Alternative Financing for Commercial Real Estate | The Stoler Report-New York’s Business Report

Alternative Financing for Commercial Real Estate | The Stoler Report-New York’s Business Report


♪ [THEME MUSIC] ♪>>SO WHERE COULD YOU GET A GOOD RATE OF RETURN ON YOUR MONEY? YOU KNOW, IS IT THE STOCK MARKET? IS IT A MONEY MARKET? OR AN ALTERNATIVE LENDER IN REAL ESTATE? I DON’T KNOW, BUT TODAY I ASSEMBLED THIS GROUP OF ALTERNATIVE LENDERS WHO PROVIDE FINANCING FOR COMMERCIAL REAL ESTATE TO BE ON MY SHOW. MY GUESTS INCLUDE MICHAEL MAY WHO IS PRESIDENT OF SILVERSTEIN CAPITAL PARTNERS. JONATHAN CHASSIN WHO IS THE MANAGING DIRECTOR AT MOINIAN CAPITAL PARTNERS. MICHAEL HOFFENBERG WHO IS THE FOUNDER AND CEO OF TREVIAN CAPITAL AND LAST BUT NOT LEAST, THE COFOUNDER AND CEO ELI TABACK OF THE THE BLUESTONE GROUP. SO YOU WERE JUST SAYING THAT YOU LOVE LENDING. WHAT YOU MEAN BY LENDING AND WAS THE SECRET SOURCE AND LENDING TODAY AS AN ALTERNATIVE LENDER AS OPPOSED TO SOMEONE GOING TO A BANK OR TO AN INSURANCE COMPANY OR SO ON.>>>WE ARE IN THE TIME IN THE MARKET WHERE WE ARE SEEING A LOT OF PEOPLE AT A BACKGROUND INEQUITY AND IT’S A FUNNY TIME WHEN IT COMES TO BUYING ON THE EQUITY SIDE OF DEALS. SO IT GIVES PEOPLE WHO HAVE GOOD KNOWLEDGE ABOUT REAL ESTATE INVESTMENTS TO STEP IN TO A PLACE IN THE CAPITAL STACK WHERE THEY DO NOT HAVE THAT MUCH EXPOSURE AND HAVE THE ABILITY TO EARN RETURNS THAT ARE –>>ISN’T THERE A QUESTION OF RISK REWARD? I REMEMBER IN THE 90s IN TIMES EVEN WITH THE RTC, THAT THE WORLD HAS CHANGED. MICHAEL WAS IN A DIFFERENT ENVIRONMENT OVER THERE. THE WORLD HAS CHANGED. HOW DO YOU LIKE BEING ALTERNATIVE LENDER?>>>IT’S FANTASTIC. IT’S MUCH MORE INTERESTING. YOU ARE ABLE TO GENERATE RETURNS THAT ARE DEPENDENT ON CORE REAL ESTATE AND FINANCIAL SKILLS IT FAR EXCEEDS WHAT YOU CAN DO IN THE CAPITAL MARKETS AND YET YOU GET THE BENEFIT OF THE CAPITAL MARKETS TO HELP WITH LIQUIDITY AND PROVIDE CAPITAL TO THE BORROWERS.>>WHO IS YOUR TRADITIONAL BORROWERS? WHO’S COMING TO YOU?>>>SO OUR BORROWERS ARE WELL-HEELED DEVELOPERS WHO ARE LOOKING TO UPSIZE THEIR PROJECTS. IF YOU’VE DONE 15 SMALLER BUILDINGS IN BROOKLYN AND WANT TO BUILD 400 OR 500 UNIT TOWER, THOSE ARE THE TYPES OF BORROWERS THAT WE TEND TO FOCUS ON. WHEN THEY WANT TO UPSIZE THEIR –>>>IN OUR SPACE, AND WE REALLY FOCUS ON THE MIDDLE MARKETS, IT’S TWO TO $50 MILLION. WE’VE LENT EVERYONE FROM A PRIVATE EQUITY FUND TO A GUY WHO HAS DONE A WANT A PROJECT. IT JUST DEPENDS ON WHERE THEY ARE WITH THE DEAL AND WHAT IT REQUIRES FROM A CAPITAL PERSPECTIVE.>>>WHAT KIND OF DEALS DO YOU LIKE DOING TODAY?>>>THE RENT REGULATED MULTI FAMILY UNIT HAS CHANGED SINCE JUNE 14 WHEN THEY ENACTED THE RULES. AND THEN WERE TALKING ABOUT THE CONDOMINIUM WORLD. EVERY PUBLICATION AND EVERYTHING ELSE SAYS THERE’S AN OVERSUPPLY OF CONDOMINIUMS AROUND. HOW DO YOU LOOK AT THOSE TYPE OF MARKETS?>>>LIKE WE DISCUSSED BEFORE, IT’S ALL ABOUT BASIS AND WE’VE SEEN AN ADJUSTMENT IN BASIS WHEN IT COMES TO THAT. THERE’S A LOT OF CONCERN AND EXPOSURE WHEN IT COMES TO THESE RISKS, NAMELY THE RENT REGULATED MARKET. WE’VE SEEN PEOPLE WHO ARE ON OUR SIDE OF THE BUSINESS SHY AWAY FROM IT, BUT IF THEY ARE GOING TO DO SOMETHING, THEY WANT TO BE IN A BASIS WHERE THEIR DEBT YIELD GOING IN WITHOUT ASSUMING ANY TYPE OF UPSIDE AND UNFORTUNATELY WHEN THERE’S NO UPSIDE, THERE IS DOWNSIDE. SO, AS LONG AS THAT IS FACTORED IN TO ALL OF THAT. THAT GIVES US THE COMFORT LEVEL TO STEP IN AT A BASE THAT MAKES SENSE.