Simon Arraj

Observant readers might notice that the initials for Checkpoint Finance Group are GFC in reverse, and backing himself out of the Global Financial Crisis has been a massive learning experience for founder Simon Arraj. How he did it and what he learned in rebuilding his business has presented many valuable lessons shared here for us all.

Imagine being an eligible bachelor and director of your own business, leading a lifestyle to suit; owning one of the most expensive cars on the market and pursuing a passion for driving fast cars on the track.

Sounds ideal doesn’t it? Add a martini – shaken, not stirred – and it could be James Bond in real life, minus the spy factor. Now let’s add the year 2008 to the scenario: still sound great?

Simon recounts, “I tell this story and people laugh about it. I was driving an AMG C63 worth about a hundred and fifty thousand dollars – it was just the second one in the country, and I couldn’t afford to put petrol in it. Three months after I purchased it, the GFC hit Australia. My credit cards were maxed, no money in the bank, no cash reserves and I had to ask my Dad for twenty dollars for petrol!”

It’s the story Simon Arraj, Director of Checkpoint Finance Group, tells today with a wry smile because, with the value of hindsight, he realises it was a major turning point in his life.

At the time he told his father “I needed the money because I had to go to a meeting and wanted to buy a couple of coffees. Little did he know the twenty dollars was to put petrol in the car.”

Given that car was a 6.3 litre V8 Mercedes, twenty dollars wasn’t going to get him too far. Simon is now able to laugh about it; however at the time, “it was horrible, demeaning.”

Simon didn’t only lose the car in 2008, he lost two and a half million dollars of his own money and owed as much again to investors. The GFC turned his idyllic life into a nightmare and he was too proud to tell his parents the full extent of his problems.

Simon was living in the moment when the reality of the GFC hit; “I had built a successful business, financially I was very strong, and then in the blink of an eye it all disappeared. That was very, very difficult to accept and digest. Really I had just two choices – sink or swim.”

Obviously Simon decided to swim, but it’s how he decided to swim that’s makes the Simon Arraj story unique.

Before starting his own business in 2002, Simon was a banker who had moved into broking and then progressed into mezzanine funding. Simon explains that, “as a mezzanine funder you effectively underwrite certain transactions which means you’re assuming the credit risk yourself.”

When the banks became aggressive during the GFC, Simon’s company, which was the second mortgagee on developments, was squeezed, and it was those lessons that taught Simon how to swim.

Worked For Free

As a result of the credit squeeze, “not only did we lose a considerable amount of money, we were forced to take over some projects. It was through that, that we were pushed into development.

“I decided I wanted to get through it – and it wasn’t just me, there were other people involved – so taking over projects meant a bit more than just recovering other people’s money. There was a lot invested in terms of your integrity, so it was very important we saw those things through.”

For the next two years Simon worked for nothing as he acquired a better understanding of the development business in order to pay back those investors who had supported him.

In the end, “they didn’t get any profit on their investment but they recovered all their principal. I sacrificed a lot to complete two projects just to recover their funds. But, without that experience, without being thrown in the deep end, I wouldn’t be where I am now.”

The second story Simon tells of that GFC era isn’t as ‘funny’ as the first, but far more satisfying. It’s the story of the re-birth of his company.

He recalls that “in 2009 we were second mortgagee on a couple of transactions. The first mortgagee was a major bank and they became very impatient, deciding it was easier and more convenient to appoint receivers as opposed to work through the deal commercially.

“That whole receivership experience cost us an incredible amount of money and time. But we were able to succeed with the receiver in the end.” Simon worked hard to formulate a way to “retire the receiver and pay out all the debts without the assets having to go to market. In fact, they had tried to go to market and the property was put up for auction, but twelve days before the auction we were able acquire the asset.”

In that instance Simon was able to outmanoeuvre the receiver and although that came at a cost, “I learnt a lot through the experience and about the receivership industry.”

A similar story arose again in 2012 where a club had appointed an administrator and a creditor-appointed receiver was also involved. On the surface, that was untidy and complicated.

In the background, Simon was “using my intel, from knowledge I’d gained during the GFC, to trump both the receiver and the administrator. I acquired the asset off-market and subsequently have done very well out of that.”

From the ashes of the GFC, Checkpoint Finance Group has grown into a successful property development business which also finances developments for other property developers.

Financing for other developers may seem a little strange at first, especially for those perceiving Checkpoint to be in competition, being another developer itself. On this front, Simon tells them, “I’m a developer but don’t consider that to mean I’m your competition; consider me to be a partner, not in the traditional sense, but in the sense that I understand your business.”

