Rooted in Service

Photos by Rob Kavaler | 

Though his roots might be far from residential and commercial financing, RCN Capital CEO Jeffrey Tesch’s first foray into real estate investing opened his eyes to a world of opportunity.

In the 1990s, while Tesch operated several Subway restaurant franchises, he sought hard-money lenders to fuel his first real estate deals. On several occasions, Tesch encountered less-than-scrupulous lenders that soured his experience.

Not only did the lenders inflict various fees to simply discuss a loan, Tesch said communication was poor, the delays were long, the terms often shifted, and the total cost at the signing table was more than what was first promised.

“It took days without hearing anything, sometimes a week, and then if you’re lucky, you’d get a commitment letter,” Tesch recalled. “And the commitment letter may or may not hold up at closing — it’s the bait and switch commitment to get you to the table. They’d say ‘Well, unfortunately, this came in a little higher because the treasury market is fluctuating.’ They’d use any excuse to change the terms at closing. That was really the experience I always had with hard-money lenders.”

While less than ideal, the lackluster lending experience ultimately proved to be an invaluable springboard into Tesch’s current venture, RCN Capital. With more than 20 years of prioritizing meticulous customer service at his Subway franchises, Tesch contemplated how he could create a lending organization that stood by its word and provided lessors a quality experience.

It didn’t take long for Tesch to realize that his firm could differentiate itself through integrity and strong customer service. And thus in 2010, with his lending experiences fresh in his mind, Tesch launched RCN Capital.

“When I exited the Subway business and entered the commercial lending business, I took all of that knowledge that I had from the Subway brand regarding consumer service and I brought it with me to build out RCN Capital,” he said. “From what I learned about customer service back in my restaurant days, I knew exactly how not to treat customers when starting in the lending industry.”

Without professional lending experience, Tesch leaned on what he knew best — customer service.

“I had no formal training in commercial lending at all,” Tesch said. “But I did know what my experiences were with hard money as a real estate investor and I did know how I could take the lessons learned from running the Subways from a consumer perspective and put those best practices into building out a commercial lending platform that, at the end of the day, was servicing the consumer. … My roots are in consumer service.”

A New Frontier

Based in South Windsor, Conn., RCN Capital now provides time-sensitive, bridge financing to real estate investors to fund their non-owner occupied residential and commercial properties. It also offers bridge loans and provides real estate-backed lines of credit. Over the years, RCN Capital has grown to employ 70 people, underwrite thousands of loans ranging from $50,000 to $2.5 million and originate more than $1 billion throughout the United States.

In addition to its priority of customer service, Tesch said RCN Capital quickly grew thanks in part to its timing.

Coming out of the Great Recession, Tesch said that RCN Capital focused on taking what was then known as hard-money lending and elevating that to become a commercialized lending product. It specifically serviced real estate investors that were buying distressed assets and foreclosures, helping investors return the properties to occupancy status and put them on the market.

“We certainly wanted to build a business that was going to professionalize a segment of the lending world that was seedy and often not a pleasure to deal with,” Tesch said. “But, more importantly, we saw a tremendous opportunity to grow a business that was bringing value to neighborhoods that often had an eyesore. And the only way that eyesore was going to be cured was if an investor came in and was willing to take a risk. … At the end of the day, we wanted to make a profit, but we wanted to build something that we were really proud of.”

That approach paid dividends. Through 2016, Tesch said that RCN Capital doubled its portfolio every year and continued adding staff to meet the swelling demand.

As the volume of customers seeking to revamp foreclosures declined, RCN Capital evolved to serve a more diverse customer base. The company began to help investors seeking not only to fix-and-flip homes, but also renovate and acquire long-term rental homes and multi-unit buildings. The company’s 30-year, long-term loan program has been particularly popular, Tesch added.

“We’re having such a great year because we entered the 30-year rental market, or the 30-year single-family, one-to-four non-owner-occupied rental loan space,” he said. “We entered it in a big way at the beginning of 2018, and for us it took a good six months for our team to get a handle on it. We have a lot of loan officers who needed to get comfortable with it. … In the beginning of 2019, our team was so well versed in it that we were capturing market share left and right.”

