September 2015

September Investor Letter

Welcome. It is our goal to keep our investors, borrowers, closing agents, and other stakeholders informed and in-touch with the latest developments at TF Management Group, LLC. We aim to accomplish this by providing you updates, education and industry news through this Monthly Newsletter. We hope you enjoy it and welcome your feedback.

This month features:

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  • Recent deal examples
  • Commonly asked questions

Mike Zlotnik, Managing Director

Dear Investor,

I hope this email finds you well.

In the recent years, Tempo Funding, LLC has provided a yield to our investor community of an 11-13% range. While we strive to continue to provide this type of return, market conditions require that we adjust the rate that we pay our investors to align to the rates we deploy the capital on our loans and staying competitive. Our sector of real estate investing and Private Lending, has provided great returns over the last few years. As a result, many new hard-money lenders are entering the space of short-term financing that we have specialized in. While we welcome the competition, we realize that our pricing power have somewhat diminished.

In parallel, we have been making a conscious effort to lower the risk in our loans portfolio by asking for more down payments, working with more experienced borrowers and lowering overall Loan-to-Value (LTV) ratio. This by itself has lowered the rates that we can charge on loans. Lower Risk = Lower Returns in general. In the long run, we believe this approach will give us more stability and security in the case of a market downturn. As such, we are going to be lowering rates on Tempo Funding, LLC notes. We are getting a bit of a squeeze from lower rates that we are collecting on our loans and so, we need to reduce the cost of money. This is known as “Yield Compression”.

In short, Quarterly paying notes dropping to 10% rate from Oct 1, and 9% from Jan 1, 2016. Annually paying notes (fixed rate) will be dropping to 10% rate from Jan 1. It is currently at 11%. VAR notes will likely perform at around 10% going forward (this is my estimate).

There is lots of competition out there today: Hedge fund back lenders, Crowd funding sites, many existing lenders are coming up with cheaper and cheaper pricing.

We are still working with our good clients, but have had to lower the pricing:

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  • we are making 12% rate, where we used to charge 15%;
  • 14% where we used to make 18%… etc

There have been pretty significant changes over the last 1-2 years. These changes have been gradual, but we feel them more and more over time. We need to cut costs to 9-10% to stay competitive.

So, we will move the renewing notes down on Oct 1 and Jan 1. I think we’ll stabilize around 9-10% going forward.

I know it is not ideal, but that’s the reality of the current business environment. Tempo Funding still offers a very good risk adjusted return.

On the positive note, we have more opportunities now than ever! We’ve been lowering pricing for our top borrowers to keep with the market rates. And our borrowers have been happy and appreciating that. They love our service, and know that we don’t compete on price, but appreciate discounted pricing to stay competitive. As the result we are getting more deals sent our way!

So, we are looking for additional capital to meet the demand. We would appreciate any referrals that you might have, or have any additional funds that you would like to put to work.

We realize that we are delivering somewhat lower ROI, but we can deploy more capital as the result.

Please let me know if you would like to discuss this – what’s a good day/time to chat in the next week or so?

Thank you for your understanding and support.

Mike Zlotnik

Managing Director / Co-Manager

TF Management Group LLC

Inspire Capital Management Group LLC

Tempo Funding LLC