Rafael Serrano is the Founder and Managing Partner and is Chair of the Investment Committee. He has managed over $1B of performing and non-performing commercial and residential mortgage loans, defaulted debt instruments, and distressed real estate assets transactions in both Domestic US and International markets.
From 1992 to 1999, he was the founder and CEO of MTU, a provider of commercial vehicle fleet servicing and maintenance. From 2001 to 2005, Mr. Serrano served as a business management and strategic consultant to British Aerospace Systems (BAE Systems, Inc.) with responsibilities throughout South America. Prior, he served as a Corporate National Accounts Manager with WorldCom, Inc.
In 2005, Rafael began his career in distressed debt with the founding of Safe Harbor Equity, LLC. From 2005 to 2014, Rafael transacted loan workouts in separately managed accounts, generating benchmark-beating returns for an investor base that grew from high-net-worth individuals to include banks, fund managers, and prominent family offices. In 2015, Rafael launched Safe Harbor Distressed Debt Fund I, laying the blueprint for the family of funds managed today.
In the last two decades, Rafael has been an active participant in the acquisition, development and reposition of residential and commercial real estate properties. He attended Florida International University.
The Dealmakers' Edge with A.Y. Strauss
Scaling Safe Harbor in Distressed Real Estate with Rafael Serrano
Insights from Rafael Serrano on Building a Scalable Distressed Debt Platform
Rafael Serrano has been active in the distressed real estate space for nearly two decades, acquiring more than $1 billion in performing and non-performing loans, defaulted debt, and REO assets across both U.S. and international markets. As Founder and Managing Partner of Safe Harbor Capital Partners, he has scaled the firm from a solo operation into an institutional-grade platform known for disciplined underwriting and consistent returns—even in the most complex legal and market environments.
In this episode of The Dealmakers' Edge, Rafael shares his perspective on sourcing and restructuring loans, working with banks and borrowers through challenging workouts, and why Safe Harbor remains focused on single-asset CRE debt with sub-50% LTVs. He also discusses his approach to resilience, building long-term infrastructure, and the next phase of growth—including special situations, origination strategies, and democratizing access to private credit.
1:22 – Rafael's early path: from car repair to consulting in South America to distressed debt
4:39 – The first Safe Harbor deal: a warehouse loan—and an NSF checking account
6:30 – Why consistency, discipline, and math drive underwriting at Safe Harbor
8:09 – Treating distressed debt as an ongoing business—not an opportunistic trade
14:03 – Regional banks vs. CMBS: where Safe Harbor sees opportunity
16:31 – Why CMBS servicers profit more when loans default
18:05 – Grit, mindset, and the emotional discipline behind Safe Harbor's approach
Mentioned In Scaling Safe Harbor in Distressed Real Estate with Rafael Serrano
Transcript
Aaron Strauss: You're listening to The Dealmakers' Edge with A.Y. Strauss diving deep into stories behind commercial real estate leaders.
Hello, everyone, welcome to The Dealmaker's Edge. Today I'm really excited to share a conversation where we will be speaking with Rafael Serrano, who's founder and managing partner of Safe Harbor Capital Partners.
Rafael has been in the distressed real estate space for nearly two decades and has overseen more than a billion dollars in transactions across both the U.S. and international markets. He launched Safe Harbor back in 2005 with the focus on acquiring and working out non-performing loans, defaulted debt, and distressed assets, and he's been scaling ever since.
So it started with a handful of high-net-worth investors, has grown into a more considerable and respected platform with institutional backing and a reputation for delivering consistent returns. In this episode, we're going to talk about how Rafael built Safe Harbor from the ground up, his approach to evaluating distressed deals and preserving capital, what makes a deal worth pursuing and when to walk away, and also how mindset and adaptability and resilience give you a real edge in this business.
So without further ado, let's get right into the conversation. Thank you for joining.