That success in capturing market share is in part thanks to Tesch’s perspective on how to earn and keep customers’ business. Tesch said he often shares that perspective with his team via an analogy.

“I often say to the team when we’re doing team meetings, ‘You folks are selling gasoline out there and when you’re driving down the road, the gas station that you’re going to pull into is the one that’s clean, bright, and the one you’re going to get the best experience at because the price is all just about the same,” he said. “I look at it the same exact way here at RCN Capital. It’s a commoditized product, and the only way we win is with our staff really being engaged with our customers. I believe we’re winning because of the level of customer service that we’re giving to our consumers.”

Tesch also attributes the company’s growth to his experienced team. RCN Capital was methodical in the additions it made to its team thanks to a piece of valuable advice Tesch received early on.

“My mentor said, ‘When you’re making your new hires, make sure they are smarter than you are,’” Tesch said. “If you hire right and you make them part of your team, they will elevate your company and they will make everybody look better. Never fall into the trap of hiring people that aren’t on your level because you’re afraid it would be something more than you. That was the best piece of advice I ever got, and we continue to do that today.”

Watching the Market

For RCN Capital, Tesch said he’s excited to be rolling out more avenues for customers to connect with the company. While he will always love human interactions with customers, Tesch said RCN is now working to build out a system in which a customer could conduct an entire transaction online.

“We’re going to continue to develop that portal as more folks are wanting to interact through an electronic means,” he said. “We’ll always be a consumer-friendly, pick-up-the-phone-and-speak-to-us company. But we’ve really gotten serious over the past two years about being able to interact with a consumer so that they hardly need to speak to us if they don’t want to.”

When looking at broader trends in real estate, Tesch said that he’s often asked when the United States will encounter its next recession. In general, Tesch said he believes that the single-family housing market in the United States is dramatically underbuilt at the moment. While some markets are exceptions, Tesch said that most are underbuilt, which has caused a steep rise in the average transaction price over the last five years and the continued rehabilitation of existing properties.

“I don’t see a slowdown of any sort in the demand for single-family housing for at least the next 24 months,” he said. “Rental housing also continues to be in demand, and a lot of that is driven by folks wanting to live closer to urban centers and not live such far distances from their workplaces. We expect that, without any major event like an international crisis or oil hitting $200 a barrel, that business will continue to grow on a very brisk pace.”

Regardless, Tesch knows that the market can’t continue at its breakneck pace forever. When that eventually occurs, Tesch is comforted in knowing that his firm’s foundations are solid.

“I believe that if you build a company with really sound values and roots that it will have the ability to weather any storm,” he said. “That’s how we set RCN Capital up for long-term success. … The roots run deep here, and no matter where the economic volatility takes us, we’re going to move forward to be a substantial and profitable force moving forward.”

Asked what advice he might offer real estate investors, Tesch said that due diligence is imperative. RCN Capital is keen to coach its customers with their specific deals as to maximize their success, he said, including on how to approach a rehab project.

“Make sure to get a licensed appraiser to value the property to get an opinion on what the price is today. Then, when you’re filling out your pro forma or scope of work for the rehab, make sure to be as specific and deliberate with the repair list as possible,” Tesch said.

“The reason you want all these details is that when an appraiser goes to look at what your comparables are in the neighborhood, you will have a much better idea of whether or not you are on point for improvements, whether you’re under-improving it or over-improving it for your specific geographic area,” he said. “That’s super important because you never want to be the most expensive house on the street.”

Tesch is a firm believer that his customers’ growth and development will fuel RCN Capital’s future. It’s why he takes great pride in coaching customers and pairing them up with an account executive that will be with them throughout the business relationship to address questions, concerns or ideas.

Tesch acknowledges there’s a lot of noise and competition in the lending space, but rarely are there lenders that ensure customers have all the tools possible for success with the projects they’re undertaking. That’s ultimately what puts RCN Capital ahead of competitors.

“At the end of the day, how RCN wins time and again is that level of service,” he said. “To me, that’s really how things should be.”