Beyond Real Estate: Transforming Passive Investing with Legal Case Funding

Transcript

Okay, welcome to The Wealth Flow. My guest today is Patrick Grimes. Patrick, since 2007 has been actively involved in alternative investments, including acquiring nearly 5,000 multifamily apartment units. He’s been active as a commercial debt lender, oil and gas investor, and creating a Diversified Litigation Portfolio. As an international best-selling author, Patrick co-authored Amazon’s number one best-selling Persistence, Pivots and Game Changers, and Persuasive Leadership, a Barnes & Noble number one bestseller. Patrick also is a member of the Forbes Business Council, contributing articles on alternative investments. Today we’re going to talk a little bit about a new fund that he has called a Diversified Litigation Portfolio. Patrick is a repeat guest, so welcome back to The Wealth Flow.

Patrick Grimes:

Yeah, excited to be here.

Keith Borie:

Yeah, I can’t wait to dive in. And really, Patrick, for the benefit of some of the audience that maybe didn’t hear you the first go around, I’d like to start with your background, what eventually led you to real estate, then want to get some updates on some of the things that you’ve done, and of course hear about this Diversified Litigation Portfolio.

Patrick Grimes:

Sure. Well, probably like most of your listeners, high-paid professionals, really good at doing something, but realizing that might be the work until you die path. I was a machine design automation robotics engineer, and I was pretty sure that I was working in these startup companies, and doing all this cool stuff, and I was pretty sure that I was doing great until I sought some advice on where to invest. And I thought that the founder of this engineering firm was going to tell me, “Oh, invest in this startup, and this startup, and this startup.” He said, “Go put everything in real estate, and make your money on high-tech, but put it all in real estate.” Actually, that was a game-changer for me, and ultimately what he was saying is, “You got to get out of it because high-tech’s volatile, and you got to diversify.”

And so that was lessons that I took a long time, and I got in real estate at the wrong timing. My first deal was like ’07 and ’08, and in ’09 and ’10 I lost everything in the subprime mortgage collapse. So, I was humbled early. And I was taking a lot of risks. I was a pre-development, so I was heavily leveraged, just graceful. I had no idea what I was doing. I was a snot-nose engineer trying to make it big, thought I could take over the world, and I was beaten, battered, and bruised coming out of that. The ego was hit. But, I got a master’s in engineering, and an MBA, and I found my way back into it eventually, and scaled from there.

Keith Borie:

Awesome. Okay, so kind of coming out of ’07, ’08, what were some of the things that you invested as you were sort of rebuilding? Obviously, you’d mentioned just kind of losing your shirt, and it being a tough time, but you got back in at some point. So, tell me a little bit about how you got back in, and then of course we want to hear about kind of an update from the last time you were on, and just continue to dive into your story.

Patrick Grimes:

Yeah. So, after I completed my master in engineering and MBA, because I just dove headfirst in my career, I was like, “Oh, forget investments, I’m just going to make it big in corporate.” I just kept getting reminded that even though I’m very successful, and I’m doing really fun… I’m a geek at heart. I’m an engineer. I was doing really fun projects for Tesla, SpaceX, Lockheed, Raytheon, Johnson & Johnson, on all kinds of stuff, medical devices, solar cells, was so neat. But, I realized that I was working so hard, and the investments were not in the 401Ks IRAs, all those things were not returning, and I knew I had to find my way back. And I did a bunch of research, and I learned about cash flowing assets, and recession resilient markets, and studied how the wealthy build their portfolios, that allocating into different markets, different things that don’t rise and fall together.

And so, I started a single family, which something I could do with all my own money, I started single family in Houston, actually, because that was the most recession resilient market I could find. It was just literally steady Eddy, barely blipped during the subprime mortgage collapse. So I was moonlighting it from California, and doing these… It was a BRRRR method, but I didn’t know what it was, buy, renovate, refi, rent, and I was just doing that holding out, it was working. I was accumulating a bunch of really cool properties, and I was continuously recirculating my capital, but I was just beat, and I was just moonlighting it with a really demanding job, trying to also be an expert operator in another location that’s favorable to invest in, and high rents that you can cash flow from, unlike California. And I was competing with all these full-timers out there. So, I knew that there was a better way.

And when I met my wife, my soon to be wife, that’s when I realized I could take a break, and she was there for my last single family closing, and I said, “Look, I’m not going to do this anymore. I want to spend time with you in the evenings and weekends, and we’ll revisit this on the other side, but I’ve got some other ideas on what can scale, and other ways to invest that… To partner up instead of do it all myself.” And so that’s what kind of led me down the road of the large apartment buildings, and then into energy. Right now we’re in debt. We have a debt fund, it’s small balance commercial real estate lending fund. It’s really strong cash flow play. Great time for it too. Lenders are pulled back, interest rates are high.