The reality, as Simon sees it, is that “my competitors are bankers and other brokers. Bankers work for banks, they’re numbers people and they work on feasibilities and it’s very transactional. Brokers are similar, it’s all transactional.

“My approach is that I’m a broker but I’m also a property developer. So I don’t use or adopt a ‘tick the boxes’ approach to lending.”

Simon looks at the risk of deals completely differently. “The conversations I have with developers are completely different to the conversations they have with other brokers and bankers. I can relate to their everyday affairs.”

A further difference is in the way Simon sees his competitive advantage. “I now look at risk before I look at return. Return for me is a secondary factor. I try to get my head around the dynamic of the transaction and if I’m comfortable with the risk, then I will look at an appropriate return to compensate me for that risk.”

There’s another area in which Simon has done things differently which he believes has a big impact on clients. It’s subtle but appears to work well for him. It’s the transformation of his personal image to what could be labelled the ‘blue collar’ broker.

To explain, Simon illustrates by adding, “I don’t like to wear suits – developers don’t like that. Can you imagine what it looks like, rocking up to a building site wearing a suit? It’s very stand-offish and it’s what a banker would do. My approach is more relaxed.”

His idyllic ‘James Bond’ lifestyle has returned – however, Simon’s smarter now and is no longer an eligible bachelor. These days the martini is stirred.

The biggest change has been in Simon’s personal life. “I got married a few years ago and have three wonderful kids and that changes everything. The whole dynamic has changed: I’m still driven by success, but everything I do is now about my family, and family is first.”

Happily, Simon adds that “most of the things in my life today that make me smile are things my kids do, things they say and the way they say it. Just the general feeling of going home, walking in the door and embracing that love which is unconditional.”

The cars have also returned: there’s a new AMG C63 in the garage for him and a GLE 450 Coupe for her, and there are also track days which allow Simon to drive around the best racetracks in the country.

Simon’s favourite is Mount Panorama. “It’s a public road most of the year, and companies like Mercedes have to gain special permission from the Bathurst Council to convert it into a race track for their corporate days. And they do it so well; there are around fifty invited guests and twenty-five driver trainers, so you get plenty of chances to drive the cars and drive them fast.”

Simon doesn’t like to talk about the speeds he can get up to on these track days, but he can confirm that what the book says is the top speed is generally understated. For him, “it’s a massive adrenaline rush, driving the cars in a controlled environment at ridiculous speeds across the top of the mountain, down through the Esses and onto Conrod straight.”

These experiences provide the full package -“the butterflies, the nerves; total excitement. It’s also scary, because you don’t want to damage the car. It’s very expensive if you do.”

Cars are his passion, “although my wife says it’s an obsession, and that’s probably true.” Whether he’s on the racetrack or driving to work, Simon has had a love of cars which began when he was a boy.

A neighbour was always working on cars in his garage, and the sound of them and seeing them driven down the street fascinated a young and impressionable Simon Arraj so much that he wanted to race them.

At the time, though, “my parents wouldn’t hear of it. They’d worked hard to give my brothers and me a good education, and that included going to university. So cars had to wait until I could afford them.

“I’ve been lucky enough to own a Porsche, an Aston Martin, a BMW M3 and now the Mercedes. I can’t change the fact I love cars, but at least I have the money now for the fuel.”

There’s no chance of asking Dad again for petrol money. Those were tough lessons during the GFC and they’re not going to waste.

Better Prepared

A lot has happened since 2008. The biggest factor for Simon has been “my experience in development, and that has completely changed the way I look at deals. I used to only look at deals as a broker or a banker and that’s very different. We’re excited about the next couple of years.”

Simon is of the view that “the Sydney property market is going through some significant changes. We’ve come off the last three years which I would describe as a perfect storm.

“We’ve had a relaxation in foreign investment laws which has allowed significant capital inflows from offshore. Then we had, and still have, a period of low interest rates, which is always a stimulant for the property market. We had relaxation of legislation around self-managed super funds allowing people to get into their funds to buy investment properties, and changes in first home owners’ initiatives.

“Now, the concern is, prices have increased and so has supply. So now we’re seeing a bit of caution in the marketplace; buyer sentiment has certainly changed and most importantly the banks’ appetite for risk has reduced significantly.”

Simon is wary of calling it another GFC, but does believe there is a chance the market will correct, and in some areas more than others. He doesn’t believe it’s time to be bullish, but does feel there are opportunities.

In Simon’s view, “through change, opportunities always present themselves. Within the space in which we operate and the way we analyse our transactions there are plenty of opportunities.”