Hey everybody, I'm here with Rafael Serrano, who I had the pleasure of hanging out with a little bit in Florida a couple of months ago and really learning about his story. It's fascinating and we'll get into it. But Rafael, maybe you can just sort of kick us off from the conversation, describing a little bit about your upbringing, where you went to school, and maybe a little bit of your early career before we get into the core business you're running every day on the lending side.
Rafael Serrano: Certainly, and thank you. I appreciate being here.
So I'm originally from Miami, Florida. I was born in Miami. I was kind of raised abroad at different times in my life, but Miami was pretty much always home. I've pretty much been in Miami all through now. I went to high school here. I started college here. I dropped out of college after two years to start my first business.
It actually was a car repair shop of all things. I did that for about seven, eight years. Then I took some time off. I tried to do a few different ventures. Ultimately, I wound up working for a company. A buddy of mine, working in South America, asked me to come work with him. He had the representation for a company out of Europe called BAE Systems.
He was a defense contractor. So we worked for them for about five years doing things in the South American market. Then after about five years of doing that, I decided to get into the business of buying loans from banks. That was kind of what brought me from there to here. That was kind of the genesis of it.
I bought my first loan in 2005. I was basically looking for a place to park some of my own money and make a good return. Then I was fortunate enough that when the Great Financial Crisis of 2008 started, I had already been doing it for a period of time. So I had developed the knowledge, the skill, the resources. At that point, I just continued to do it through the crisis until 2014.
Then in 2015, I launched our first credit fund. We've had three successful funds since then and are currently in our fourth, launching our fifth coming up shortly.
Aaron Strauss: Amazing. It's been about 20 years of consecutive solid returns in a space that's maybe misunderstood, largely less understood than most spaces and extremely nuanced, as we've described in detail talking to one another.
A lot turns on legal representation and the story behind the borrower, et cetera. But maybe you could talk about the first few years, the first couple of deals you launched. Safe Harbor's been around a while, so it's always exciting for somebody listening who's maybe in the early stages of their career to talk about those earlier challenges, if you will, to try to scale up to the next level.
Rafael Serrano: I think understanding the model first would be helpful. What we do very specifically is we buy individual loans secured by commercial real estate. So that's one loan, one set of mortgage documents, secured by one piece of commercial real estate.
It's important to understand that in the industry as a whole, there's many different flavors of debt. There is CMBS, MBS, there are pools of consumer paper, which are residential family loans, and so on and so forth. Our focus is really commercial real estate debt secured by commercial real estate. Just to make that clear.
While we've done it all over our two-decade history, really that is our core focus now. My first transaction was really quite simple, interestingly enough. I was so green that the person who sold me the loan didn't just sell me a loan, it was a loan on a warehouse. I'll never forget, it was in an area called Tamiami Airport, just west here in Miami. They didn't just sell me the loan. They sold me an NSF checking account.
Imagine that. She's like, "Have you done this before?" I was like, "No." She's like, "Okay, well, then you should buy this as well. If you want this loan, you're going to have to buy this." I was like, "Okay."
Interestingly enough, it all worked out. Ultimately, what our business model is—and it began with that very first loan—was to acquire the debt instrument. So if that warehouse at the time was worth, let's say, a million, and I paid $500,000 for the loan, our model was and is to restructure the debt and give that borrower an opportunity to reperform.
That is really what I did then. In terms of the NSF checking account, which is unsecured debt, I just added it to the loan amount and baked it into the restructuring. Then ultimately, we collected it when they paid it off. That was my first restructuring that took place in 2005, and that was the first transaction.
Aaron Strauss: Yeah. I know you've been very aggressive buying a ton, and I'm sure there's a lot of nuance to the specific deals, maybe you'll get into some deals. But at the same time as being aggressive to purchase and raise great institutional capital behind you, you've been conservative on new writing.