And we have an acquisitions fund. We’re literally buying assets in cash right now. It’s like the best commercial buying opportunity in my life. So, it’s cool to not be in the gutter this time. It’s cool to be capitalized, and buy right now. And we’re killing it in both of those funds, but still, alternatives that don’t rise and fall with real estate, alternatives that don’t rise and fall with the stock market, gold, oil and gas, where can you stash capital, and go to bed at night knowing if everything else collapses, this is still going to be there. So, those are the lesser known alternatives, and it’s hard to find. Like healthcare, education, CPAs, legal services, plumbers, those are the ones that are super tried and true, and that’s how you come up with things like litigation finance.

Keith Borie:

Yeah, for sure. And last time we talked about the commercial debt, and what was the other one that you mentioned just now? And maybe it’s the one that came after the commercial debt, but just buying, are you buying small companies, or what?

Patrick Grimes:

Yeah, so we have essentially a debt fund, or an income fund, which is a diversified portfolio of loans, and then we have an acquisitions fund, where we’re buying assets. And so the pipeline of deals that we have coming in, people coming to the table, what we realized is that they had really good properties, but they were financially distressed for all kinds of reasons. Maybe they didn’t plan for the delinquencies through COVID, or the foreclosures, or the forbearance, the issues that coming on. Maybe they didn’t plan for the rising interest rates, and they certainly didn’t plan for the insurance doubling on them, and they didn’t plan for the material costs to inflate with their payroll at the same time that their loan was coming due. And so, they just either needed out, which means we can just provide them an opportunity to get out.

Of course they’re going to take a little bit of a haircut, but we can provide a cash offer. We can come in and close quickly. Or they need more time, and at a time when they can’t get the attention of other banks, because they have liquidity issues. It’s in a time when the interest rates are high, so we can move quickly, and we can lend to them GAP loans, bridge loans, so that they can make it by, and we give them more time, either to buy an asset quickly, or to maintain an asset. So, it’s really cool, because we can be the source of relief at a time when operators desperately need it, and it’s a win on both sides.

Keith Borie:

Yeah, for sure. What kind of a position would you be, as far as the capital stack on that? And I guess maybe for the audience, kind of explain how that would work from a risk standpoint.

Patrick Grimes:

Well, in our debt fund pool of loans, and small balance, like two to 6 million commercial real estate properties is really where we’re focused. We’re at a 58% loan to value across the portfolio, so super low loan to value, and our interest rates used to be for these same assets, six, seven, 8%. Now we’re originating at 12, 13, 14%. And it’s purely a factor, not just of the… The actual interest rate rise wasn’t that much, that’s not really what’s driving it. What’s driving it was their interest rate increasing, the bonds devaluing, destabilizing the bank’s liquidity, meaning that they don’t have the money to lend on these properties. Other assets they’re lending on aren’t paying off, they’re defaulting, so they don’t have inflow of cash.

So what’s really driving the interest rates right now is one, our trusted people trust us. They know us. We have a lot of partners, one. Two, we move quickly, it’s PIM rapid lending, and three, there’s a huge demand for private credit right now. I mean there’s just a huge demand. And so, they’re happy to come to the table, because they don’t have to wait 60, 90 days for a bank to jerk them around, and constantly retrade, and we can dive in there quickly, we can underwrite, we can lend at a low loan to value, and they can get on with their life. They’re happy to pay a few more points for that.

Keith Borie:

Yeah, for sure. No, it makes sense. And yeah, it seems like kind of an optimal time for that, as other people are sort of a little bit timid to lend right now, so, great. What type of properties are you focused on with that particular fund?

Patrick Grimes:

Well, both the acquisition and income fund are not office, but we have a pretty wide open, other than that, mostly focused in small retail, industrial, and some markets where it’s really throttling up right now. There’s a lot of reshoring post-COVID, some industrial warehousing, also a really big deal in quite a few markets. And we’re also underwriting some small multifamily properties in that [inaudible 00: 10: 01] to 6 million. Both assets, that’s a diversified play in both of them. And so, we’re kind of building out the geographic and asset diversification. We’ve underwritten some weird things that we haven’t ever lended on, like there’s some RV parks and stuff in there, but we tend to stick to some of the well-known asset classes, nothing too exotic.

Keith Borie:

Yeah, makes sense. Okay. And I guess, tell me a little bit more about this new… Well, it’s not new, because you’ve been working on it for quite some time, but it’s kind of new as far as, I guess, raising capital for it and everything, but the Diversified Litigation Portfolio.

