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Behind The Scenes: a Mexico Home Financing Revolution!

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Video Transcript - (Speakers: Alex Koper, CEO and Fraser Armstrong-Waters, CFO)


Alex Koper (CEO):

Really happy to be back today. We have a very special guest joining us. Our special guest is joining us all the way from Austin, Texas, Fraser Armstrong-Watters, who is the CFO of the Palisades Group. And Palisades and MoXi are connected in some ways, which is very, very interesting. Many of our viewers may not know this. So really happy to have you here with us today, Fraser, thanks so much for joining and...

Fraser Armstrong-Waters (CFO):

Thanks, Alex.

Alex Koper (CEO):

... yeah, excited to chat with you a little bit about you, your very interesting personal background as it relates to global homeownership and global dwelling, as well as some of the work that you do at Palisades on a regular basis in support of, in some cases, the MoXi team and what we're out to do as far as changing the world for global homeownership. So welcome, very happy to have you here. Thanks for joining.

Fraser Armstrong-Waters (CFO):

Thanks for having me, Alex. Very, very quick, super high level. So Fraser Armstrong-Watters, CFO of Palisades Group. I mean, high level across our portfolio of companies and also portfolio of loans, MoXi being one of the portfolio companies that we have an ownership stake and work on. I really lead the finance, accounting, operational strategy and really internal business initiatives across the firm. So really excited with what MoXi's got going on right now and excited to be here. Thanks for having me.

Alex Koper (CEO):

Great. That's awesome. And so for those that may not know, talk to us a little bit about what the Palisades team is core focus is besides the ownership interest in MoXi. Talk to us a little bit about what Palisades does and its background in resi credit.

Fraser Armstrong-Waters (CFO):

Yeah, for sure. So Palisades is a alternative asset manager in global residential credit markets. So for example of global residential credit is a MoXi loan and we really act as the capital markets behind that and working with buyers and sellers. We invest in loans. We actively manage real estate backed loans to consumers, property developers and builders throughout the cycle. The firm manages a pretty diverse portfolio across the US, Europe and Mexico, and currently manages around 15 billion in assets.

Alex Koper (CEO):

Wow, that's terrific. And when you think about Palisades work in global residential credit and in this asset class, in this space specifically, why is MoXi or the loans behind MoXi's clients, why is that interesting to Palisades?

Fraser Armstrong-Waters (CFO):

Yeah, I think about it through multiple hats. I mean, there's investors, there's borrowers and then there's lenders. From the investor's perspective, when they look at the loans and look at different residential credit, you've got diversification in different jurisdictions, in different credit type, in different underlying borrower and the attachment point of property, different yield depending on the risk that's associated with the property. There's the security compared to, say, unsecured corporate debt, which there may be no recourse for an underlying asset, and there's also the inflation hedge. So I think the combination of those factors has made residential credit a very... it really is a mainstay in the US economy and something that is very accessible to retail investors, to institutional investors.

From a borrower's perspective, without those loans, there's just an inability to access property, yeah, in many jurisdictions. So that access to capital is fundamental. Having that at competitive rates and also flexible options, which allow them to make the economics work to their individual situation, I think, it's fundamental and that's why it's important in that narrative.

And I guess, from the lender's perspective, there's obviously the social impact, the ability to impact individuals and businesses and help them achieve the outcomes they want, but then thinking from the business's economic side, there's a lot of growth potential and there's a lot of an ability to construct a profitable business in between that has that impact of helping the underlying investors behind that too. So I think it's multifaceted, the having a marketplace of that sort of asset class has helped so many audiences and it's why we're passionate about it.

Alex Koper (CEO):

That's awesome. One of the things you just touched on was the security of the collateral and the reason one of the things that, as a credit manager or risk manager, an investor like Palisades really focuses in on, and many may not know, but MoXi's clients intentionally choose to work with MoXi sometimes just for that, because of the diligence that we bring to the table as it relates to the transaction itself as well as the property underlying the mortgages we make. Do you have a perspective on the processes maybe that the MoXi team follows and resulting in the quality of that credit origination that maybe you could share?

