In March of 2018 a gentlemen we’ll call Carl contacted us here at A. B. Nicholas about our portfolio loan program. Carl was a real estate developer in Chicago, Illinois, and was looking for better ways to deploy capital and invest. His currently costs, even with tax deductions, were costing him both time and money. He found himself having to put more and more “skin in the game” for every investment — which tied up large amounts of capital that could be used for other lucrative opportunities.
We at A. B. Nicholas introduced him to one of our institutional advisor partners at a major U. S. brokerage/banking giant, we’ll call David. David had an extensive securities, investment, and real estate background for decades, and was not a senior executive at the institution.
When A. B. Nicholas sends a client into one of our licensed lending institutions to craft a program for that client, our hand-picked advisors know that just any financing won’t do. First, we deal only in securities-based lending — that is, the use of stock portfolios with assets averaged together to establish collateral value as the guarantee for the financing. Not land, not bank accounts, not any other form of guarantee except stock portfolios.
Our lending partners understand that our clients must receive wholesale rates, often 1.5-2% below retail. Added fees for unwanted services are prohibited. In fact, we demand that there be NO mandatory fees for their loan beyond the interest owed on what they choose to borrow. We demand no maturity date for our standard LeverageLine, no balloon payments at the end, no hidden expenses. Credit ratings cannot be a factor.
We demand that there be no change of ownership of the asset, no joint ownership, and no sale of a single security as a condition to funding. We demand that the client’s loan be treated as a relationship with the lending institution such that the asset plus the loan would be the valuation of that relationship — thereby opening up stronger conventional real estate funding opportunities later as well down the road to help grow our clients’ businesses. We required a no hard-sell policy for add-on services, but rather the provision of a high quality loan/credit line ONLY unless the clients themselves asked for additional services, and even then, we required that those optional services be provided to our A. B. Nicholas clients at a discount (e.g., account management).
If a client had their own wealth manager of financial advisor. we required that our lending partner/advisor step aside and allow the current advisor to make buy-sell decisions, while our lender advisor focus on the loan.
Carl had ample securities holdings. over $22 million in free trading stocks, bonds, and other eligible, marginable non-IRA securities. Our licensed, FINRA-member ABN partner advisor built a custom credit line at 88% loan-to-value for a $19.5M line. It was structured so Carl could “be his own banker” so to speak, repaying principal when he wanted while drawing funds and being required to pay back interest-only based solely on the amount borrowed.
This was the perfect structure for Car. His stocks continued as always working for him, and since he had his accounts at TD Ameritrade — one of our partner firms — he didn’t have to move them. A simple lien guaranteed his line for the lender. Carl’s LeverageLine even allowed him to trade in the account and defer his interest-only payments to party of his principal if he wanted to, allowing him to preserve cash flow.
Today Carl’s portfolio is worth twice as much through good trading decisions in tandem with his personal wealth advisor. That translated into twice as much credit line — now at $39M — as before, since the LeverageLine model credit line rises as the portfolio value increases too.
Carl’s real estate investments have tripled, as has his net worth. And the central player? The A. B. Nicholas LeverageLine program.
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