Patrick Grimes:

Yeah. Well, I’ll tell you a story. So, in 1910, in America, there was a bunch of people that all of a sudden got sick, and they were dying of diseases, and cancers. They’re trying to figure out why. It just so happened to be that they were all smokers, and they were smoking cigarettes while American tobacco said that they were healthy for them to smoke. And somebody finally stood up and said, “Hey, look, I think they’re lying to us. I don’t think that’s true.” But, these were not individuals that had the finances to then go after American Tobacco. So, that was the first case in which a third party in America, a large-scale case in which a third party in America said, “Okay, I’ll help fund you Mr. Attorney, so that you can provide services to these disadvantaged people that were harmed by this big bad Goliath.”

And so, they invested in the attorney, just like a debt fund. Instead of lending to a real estate operator, to acquire properties or provide CapEx expenses to improve an asset, to complete the business plan, you can lend to an attorney. The attorneys, as a very simple industry, they have hourly rates, they have court fees and filing fees, but what’s unfortunate about attorneys is that they can’t bring on partners, because they have ethics issues and conflicts of interest. They can’t bring on an investor that becomes then a board of director, because they have to remain only operating in the client’s best interest. So, they can’t do a series A, or a series B, or anything like what traditional companies can do, because it’s ethics problems for them. But, they can take a loan, and so they can do that.

So, we can lend to attorneys, just like in real estate, we want ones that are a track record, that have skin in the game, that have a really solid case or a really solid business plan. We’ll then provide funds for them to either acquire new clients, or the operating expenses to pay their hourly rates, and the expenses, court fees, and filing fees to get to the end of their business plan, which is a settlement. Similar to real estate, you get an appraiser in real estate, because you want some security. You get an appraiser to value an asset, get a lien on it, litigation services, or legal services, each of these attorneys are sitting on collateral. They’re sitting on these agreements that they’ve signed with their clients, call it a docket, right?

In their case files. It shows, okay, were they harmed? Do you have the medical records? You have proof of exposure. And then these law firm valuation specialists go and essentially appraise these things, and say, “Okay, this is what the expected settlements are of these cases,” then we can choose to lend on a low loan to value to that, and then put a lien, a UCC-1 filing lien with security agreement entitling us to the specific individuals, and then we have a profit sharing type agreement. So, it’s not like a traditional debt, where you have interest in principle, it’s a debt where at the end of it you get kind of a waterfall return, more equity-like, when it settles. And so, a lot of similarities, just like any asset-backed lending environment, and just like our debt fund, similar instruments, and a diversified pool of loans to attorneys. It’s pretty simple.

Keith Borie:

Yeah, sounds interesting. And so, from the attorney’s standpoint, everything is paid at the very end upon the settlement? Or are they having to make interest payments along the way? Or what does that look like on the back end?

Patrick Grimes:

Yeah, this is where it’s unfortunate for the attorneys, because not only can they not bring in partners, equity partners and stuff, because they can’t have any conflicts of interest, they also… The banks are not too excited about lending to attorneys, because unlike in real estate, where essentially you’re providing housing, and you have a lease agreement which gets you cash flow, that will help cover your debt service, so you’ll get either principal and interest, or just interest only. The attorneys are providing access to justice to those who don’t have money to pay the attorneys, so they don’t have cash flow. So, the underlying asset does not have any steady Eddie cash flow coming back to pay a debt service. So we’re lending without principal interest payments, and waiting for settlement.

Now, why that’s advantageous for us is because it creates a sort of a novelty industry where the returns are high, because there’s not a ton of banks, there’s not a ton of capital partners that are gunning for this kind of asset. And it means we can get really strong returns at a very low loan to value, because all the upside hasn’t been ripped out by kind of like this huge market for the asset class. We literally have thousands of lawsuits inside the diversified portfolio. Many different cases, and by doing a lot of them, you get settlements throughout the hold period.

So, it may look like cash flow, but it’s not. It’s settlements coming in periodically, and it’s kind of ramp projected in years two, and then peak in years three, and four, and settle in years five. So, I don’t show, “Here’s your projected year, 1, 2, 3, 4, 5 cash flow,” in a deck, because it always confuses the real estate investors. “Oh, that’s steady Eddie cash flow?” I’m like, “No, no, no, no. It’s going to be buckets that are going to come in, and we’re going to pay out quarterly. So it’s not known exactly what’s going to come in when, and we’re really late stage, so we know that these are going to settle in high probability of two, three years, maybe four years out, maybe some outliers in years five, so you get the majority of capital back in that three to four years.”

So, we kind of tell people, the reason why this is a very attractive asset is not because it has steady Eddie cash flow or anything else. It’s because when you invest in it, you know that you’ve got something there, and you can go to sleep at night and know that there’s a piece of something that you’ve invested in, that won’t ride the same curve as real estate, the interest rates, the stock market, oil and gas gold. In fact, if you look at legal services, all those, we have it in our deck.