Fraser Armstrong-Waters (CFO):

For sure. I think the MoXi system, I mean, is built off some of the infrastructure that has been honed over decades within the US. Really, the US to underwrite loans and then establish them as collateral that is then pushed into the capital markets has refined that process over an extremely long period of time. And through that process, there's obviously been a lot of lessons learned, such as in the GFC and then thinking about the Dodd-Frank Act that came behind that to really focus on that credit underwriting and how people are looked at when it comes to loans. So I do think that what MoXi is doing is really using a very established product, which is very well understood in the capital markets, from an investor perspective, and making sure that that product that is now available in a developing country, where it isn't an institutional product and that sort of user experience for the customer isn't well understood, because, from our side and from the customer's side, we're in the same shoes.

From our side, we really want to ensure that the property is collateral, which then has security. As an individual who's buying the property, they want to ensure that what they're buying exists, they have title over the property and have security in the property. Given it's a developing market, that process has potholes as it's trying to formulate and institutionalize. So I do think what MoXi is doing in terms of making sure that the process is correctly followed and the individuals do have security over the asset that they believe is theirs is fundamental to both MoXi, the capital markets and also the investor feeling comfortable that what they have bought is theirs.

Alex Koper (CEO):

Yeah, really, really good points, and I think it's a powerful component of MoXi's business, is making sure that this institutional platform exists, it's what drives ultimately capital toward helping to open up the world from a credit market perspective, and making that capital reasonably priced. I think that you hit on a number of key points there, which are fantastic.

Switching gears just a little bit to the model, MoXi's business model, and I know that our clients are very familiar with what does a mortgage origination look like, and even maybe some people watching this might be familiar with some of the intricate Mexico collateral risk items that MoXi takes on on behalf of its clients. But people might not know about some of the intentional aspects to MoXi's business itself. To your point earlier, from an institutional platform perspective, I was just wondering if maybe you had some perspective you wanted to share on some of that work, that in particular you and your team have been involved in over the years in helping to create MoXi such as it is today in the way that it serves both the institutional capital markets as well as our customers ultimately.

Fraser Armstrong-Waters (CFO):

Yeah, I think the thoughtfulness that's gone into the model has two sides to it. There's the benefits and then the protections that it offers. So when I think about benefits, I think about, to start out, it's consistency and stability. When anyone's entering into a transaction where they are looking to get financing, understanding the process that it's well-thought-out, it's well-established, it's very clear what the expectations are in both sides, I think is very important.

Home purchasing is listed as one of the most stressful experiences for people. You throw financing in a developing country on top of that, and it becomes even more complicated. So I think that consistency and stability of the underwriting process where we've utilized the US underwriting process and so seeking to adapt that to the Mexican collateral, I think that is a huge benefit of what we've sought to do.

Second to that is transparency and fairness, with a lot of lenders that existed in this market, it was a lot of hard money and I think the perspective of a hard moneylender is, at times, to make it as confusing as possible, so then you don't realize exactly all the fees that come at certain points in the process. And I think what we've sought to do is be very transparent of what the requirements are on the criteria side, be it debt to income, credit history and income, but also what our process looks like. And I think that transparency and fairness is, again, it's a benefit that we've thought about as we think about the customer experience and seeking to focus on an underwriting method that they're used to and makes sense to each counterparty.

The final thing I'd say is just access to capital. We recognize that a lot of the transactions that happen in Mexico are out of cash, and while that's great, that also crowds out a lot of people and a lot of people who don't have the opportunity to purchase a property because they don't have a significant cash base, but they have a very good credit footprint, potentially, miss out on something there could be a life-changing experience for them. So I think that access to capital really has sank and really changed that market and why we're excited to continuing to build the brand, continue to build the markets that it can offer those opportunities to, because it goes back to the point of democratizing that homeownership and making sure that people have the ability to invest in that asset.