I think it was 50% to 70% LTV is really where you try to place that. There's room in the stack to make sure that you're made whole, and your investors got a good return as well, which is hard to balance, those two nuances. I'm sure a lot of deals are tempting and there are exciting stories, but maintaining that discipline, maybe you can describe where you've been tempted to veer, or how that discipline has sort of saved you over time?
Rafael Serrano: Well, it's interesting. I think that one of the ingredients in the formula to success is really consistency. I mean, you could have a great baseball team, you could have a great restaurant, but if they only do it once, they're really not consistent.
So consistency is one of those ingredients in the formula. And maintaining that consistency is really a function of discipline. At the end of the day, it's about math, really. If you use math—and that's what we do—there's no decision that's arbitrary. Everything is mathematical.
Sticking to the discipline of using math as a basis for decision-making is really one of the ingredients that has helped us be successful. I can tell you that to date, as of this recording—I mean, knock on wood somewhere—only on these types of transactions, because we've done many different types of transactions that are not real estate-related, to be clear. There are other debt instruments that we've acquired throughout our history and still do trade those.
But in this specific raw whole loan commercial real estate space, we've only had one loss one time, and it was about $65,000. So I think over a 20-year track record, I think that speaks a lot.
Aaron Strauss: That's incredible. You really don't hear that often. I think a large part of it comes down to that discipline in your underwriting, but also I know you're very focused on diligence. I think maybe some people listening are, I mean look, the market's getting more and more saturated with everyone today trying to buy debt if the equity's not priced accordingly.
So maybe you could talk about how you diligence, you don't have to give away any trade secrets, obviously, but the fundamentals of the core thesis that you need to have in place. Obviously, the math has to work, but there's more. And maybe you can talk us through some of the "more."
Rafael Serrano: Certainly. I think if you go back to the fact that we started this in 2005, and here we are 20 years later having already gone through a cycle, one of the elements that most people seem to miss—and certainly a lot of the competitors I don't think are in that space—this isn't an opportunistic endeavor for us.
This is an ongoing concern. This is a business. It's something that we've been doing, and we intend to continue doing in perpetuity to the extent that we're able to do so. So I think that also changes your underwriting dynamics.
If you are a very, very large opportunistic fund that was brought into existence for a cycle, a down cycle, then your underwriting metrics are going to be one thing. If you're in the business—or we like to say, if you're in the "stay rich" business, not the "get rich" business—you're underwriting to a different number.
Then that also creates a lot of opportunity that a lot of other competitors are not addressing. So they're just sitting on huge amounts of capital, and they have to deploy those amounts of capital, and they have to drive to a certain number that's significant. Otherwise, it doesn't move the needle for them.
For us, again, it's an ongoing concern. It's a business. So we're not writing to that same level of return, and we're not chasing those big returns. So we're not taking that level of risk that a lot of those other guys are taking.
Again, it goes back to what you said, sticking to a 50%, 60%, 70% LTV per acquisition. But as a portfolio, our portfolio average LTV is 49% historically.
Aaron Strauss: Yeah. That is very conservative. Talk about, I guess, right now, everyone's coming into the market. It's very cool to buy loans. You've been doing it now for 20 years consistently with a great track record.
I'm curious to know how the fundraising has gone. Obviously, we're going to stay away from current fundraising because it's highly regulated. But in prior funds, has each fund progressively gotten easier to raise based on performance? Or really depending on the market at that time and the appetite for investors, it's sort of all meshed together as to how the fundraising goes?
Rafael Serrano: It's definitely a function of what's happening in the environment. I think that this last fundraising cycle, I think for a lot of funds historically, has been a little bit more challenging than the previous iterations.
We're very fortunate, and I think our returns have been very, we've done really, really well over a historical, or a historical last nine years. So that has certainly assisted us. Fund One, I think we purchased $34 million in loans. Fund Two, I think we purchased $107 or $108 million in loans. Fund Three, we purchased—I want to say—$280 million in loans. So, significant increases in volume across those funds.