All those bounce all around legal services, and it’s just straight as an arrow. You put something aside somewhere, that just follows the judicial process of the United States government, you know that those returns are going to come back. You don’t know exactly when, but the reality is, you don’t know when real estate deals are going to come back either. You don’t know exactly when, but you know that in a diversified portfolio, there’s a high probability there’s going to be a bell curve of those returns. And that’s really at the heart of why people highly sought after, seek after this litigation finance.

Keith Borie:

Yeah. Okay. So, you said from a settlement standpoint, these have been started sometime before, enough for them to what, put together the case enough? I mean, at what point… So, somebody is obviously harmed. It sounds like a lot of these are what, class action type lawsuits? Or is that not correct? Maybe that’s not correct.

Patrick Grimes:

We can talk about sort of our buy box of assets in the fund. Just like you have a buy box in real estate, you have a buy box in cases, and court requirements for the operator, the attorneys. We don’t do class action, and class action ultimately… You’ve probably been a part of one and didn’t even realize it and probably got 70 bucks out of it or something. Nobody really makes any money except for the attorney, and maybe one plaintiff, or claimant, or two plaintiffs that they’re actually leading. So, that doesn’t provide meaningful settlements to the harmed, and it’s all one lawsuit, and they’re putting all these people into one lawsuit. And that’s not really our style. We actually only engage if we’re providing meaningful settlements, meaning these guys are going to get 60%, the claimants, at minimum, of the take essentially from the settlement.

And so, those settlements that in the cases we’re in, 100,000, 200, 500,000. So these people are making a substantial amount that’ll make a difference for them. We tend to focus on a separate part of law than class action, which is called mass tort law. A mass tort law is like a 500 billion industry, mass tort costs in the country. So, it’s like it’s on par with the global airline industry. It’s huge. So a lot of real estate investors haven’t heard of it, but there’s a lot of real estate strategies you didn’t hear about until you learned about them too, right? So, this is big industry.

A lot of attorneys are finding, and just like in the case we talked about earlier with American Tobacco, where they propped these people up, and were finally able to go after the Goliath, we’ll look at cases that these attorneys have been on for five, or seven years, or more, and they’ve already gone through this cycle of aggregating all these similarly harmed people. They found a judge that would try them all together, all individual lawsuits, but try them together. And then they’ve gone through trials where they’ve brought in expert testimony, they’ve brought in doctors, scientists to say, “Yes, this company, they caused this, they’re liable for this, and now they’re negotiating settlement amounts.”

That’s when we get interested, because at that point it’s more like, if you’re going to settle, it’s really how much and when. And that’s kind of the story, even before then too. 90% of civil cases settle. Most of the insurance companies require to do that. So, it’s mostly the case that they’re settling anyways, but when we’re very late staged, we’re helping these attorneys to kind of like just get it over the finish line in the last two years or so, three years, to one, get as many of the harmed people on their docket as they can. So, because that makes them more intimidating, and as that grows, it forces the settlement. And two, make sure that they’re well capitalized to get them across the finish line.

And those cases are like, I don’t know if you’ve heard of Camp Lejeune, the water contamination case? So about 2000 so military and civilian individuals on a docket that we’re helping to fund to get their settlements. And right now, in fact, our law firm valuation specialist, Bill Brennan, is going through these files as we speak, and we’re lending 10% on that loan, on the value of the collateral. We’re lending 10% on the value of that collateral. It’s so insane. They really don’t need that much capital. Now, when we lend that, we don’t make huge wins. We get our capital back, and preferred position, that maybe a two or three X on that. The attorney gets most of the upside, but the attorney also takes a hit on the valuation on the upside.

We got like, we’re lending 3 million right now on Camp Lejeune, and Roundup cases. It’s like a $30 million collateral value, so it’s really safe from any fluctuations. But, on that Camp Lejeune case, they’ve already published a grid saying, “Hey, here’s your… Based on how many days or years you were at Camp Lejeune, and the severity of your symptoms, here’s how much you can settle for today.” It’s that crazy. There’s a bipartisan piece of legislature that was passed saying the DOJ’s liable and responsible causality and liabilities established, the US judgment fund was established to pay the claims, so you have a very strong defendant. And it’s just a matter of, in fact, last month they just cut off, you can’t add any more claimants. So at this point, claimants are capped. There’s no more individuals, no more new lawsuits, and we’re just a matter of getting them across the finish line. That’s how late stage that one is.

Keith Borie:

Yeah. Okay. How soon did y’all get into that one?

Patrick Grimes:

So, we’ve been working on that one for six months, eight months now. It’s almost been a year.