When I think about the protection side, we've been very focused on regulatory compliance, that's compliance in the US, compliance in Mexico, setting up trust structures that protect the borrower and also protect the lender. So that thoughtfulness ensures that, goes back to our previous point of security, making sure that people know that they have security of the asset. There is a lot of pitfalls, time-shares and all sorts of things in Mexico as people enjoy their trip, but really get forced into environments where they truly don't have security of the assets. So I think our rigorous approach there that focus on customer experience really can change that game for people and open up different avenues.

I think finally is just investor confidence. So by us being confidence in the process and having investors behind us, it gives people more confidence in the process they're going through. They've found an asset they really like, but it can feel like a very murky experience. So I think that having an institutional partner through each step of the process, I think, is a protection. And also, just someone to pick up the phone with and just sort of make sure that they understand each bit, that gives peace of mind. It would give me peace of mind if I was considering that sort of transaction, that I have someone who's not purely on the sales side of the asset transaction, is actually the underwriter that's seeking to guide me through the transaction.

So when I think about the MoXi business model, I definitely think about the benefits, but I also think about the protections, which might not be important to some people, but are that underpinning, which give the model a lot of stability.

Alex Koper (CEO):

Yeah, those are really, really important points. And in particular, your last one about having the ability when transacting in a foreign country to speak to someone who speaks your language literally and figuratively, I suppose. But I think, yeah, that's a good one.

Switching gears just a little bit. I know we've been lucky enough to have you visit us a number of times in the MoXi offices in Mexico. So just kind of curious, talk to us a little bit about some of your favorite experiences or memories either during your diligence visits or during your time with us or separately in other parts of Mexico.

Fraser Armstrong-Waters (CFO):

For sure. I love Mexico. I think I get accused of every single holiday that I have is always down in Mexico. And I do think that there can be a perception that Mexico is just sort of Cancun and sitting in five star hotels, on the beach that are all inclusives, you never leave, but that's just not right. I, over the holiday period, was in Mexico City and sort of taking in the art culture, the historical side there, and it's really like a culinary hotspot too in terms of so many offerings. So there's that mix of the city feel and the city life that you can really take, and there is a lot of global nomads that are based out of Mexico City given that it has a truly multicultural and so much to offer.

But on the other side you've got that very luxurious vacation spots in Cabo where you have the nature side that you can pretty much take in anything you want from that side. You can do thrill seeking side where you can go, be it, diving or whatever you want to do, that's there, or if you just want to sit next to the pool and enjoy that side of a vacation or a home, that's there to be offered to. So what I would say is that for anyone that hasn't explored it, Mexico has everything that is there for people to enjoy. And if people are interested in homeownership in that sort of locations because they enjoy it, just make sure they do it the correct way, do it through a rigorous process to make sure that you have security over your asset, and saying that you can enjoy it rather than having a poor experience on the other side.

Alex Koper (CEO):

Yeah, very, very good points. Yeah. And Mexico City does indeed have this amazing culinary scene and tons and tons of nomads, global migration at its finest as evidence over the last 24 months, so very cool.

So if people have gotten to this point in the video, they may have guessed that you have an accent and is not an American one. So talk to us a little bit about where you are from and how that has... your global travels and you're living in various different countries, talk to us a little bit about that and why MoXi is interesting to you specifically.

Fraser Armstrong-Waters (CFO):

For sure. So grew up in Australia, spent some time in Asia before moving across to Europe. Spent nearly a decade in Europe across multiple cities before then coming to the US. What I'd say about global mobility is when you move across an international border, you are hitting the reset button every time, and reset button, especially from a credit perspective. As soon as you're new to a country and getting into their credit system, you are seen as you are at your first point of credit at that point in time. So for example, in the first five years of being into the US, it was very, very challenging for me to get any sort of loan, same when I was in the UK. And so we learned from that and as soon as we got to the US, we sort of had a playbook in terms of what credit footprint items that we needed to open and to ensure that we built progressively that footprint up.