Most of those funds were really high-net-worth and family office. These additional funds that we're doing now are really our first component where institutions are coming into those funds. So that's certainly quite appealing.
Aaron Strauss: That's terrific. Maybe you can talk about the market where we are. It seems, talking to some people, that obviously the equity market has been very soft the last couple of years with interest rates and many different reasons. And people are excited by the returns you can create, and people similarly situated behind the debt.
But in the real field of temperature today, as far as acquisition opportunities versus six or twelve months ago, do you feel like we're at the peak, we're going lower, we're going higher? Do you see as much opportunity as you ever have? Do you think more opportunity is coming, or is it kind of just getting late in the process here?
Rafael Serrano: No, no, I think that we're probably still in the second inning. I think that there's a lot to come. The dynamics of the commercial real estate market are certainly very complex. You have an economic recovery, you have the post-pandemic era, interest rate hikes, there are a lot of ingredients in the formula that have really contributed to what's happening in the CRE space.
But specifically in the loan market, there has been a dramatic change. We have seen a 400% increase in loan volume activity over the last 11 months. But to give you greater context, in Fund Three, we looked at approximately $9 billion worth of loans over a five-year period to close on about $280 million. So that's just roughly under a 4% closing rate, I think.
In Fund Four, which has only been open now just under a year, I believe, we've already seen $9 billion in loans. We've closed on about $125 million, I believe, so roughly just under a 4% closing rate as well. So a dramatic, dramatic increase in volume.
Why? Because I think during COVID, we all looked at each other and we said, "Is there really going to be another crisis? Wow." We were all pinching ourselves. Everybody was waiting for that shoe to fall.
But then, of course, the government came along. It did what it had to do to help people. Nobody anticipated what that would do. Ultimately, we had inflation. The Fed reset interest rates. Then, of course, in doing so, it triggered this cascade of imminent interest rate increases that are coming as a result of maturities. Maturities are going to start to happen, they're already happening.
And as those current loans mature and have been maturing, those interest rates are resetting. So you've got roughly $5.6 trillion, I want to say, of commercial real estate debt. About 50% of it is held at regional or mid-sized banks. Regional and mid-sized banks are the lifeblood of commercial real estate. They're the guys and know the local guys and loan money to them.
You've got roughly, I want to say, about $3.4 trillion that's maturing over the course of the next five years, anywhere from $500 to $700 billion per year. So just imagine: you have an interest rate on a piece of commercial property with perfectly good LTV. But if the interest rate goes from a three or a four to a seven or an eight, there's just no underwriting that supports that.
Even if you are making those payments, it's not just that you can service the debt, which in and of itself is problematic, it impacts what are called the debt service coverage ratios. So those DSCR defaults are also something that are very significant.
Then obviously you have the federal regulators, whose job is to protect consumers and banking protect people from losing their money in banks. Then they come in and ensure that banks are adhering to the regulatory norms that are required.
So they'll look at a loan and they'll say, "Hey, these people are out of the underwriting. They're out of covenant." You need to classify this loan. And in doing so, that creates an opportunity, or the genesis, for institutions to want to sell that paper or restructure it with the borrower. But it's very problematic for them to restructure it, because they're held to a much different standard than private credit individuals.
Aaron Strauss: Absolutely. I guess the line between technical default or actually being underwater is very gray. But that's your world. And I guess with some of these institutions, you can have a fantastic borrower with the right LTV, but they just decided they're going to do something, or the property was in the news for some reason. That could trigger some technical default for some obscure reason.
But if you were to suggest over the next 6, 12, 18 months where the deal flow comes on a proportionate basis based on historicals, or where you think the market's going, have you created buckets to say, "Look, we think the regional banks are going to produce this amount of opportunities for us," or maybe, "We're going to avoid the CMBS market because it's so impossible to get through to the special servicer and figure that out," or you have so many deep relationships at this point that you're kind of agnostic?