Keith Borie:

I mean, I think a lot of people have heard of the Camp Lejeune. I mean, if you’ve watched any… It seems like there’s a lot of commercials on it, but for just an example of the type of case, this is one where the water was contaminated, basically. But yeah, you want to maybe explain a little bit more on the backstory of that actual case?

Patrick Grimes:

Yeah. So it kind of hits close to home for me. I mean, I was born in Italy, because my dad was in the Air Force, and my family was on bases, and I happened to own a portfolio of 300 units, apartment buildings next to Camp Lejeune. And so, I’ve actually been there, and I’ve drank in the water there. But, the Camp Lejeune is the base where the DOJ sent our Marines to train to go to war. For about a 17-year period there was major toxins, and it’s been demonstrated that there was awareness of that contaminant in the… Contaminants in the drinking water, and the DOJ didn’t do anything. Now many are dying of cancers, and Parkinson’s, and leukemia, and these are the heroes of our society. These are soldiers. And so, there is multiple laws, there’s a relief act for it. And so, it’s finally happening that they’re beginning to get meaningful settlements back to either the actual individuals that were harmed, or the next of kin and their families. And so, that’s pretty neat.

Another one that’s similar, I don’t know if you’ve ever heard of that firefighter foam, where the firefighters are shooting that white foam at fires, and they were told that it’s so safe, you can eat it. And it happens to be a PFAS based chemical, aqueous firefighter foam, AFFF. But it’s these chemicals are forever chemicals, they bioaccumulate, and so they never leave your body once congested, they cause major problems.

And once it gets superheated, it does become very toxic. And now, firefighters, both military and civilian are dying of a non-Hopkins lymphoma, and a variety of other issues. It’s horrific conditions. And I personally know one that has health problems because of overexposure, not only the firefighters themselves, but also the communities that affected the drinking water. And so, they’ve settled for billions of dollars, just to try and clean up the drinking water in these communities that it was used.

And we’re actually just specifically targeting firefighters, civilian and military. And meanwhile, while we’re in the process of this, they passed, or they proposed legislature for that one too, the AFFF Firefighter Foam Relief Act, where it’s proposed right now to give them each a million dollars. So, you can either… In our situation, it’s really great, because when you get the actual government backing, it’s a lot of pressure on the defendant to settle sooner, before that happens. So, they’ve got… It’s really neat.

The other one that’s really common that people know a lot about is Roundup weed killer, from Monsanto, now Bayer, had lobbied heavily saying it was safe, and the EPA published false reports saying that. None of those have since been retracted. They’ve had to pay hundreds of millions, and billions of dollars in settlements for various aspects of harm that was created. And we have a large allocation in our fund for… Majority of them are landscapers, or farmers in there, that had been essentially bathing in this stuff, way overexposed to this stuff, and they had no idea of why that they’re sick, or what it was causing. But we can now show through the exposure that they’ve had, and the time that they were in their health records, that these chemicals actually cause these illnesses, and we’re helping those people. We’re lending to attorneys to help those individuals also make it across the finish line.

Keith Borie:

Yeah, yeah. That one’s kind of interesting. It’s crazy how many other countries don’t allow the use of it, and yet we still are allowing the use of it to clear crop, and all kinds of stuff.

Patrick Grimes:

They’re finally changing the chemical composition, which is insane that it’s gone on this long, and they still never changed it. What it means is that the settlements so far have just been a fraction of the profits, and so… That are made, and Bayer just really doesn’t make a dent. And now Bayer is the owner, bottom line, but it since has affected their stock enough where we’re actually affecting corporate change. They’re actually making changes.

Another one that people really kind of rally around, which is cool, is sexual assault, sexual survivor human trafficking. We’re working on a term sheet right now, we’ve been on for a few months now with an attorney who’s, for example, like the LA Juvenile Detention Center. There was a supporting role, not inside the detention center, which harmed dozens of young kids. And it’s not that you put them on the stand, and they have to somehow prove it. It’s that the laws are such that it kind of protects the harmed, if… You just have to show that they attempted to cover it up, that they didn’t involve the authorities. And that’s pretty proliferate. I mean, we’re not going after the Catholic Church or the Boy Scouts, but those are pretty strong, also, organizations which have systematically covered this sort of stuff up.

Well, right in my backyard… I live in Honolulu now, but we were in LA. Right in my backyard, it was going on there. So in those cases, it’s pretty simple to get into. The attorneys are working on contingency. They need funds to find all the people, to see who else was affected by this. They needed to market. They need funds now to then put a case together, and then to do the discovery, and the work necessary to make sure that they see that there was an intention to cover it up. And now that they’re there to that point, we’re willing to lend on that.