And so for me, just from going through that, not once, not twice, but three times, it really highlighted to me that just credit is very esoteric, and because of that, if there is an ability to have your footprint follow you and make sure that at every juncture you can make the most economic financial decision possible and open you to assets and opportunities you might not be able to consider if you weren't to have credit, that's a great opportunity. It's a good opportunity from a business perspective. It's a good opportunity from a customer service perspective. So that's why I think the business is so interesting, not from one singular perspective, but truly from feeling it and knowing that as soon as you cross that border that you're pretty much at the starting line again, and the fact that if you wanted to transact in an asset, it'd be purely in cash, it really can change the game. And I think whenever someone hears about MoXi and had bought a home in cash, they realize that, wow, this could relieve a lot of cash burden that I may, have and that's an interesting opportunity for people.

Alex Koper (CEO):

Yeah, absolutely. And that sort of problem almost that you described as you moved from country to country and faced the challenge of having to reestablish yourself from a credit perspective, that's literally the problem MoXi seeks to solve, and today, that's Mexico for US citizens. But I think you bring up so many great points when you think about some of the challenges of working and earning income in one currency, or any of the limitations, but having a desire to own property in another country that operates with a different currency and how can a partner like MoXi seek to bridge some of those gaps and make that less of a frictionless experience for global dwellers. So I really appreciate that perspective. It's really important. It's really validating for me to get to hear live and in color some of those challenges that global dwellers face.

Kind of in line with that, I know you and your wife have lived in a number of different countries and I know that you are a homeowner in the US, so talk to us a little bit about any of some of those sort of challenges. How did you go about... Because there wasn't MoXi at the time, how'd you go about sort of solving for that? It sounds like establishing credit was a really important piece of that for you, but anything else you would add there?

Fraser Armstrong-Waters (CFO):

Yeah. The only thing I'd add there is that, I mean, it has been a grind, just calling it by fact. We got to the UK, when we were there, it was five years. That's what we needed to do really before we were in a range where the economics of a loan made sense. You can get one day one, but it's not going to be pretty and that's the pitfall that whether it was myself when I was in London or someone going to Mexico, there will be someone who will be willing to potentially do a transaction, but does that make it the right one? And I just encourage people to be very careful and thoughtful that what may be presented on the surface may be one thing, but just making sure they really do their diligence in the company, their terms, and make sure that it is really that correct financial decision that sets them up for the rest of their life. And then it's not something that has a payment in five years, which is really going to cripple the economics of the asset.

That's what we found when we came to the UK and we sought to get into a property to live there, we realized that our options were slim and because of our options being so slim, we were sort of forced into a funnel of an extremely hard lender. And I was lucky that I realized that that transaction didn't make sense anymore and to walk away from that, but it would be so easy to press play on that and just have really had to give up most of the economics down the road in that transaction. So again, it's like from someone who's lived it and sort of thought about it a few times and still almost fallen into multiple pitfalls myself, it is like the right partner and being so diligent about process anytime you go across borders is so, so important. But the right transaction can really change your life too. So just being thoughtful makes such a difference.

Alex Koper (CEO):

Awesome. So I'll maybe take a guess here, it sounds like had MoXi been available, for example, for Australian citizens purchasing property in the UK, that would've been something you and the Mrs. would've jumped on right away, right?

Fraser Armstrong-Waters (CFO):

100%, because end of the day, we would've been underwritten against 10 years of financial history as opposed to someone just giving a predatory loan to try and just say, worst case scenario, I'll just take hold of the asset and I'll be clipping an extreme interest rate along the way. It just didn't make sense. So correct, I think it's a game-changing product when you can underwrite in someone's home currency to make sure that they can facilitate transactions that affect their life day-to-day.


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