Rafael Serrano: Well, we really are agnostic in terms of where it comes from. But historically, it's going to come from banks before it comes from CMBS. Because interestingly enough, CMBS and special servicers derive financial gain and benefit from the extent that loans are in default. So it's counterintuitive.
You would think to yourself, "Wow." In my mind, it's certainly a conflict, but it's the nature of the beast. It's the way the model is structured. The majority of revenue that I have seen from a lot of these CMBS servicers comes from when a loan is in default. They collect all the default interest, and they collect a lot of fees. It's a very fee-driven model. So it certainly has its complexities.
But I don't think we're going to be seeing a lot of that. That doesn't mean we don't buy it. It does come up now and then.
But the majority of what we're acquiring is simply coming from regional lenders, community banks, regional and large mid-sized banks, and also private lenders. A lot of private lenders, individuals who have been sitting on some money, they decide to make a loan to somebody, their neighbor, at a hard money rate. But if that loan defaults, they're not in the business of restructuring debt.
Or in the unforeseen eventuality that they need to prosecute a foreclosure, it can be a very complex matter in a state where you have judicial foreclosures, such as New York and Florida.
Aaron Strauss: Then you've become an expert in foreclosure laws around the country and you've worked with many different counsel. I know the value between somebody who knows what they're doing and someone who doesn't—it can absolutely kill your collateral.
But one thing I want to touch on too, it's called The Dealmaker's Edge. We try to get to the mental edge you need to make deals and the resilience you need to build. Having hung out with you in person, I know people may not pick up the vibe on the podcast, but you're tough as nails. You've been yelled at, you need to have tremendously thick skin to do the work that needs to get done at a very high level without having too much stress bear down on you.
Maybe you could talk about how you build resilience and power through on some of the tough days you find yourself dealing with investors, borrowers, the market, and a team. You just have to be really intense to constantly keep that fire going. Maybe you could talk about how you keep that brain healthy and resilient day to day.
Rafael Serrano: I think that when you talk about resilience, you're also calling it grit these days. Isn't that the nomenclature of the day?
Aaron Strauss: Yup.
Rafael Serrano: I don't know if you learn those things or you're born with them. I don't come from a privileged background as a child. I had some adversity, and I think that early on, you either stand up and fight or you take a knee. There's nothing wrong with either one of those, but to the extent it's part of your DNA and it's built into you, then you manage that process.
Interestingly enough, most people don't go into the business buying their first loan as a bad loan and then do nothing but buy bad loans for 20 years. It can be an environment where there is a lot of contentiousness. But our model is really to restructure debt for people. Historically, we've only taken back less than 7% of the collateral.
I think that really says a lot because we're not here to cause harm to people. We're really here to try to help them and act as rescue capital. Unfortunately, many people, when they're on the other side of the table and they have the wrong legal counsel, believe that it's worth the fight. But the reality is that you can't beat your lender. It's just not going to happen. It's just not what the business is for.
There are only two outcomes in this business: you either pay the debt that's owed, or you enforce the contract right of law and take back the underlying collateral. But that's it. So to that extent, we really do help people, but still, there's a lot of contentiousness. We've had a lot of people who are very unhappy sometimes. Most people are happy, but it only takes one person who's really upset to show up at the office and leave a bad taste in your mouth.
That does happen. We've had some unfortunate circumstances and situations where borrowers are very unhappy with the outcomes. There are some bad actors, and we do what we do. We do the best we can. You really can't be in this business and allow yourself to become emotional when you have an outcome because you have an obligation as a fiduciary to your investors.
But we do make an offer. We do restructure debt for people. In terms of managing the stress, I do a lot of exercise. I don't allow myself to become—I don't take this personally. I really do always extend the olive branch to people, almost always in the beginning, because we think it's good practice. It's the right thing to do, to give people another opportunity.