Keith Borie:

Are some of the attorneys taking some of these loans also just to kind of… I guess it’s all just to continue to fund it, to kind of wrap up the cases. Maybe not have to invest so much of their capital in that piece of the puzzle?

Patrick Grimes:

Mostly it’s they’re… At this point, they’ve spent a lot, and we make sure that they have skin in the game. We make sure they have a lot of time and resources, just like you would in a real estate deal. But if you can imagine, if they’ve got 1,000 individuals that were injured, or 30, similarly, harmed by one, if they found 3,000 or 6,000 more, it doesn’t take more time for them, materially more time for them to try more clients, more claimants, but it makes them more dangerous, and it makes the settlement… The more they accumulate, it makes the settlement likely to happen sooner, and it gets the attention of these large, big, bad Goliaths, because the numbers become more material, and real.

So, oftentimes we’re just, in the case of some of these, we’re just contributing marketing spend, lending to them, and they’re saying, “Hey, look, I’m going to keep my marketing going. Can you contribute to that? And people that come in will give you your preferred position and return on those claimants.” And so, that’s one way that we can get in there that just helps. It just assists the attorneys at being more effective.

If they have a bunch of existing people already, it’s just like saying, “Hey, Patrick, you own a property outright in Houston, but you’re working on a project in New York,” I can go to the bank and say, “Hey, I want to do a cash out refi, essentially of my Houston asset to go use it in New York.” So, it is the case that if they don’t need capital, they may still ask us for a loan on their existing assets, on their existing collateral, because they may be using it to hire staff elsewhere in their company. They may be approaching other cases that they need capital to move on. And so, in that case, as long as we see that they’re well capitalized, it’s a really good investment for us, regardless of whether or not it’s needed on that one case.

Keith Borie:

Yeah, okay. It’s interesting. I obviously had no idea, with just not knowing this was even a thing. But, just the fact that there’s an appraiser somewhat, that comes in, is able to look at these potential assets in these cases that they’re put together. So, when they’re scoring that, or looking at it, I mean, are they looking at the, “Hey, it’s come along this way, this far, and this is past this stage, and this stage, and here’s the probability,” or what kind of information are you guys able to look at when you’re doing your due diligence on that side of the actual value of it?

Patrick Grimes:

Yeah, so really the knobs you turn are, if you can show that they have the proof of exposure, or usage, like Johnson & Johnson’s hernia mesh, for example. You have to show proof of exposure, usage to this, and if they show the medical records, then they’re a fit. And if those two align with a fit in the lawsuit, that’s a really good sign. The question becomes, how much is the settlement going to be? In all of our cases, we can’t get involved until we get a really good feel of what that settlement is, because we don’t have the desire to take the risks. If you’re getting involved super early on, just like if you were, for example, a wildcat oil and gas driller, you can make it rich, you can make it big. I have no desire to do that, so, not my style. If you’re an angel investor, you can make it rich, but you may lose 10, and may win on one super early on.

Our situation is, when we can underwrite it, when we can quantify those settlements, like we said, settlements have been already been provided, grids early set from the Camp Lejeune, 3M’s already settled water contaminations around the same foam. So, we already know how they settle, what the costs are, what the economics are. Same thing with Roundup. We’ve already seen multiple settlements happen, so it’s fairly easy to say, “Look, here’s a conservative value for these claimants, and what they’re going to settle for.” And we’re really conservative. Like on the Camp Lejeune, we only plugged in $100,000 per claimant, even though the grid goes all the way to $450,000, just to be real conservative. And then we plugged in some other buffer factors along the way.
So, it’s actually easier to underwrite loans than it is to acquire assets. I mean, in our lending environment, and the acquisitions fund, sure, we’ll underwrite the deal, but we’re at a 60%, 50% loan to value. It’s a lot. And in the litigation finance, even though we underwrite it conservatively, we’re still at 10, 20, 30% loan to value. And so, a lot of that risk is taken by the borrower, because they really want the big upside. So we negotiate all of our capital back, and then a waterfall of returns, but we are not going to make it big. We’re not going to make it rich. They’re going to take that 20 million in collateral value above us. We just want the first three or four or five to get a good return. Does that make sense?

Keith Borie:

Yeah, yeah, it does. On the litigation one, so let’s say you’re anticipating it being settled, 2, 3, 4, 5, for whatever reason, it doesn’t get settled, or maybe they lose the case. Is there any kind of repercussions for you to be able to go back to the attorney, and have them pay back the loan directly, to preserve the initial capital? Or what does that look like?

