anybody reading this blog knows, 2008 saw the greatest recession since the Great Depression. While many debate the policy choices made by Bernanke, the majority agree that his actions prevented what could have been a much more drastic recession. These recovery policies are the largest point of contention and criticism of his time at the Fed, due to the gravity, scale, and perceived “unfairness” of several decisions. The bank bail out and reinforcement of the “too big to fail” mentality is continually brought up in discussions of his term, with the AIG bailout highlighting this issue. Reports of warnings from his staff against approving the bailout came forward and many questioned whether the bailout was necessary for the recovery. Senators from both sides came out in support of Bernanke’s policies following this criticism, including then Presidential candidates Obama and McCain.


Needless to say, Bernanke’s time at the Fed will be used as an example of how to handle future recessions. Whether it’s a warning of what not to do or a template to follow remains to be seen with an anemic recovery. Staving off a full scale depression is nothing to scoff at however, so policies such as the quantitative easing and keeping interest rates at historic lows will most likely be emulated and built upon moving forward.


Former Fed Chair Ben Bernanke

What It Means to Know Your Investor

At Sterling Pacific, we constantly strive to put the needs of our investors first. It’s why we do our best to assess whether or not our investments are a good fit for potential investors through in-person interviews and our subscription agreement. In doing so, we are able to help a potential investor evaluate the feasibility of investing with us.  In an attempt to assist with these efforts across the industry, the California Bureau of Real Estate has instituted new investor paperwork in order to better establish qualifications of investors, and help ensure that deals work for both investors and brokers.

CA BRE-870
So what is it this new rule requires? In short, brokers such as Sterling Pacific are now required to include the form RE 870 for investors. This form can be downloaded at the BRE’s website for further review, but it acts as a way to gather financial information pertinent to possible deals. The largest problem some investors have with it is that it asks for a large quantity of personal data to be shared by the potential investor with the broker, without any guarantee of participation in a future deal. It also opens up the possibility of people using misinformation in order to appear more suitable for the investment. But for both of these things it’s important to remember: This is designed to help you.

Why It’s Useful
While this form can feel slightly intrusive, or a way of barring entry into investments, its sole purpose is to help protect potential investors. By giving brokers this evaluative tool, it enables them to more accurately determine if the investment opportunity is right for the investor. One thing Sterling Pacific often cautions is that investors should maintain capital reserves. While trust deed investing is evaluated at low risk, and the real estate market is on an upward climb, it by no means is risk free. One of the main risks posed is delayed or defaulted payments, and should these occur, those relying on the interest payments for income could find themselves in a tight spot. While we already take steps to avoid this, the new regulations help us further our efforts, and increase our efficacy in advising you in regards to investment opportunities with Sterling.

What We’re Doing
We’ve always done our best to make investing requirements abundantly clear. A quick scan of our FAQ shows what we feel is a fair requirement of investors, and what we’ll be looking for when a potential new client comes to us. The BRE-870 form furthers our efforts to adequately prepare and know our investors, allowing us to best advise you.