Unfortunately, it doesn't always work out for people. But that's how we go about it and that's how we do it. I think it's also a combination of, "Are you designed for something?" Is it in your DNA, so to speak? Do you have that grit, that resilience? And then, how do you manage it going forward?
I meditate every day. I do a lot of exercise. I'm very focused on routine. Then I also give back. I think that we have to pay it forward. From a community perspective, I think I mentioned to you earlier on that I launched a foundation for education, which I'm very passionate about. The mission of the foundation is to reform education in America, which, mind you, that's a huge statement in and of itself.
But to give you more detail and color on that, our first initiative, which we're in the process of doing right now, is to sponsor legislation to make income for teachers tax-free at the federal level. To increase teacher salaries nationwide and address the shortage of teachers that's taking place in this country.
I don't actually think people even know about it. No one seems to be talking about it. But in 2023, because the numbers haven't come out for 2024 yet, 900 school districts across America, or approximately 1.1 million kids, went to a four-day school week.
Aaron Strauss: Wow.
Rafael Serrano: That should be the news we're all talking about.
Aaron Strauss: Yeah. Talk about investing and giving back.
Rafael Serrano: That's right.
Aaron Strauss: If the kids don't have the right education, we're all in trouble later because they're the ones taking care of us when we're older. But all kidding aside, the fact that you've managed to blend your upbringing—I know you've got some street smarts—and obviously you're really savvy on the core business, combining that with mental health, and then kind of the cherry on top: people love to get to that philanthropic, I don't say era, but it's a continuum.
That legislation you're sponsoring, I know you've also done work through the Ganley Foundation, which is destigmatizing depression and other mental health conditions. I feel very passionate about that. Also local charities in Miami as well, the Cancer Center. I mean, you're a great example of what focus and smarts and consistency and discipline can lead to, not just for yourself and investors, but for the community.
I think that's the holy grail, to try to tie it all together. I think what also happens invariably is that doing well for others helps you feel better about yourself, which obviously increases mental health. So the whole story is jiving real well.
We want to continue to see a lot more deals being made successfully. Anything else I could have asked you that I should have asked you? Maybe other projects, where you want to take the firm, where you'd like to see some growth, maybe markets of opportunity. I leave that kind of an open-ended question.
Rafael Serrano: Well, we recently just launched a special situations fund. So that's going to also open the door to do other transactions that we quite often, as I mentioned, we have a very low closing rate in the core funds because it's very, very, very safe investing. But there's a lot of transactions that we've always done throughout the years that maybe don't fit the funds, and we'll do those outside the funds.
So now we launched a special situations fund, and then we're also going to be launching an origination fund to originate loans. And I think our ultimate goal is going to be the democratization of lending.
I would like to see really a large platform that allows the average individual, who has never had access to alternatives, put their money in a platform where we can, on the other side, loan it to people. Not take it to the CMBS or MBS market and securitize it, but actually warehouse it on a platform, marry a lender and a borrower, take a very small piece of it for managing the process, and maybe give the average individual access to better returns than they normally would or have historically had access to.
Because most of those things are reserved for people that really have a significant amount of net worth. But I think that a lot of people—an engineer, a lawyer, a doctor, a teacher, a plumber—they could invest a smaller amount of money. And potentially, as an aggregate, we can offer that. I think that's probably the future for us downstream.
Aaron Strauss: That's awesome, Rafael. I think everything you've done to date is amazing. I'm definitely going to keep a close eye on your further continued success and progress. Thanks for all the giving back you do and the value you added to everybody listening to this. I'm sure they'll take away some great lessons in life and obviously in business.
Again, really appreciate your time, and thank you so much for being on today. It really was an awesome conversation.
Rafael Serrano: Thank you, Aaron. I really appreciate it.
Aaron Strauss: Thank you for joining The Dealmakers' Edge. Don't forget to follow us on your favorite podcast platform. Please give us a five-star rating so more people can follow the conversation.
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