Patrick Grimes:

It depends on the investment. So, I can’t fathom any losses in these cases that we’re in, just… But I’d say hypothetically it does. For Camp Lejeune, obviously they could just settle today for the numbers that are available today, or they can ride it out two or three years to get the higher settlements that are currently going through trial. So, there’s a backstop there, but there are some cases that we’re working on where we say, “Hey, look, if for some reason this doesn’t go, here’s our minimum collateral value, you either… If for some reason these cases, you stop pursuing these cases or if they don’t turn out right, you need to replace that with other collateral.” So we’re looking at these large attorneys, which have lots of cases, lots of assets.

So, we’ll say, “Hey, just like in a commercial deal, the loan to value falls below what they agreed to, then you may need to put up some capital to get that loan to value back, you may need to recap that. You to write a check to the lender to pay down your loan, so your loan to value stays trued up.” Same thing in asset backed lending, and many of our agreements in the litigation fund, is people aren’t going to do it for the Camp Lejeune stuff, because that’s straight ahead, but some of the other ones, we’ll say, “If that collateral for whatever reason, devalues, or if for whatever reason, like you said, hypothetically, you abandon it, you have to replace it with other collateral on your docket.” And so, we have the ability to approve that. And so, there’s ways, and just like in any asset backed lending environment, but don’t anticipate a lot of that.

Although, Michael on our team, who does our asset lending agreements for… He specializes in hundreds of litigation funding agreements, that’s all he does. He specializes in that. So we have an attorney that this is all he does. He’s got it nailed. We’re small potatoes for him. My partner, David Gooseman, he used to do $50 million and $100 million dollars checks in litigation funding, and we met three plus years ago, when he was doing that, and he wouldn’t let me do the table, because I wanted a five or 10 million check, and he’s like, “No, our minimums are 20 million.” So, now we’re working together. But we have a really strong team that’s used to putting billions of dollars to work in this industry, and it’s a very sophisticated industry. So, there’s a lot of mechanisms by which to make sure you’re protected as an investor.

Keith Borie:

Yeah, it’s fascinating, quite frankly, it’s pretty cool, is that public stuff that you’re doing, for sure. And then as far as some of the other settlements and stuff, once somebody settles, or some of that, when they make a settlement, and nondisclosure agreements, and you don’t have access to it, you can kind of maybe guess the ballpark that it’s in, but what does that look like from some of these companies when they are making those settlements?

Patrick Grimes:

Yeah, so there’s some big ones that are super public. There are others that, they settle quietly. It’s bad PR, like J&J hernia mesh issues. They have this hernia mesh that is dislodging, causing chronic pain. It’s a design issue. They failed to disclose this risk, or tell people, and now it’s causing all these problems. They keep quietly settling those under non-disclosures. But as it turns out, my partner has been in the litigation funding space for a decade now, and over a decade, spent over three quarters of a million and collected billions. When you’re in that space, everybody in that space knows what the settlements are, and what they come through. So, people like Bill Brennan on our team, who’s doing the valuations, he’s been in this space for 20 years. He has evaluated hundreds of law firms, so he knows… Everybody pretty much knows where those settlements are, albeit it’s not going to show up in the news.

Keith Borie:

Yeah. That’s interesting. It’s always interesting to talk to you, Patrick. You always got something different going on. Maybe, just first, I guess, if somebody’s interested in getting involved with these, or any future ones, why don’t we start with where people can find out more about you, and track some of these things.

Patrick Grimes:

Yeah, passiveinvestingmastery.com, passiveinvestingmastery.com, and on that homepage, we have at the top our three funds, the income, acquisition, and litigation portfolio, and you can opt in for any one of those. We have slide decks, and pre-recorded webinars. On all my pages, you can set up a meeting. We have a track record button you can click on and look at our month to month progression and our funds, which is just, they’re just killing it. It’s doing great. I’m excited about that.

I also offer a book. We have a book, Persistence, Pivots and Game Changers. Keith brought it up at the beginning. If you’d like a free copy… I loved writing it. Some really cool players in there. Even the lead guitarist of Def Leppard. You’ve got NFL, NBA players, coaches, you’ve got entrepreneurs, and if you want to copy that, I actually buy them by the case, and I sign them and I send them out. So if you want one, just make sure you put the name of the podcast in the form, but you go to passiveinvestingmastery.com/book, and then just put your information in there. I’ll sign it and get it out to you.

I love to talk to investors. It’s one of the things that when I left high tech, it was one of the things that I finally had time to do, is really spend time investing into my investors’ financial future. And if we’re not a good fit, happy to get you pointed in the right direction. I know a lot of players in our platform really… Every two weeks we showcase new alternative investments on our bi-weekly mastery series. So I have a lot of reach, a lot of things that help you round out your portfolio.

I tend to tell investors, like when I got really comfortable in high tech, I was riding a scary wave of cyclic market cycles, and when I got real comfortable in real estate, I was also riding another scary wave in real estate. And it’s important that even though you may be really comfortable in whatever your strategy is, and it seems dangerous, and it seems there’s some fear in stepping out into these lesser known alternatives, it’s actually that comfortability that’s creating the instability, because in order to build a portfolio like the wealthy that can really not just give you financial independence, but financial security, you have to find a portfolio rooted in non-correlated investments in markets that don’t all rise and fall at the same time.

That requires a lifelong journey of continuously educating yourself on completely new, and foreign things, and getting comfortable enough to figure out if they’re a good fit for you, because it is in these lesser known alternatives that you build a secure foundation that actually gets you to find the financial independence in a way that you have the security, and you can ride those market cycles out.

And so, I challenge people take the time, and we have 22 emails that we send out educating people on litigation funding. You can read it all on my website. We have mastery sessions on litigation funding, all these assets, we provide a ton of education, take the time, learn about some of these other strategies. They have a lot of advantages. Once you get into the other side of it, you’ll feel a little bit better, because you won’t be so fearful about a market crash, or a real estate crash, or a gold, whatever it is, because you’ll have something socked away somewhere that isn’t riding any of those waves. So, that’s my closing comment there, Keith.

Keith Borie:

Yeah, no, for sure. No, I think that’s great, great advice. And how about for somebody who maybe is… I mean, that’s great advice, even for my next question I ask every guest, but how about somebody who’s maybe just starting out in their investment journey, and maybe they’re not at this stage, where they’re able to invest in one of your deals, but just what advice would you give somebody? You’ve obviously been around a long time, you’ve tried a lot of different things, super smart. What advice could you give somebody?

Patrick Grimes:

Thanks, Keith. You are too. Yeah, so I was just like a lot of individuals out there, had no idea that there was a whole ocean of alternative ways to invest that would build a safer future for me. My general sense is, for those that essentially don’t have the funds, don’t have the knowledge, it’s hard as humans, because we’re pack people, right? We’re nomad pack people. Nobody wants to go venture out in the desert by themselves. My family is a family of educators. My dad has three PhDs. I have pastors in there. Nobody taught me how to invest. I had to go seek it out. I had to go find other people. I had to go to meetups. I had to go to real estate conferences. I had to download books, and read them. I had to do all that on my own. I had to build a tribe, had to build relationships, and I had to spearfish people that were already doing what I wanted to do.

And then I just joined in, and started helping them in whatever it is they were… I didn’t ask them what was in it for me. And when I got my first apartment deal, I didn’t have an agreement to get paid. It wasn’t until just before my third deal closed that we actually… I saw an agreement that said I was going to get something. But, it was more about just getting in there, and doing these things, building the relationships, and just get a seat at the table. And once you actually get in there and start doing these things, you’ll start seeing, just like those that go to state schools, and the average major changes three times. You may think you know what you want to do, but it’s not until you actually get in there and start doing it, are you really going to find where you fit and where you add value in the team. Because you may not even realize now that they need you, but you don’t know how they need you, and they don’t yet either until you actually get in there and doing it.

So I usually say, find the right kind of people, people that you know, and like, trust, offer up your time, offer up your energy, and work with them. And if you work hard enough, they’ll bring you on board, because they’re surrounded by a bunch of people with their hand out. You figure out how to add value, how to contribute to what they need, you’re going to end up accelerating your future, and that’s how I did it.

Keith Borie:

Yeah, that’s fantastic advice. How about a book recommendation? Doesn’t have to be real estate related. Certainly can be. Just something that’s been impactful.

Patrick Grimes:

Yeah. So, I kind of rotate on these. I run every morning, that’s kind of my jam, and I listen to leadership books, podcasts, and TED Talks, and investing books. And I always am sniping people, my friends, and family, with little aha moments, and especially my employees. And so, when I read Miracle Morning by Hal Elrod, it changed my life a lot, because I was like, “Wow, he’s articulated exactly a framework by which I need to intentionally make these mornings more than just my running.” And that really helped me out, really accelerated things.

Side note, I actually grew up on some land next to Hal Elrod’s property, and I used to trespass to use his rope swing when I was a kid. But it’s really cool to see, really cool to see him get to where he is at, and write a book that so resonated with me. And so, it’s just been a while since I mentioned that one. But I was just running around the golf course this morning. I’m actually out traveling off Honolulu. I’m in Scottsdale at an alternative investing conference, and I was running on the golf course here, and I was just thinking about that book, because I was going through those same routines again, and it’s very centering, and helpful.

Keith Borie:

Yeah, no, it’s a great one. Hal’s a great guy, for sure. Well, Patrick, this has been awesome. I always love catching up, and hearing what you’re doing, and this is a great episode. So, really appreciate you coming back and being on the Wealth Flow again.

Patrick Grimes:

I’m glad to be here. Appreciate you having me.