>>MICHAEL WAS SAYING WHEN WE WERE TALKING IN THE GREEN ROOM ABOUT A LARGE DEAL THAT HE TOOK — GOT INVOLVED WITH BROOKLYN BUT PART OF THE REASON WAS BECAUSE OF THE ENTITY OF SILVERSTEIN PROPERTIES. LET’S TALK ABOUT THAT DEAL AND THE STRUCTURE OF THAT TYPE OF DEAL FOR MY AUDIENCE.>>>WHAT WE LIKE TO DO IS WE LIKE TO DO DEALS WHERE WE HAVE SPECIAL SAUCE IS WHAT I CALL IT. SO SILVERSTEIN, HAVING BUILT THE WORLD TRADE CENTER, THE FOUR SEASONS, HAS THE CAPACITY — ESPECIALLY IN NEW YORK CITY — TO BUILD LARGE SCALE GRAND PROJECTS NORTH OF A BILLION DOLLARS, OFTEN WITH ENTITLEMENTS, TAX CONSIDERATIONS, ON TOP OF SUBWAY LINES, ALL THE THINGS YOU SEE IN THE DEAL WE DID IN BROOKLYN. WE GOT INVOLVED IN OVER A THOUSAND FOOT HIGH CONSTRUCTION PROJECT, ON A MIXED USE TOWER IN BROOKLYN AND ALL THE COMPONENTS THAT MADE IT COMPLICATED WE FELT LIKE WE HAD THE ABILITY TO UNDERWRITE EITHER AS WELL AS THE MARKET IF NOT BETTER. WE HAD THE ABILITY TO UNDERWRITE THE COSTS, THE TRADES, UNDERWRITE THE TIMELINE, TO LOOK AT LITERALLY WHERE MATERIALS ARE GETTING BOUGHT ON PROJECTS THAT WE ARE DOING. THAT SAME DAY, ON THAT SITE. IT GAVE US A GOOD INSIGHT INTO HOW THE CONSTRUCTION WILL GO. AND THEN ON THE CONDO IN THE RENTAL SIDE OF IT, WE HAVE BEEN LARGE-SCALE DEVELOPERS. WE SPEAK TO THE BROKERS, GIVING US MARKET UPDATES AND PITCHING US ON PROJECTS. WE HAVE A BEAT INTO THE NEW YORK SALES AND RENTAL COMMUNITY. WE THOUGHT WE HAD FANTASTIC INFORMATION AND IT WAS A MARKET THAT WE LIKED WITH GREAT DEMOGRAPHIC.>>>DID YOU HAVE COMPETITION.>>>WE HAD SOME.>>>BASED ON THE SIZE OF THE TRANSACTION, THE MAGNITUDE, COUPLED WITH DIFFERENT OPINIONS, I MEAN, I BELIEVE THAT THE CONDO MARKET IN DOWNTOWN BROOKLYN IS STRONG, THE RENTAL MARKET HAS BEEN STRONG BUT THERE’S NOT A LOT OF NEW PRODUCT COMING ON BOARD. WHEN YOU TRY TO MITIGATE YOUR RISKS, WHAT THE SITUATION IS AS COMPARED TO GARY’S DEAL IN DOWNTOWN BROOKLYN THAT HAS A 25 YEAR TAX ABATEMENT. A FULL TAX ABATEMENT COMPARING. SO IT CHANGES THE UNDERWRITING A LITTLE BIT.>>>THERE’S AN AFFORDABLE COMPONENT. A TAX COMPONENT. THERE’S ALL THE THINGS THAT YOU WOULD EXPECT IN NEW YORK CITY GIVING IT THE TAIL WINDS.>>LET’S TALK ABOUT WHAT YOU’VE DONE IN THE HOSPITALITY. NOT EVERYONE OVER HERE IS KEEN ON THE HOSPITALITY.>>THE MOINIAN GROUP, AS THE LARGER ENTITY, WE OWN OVER 2000 HOTEL ROOMS, YOU KNOW, IN NEW YORK AND NATIONALLY. SO WE ARE COMFORTABLE, GENERALLY WITH THE OPERATIONS OF THE BUSINESS. WE’VE BUILT THE LARGEST HILTON GARDEN INN IN THE COUNTRY, I BELIEVE, STILL. OVER 400 UNITS ON 54TH STREET. WE ARE COMFORTABLE LENDING TO PEOPLE DEVELOPING HOTELS, THE LARGEST DEAL WE’VE DONE TO DATE IN THE HOSPITALITY SPACE IS THE MARKS DEVELOPMENT ON 10TH AND 34TH. THE HUDSON YARDS COURTYARD INN WHICH IS ACROSS FROM HUDSON YARDS. ALSO THE LARGEST COURTYARD I BELIEVE IN NEW YORK. THAT DEAL, WE WERE IN FROM THE LAND ALL THE WAY THROUGH THE DEVELOPMENT AND WE RECAPPED IT AND WE ARE PAID OFF TWO MONTHS AGO OR MONTH AND HALF AGO. THAT ONE WENT WELL AND WE CONTINUE TO LEND TO THAT SPONSOR ON OTHER HOTEL PROJECTS THROUGHOUT THE BOROUGHS.>>MICHAEL, LET’S TALK ABOUT WHAT YOU’VE BEEN DOING RECENTLY?>>WE HAVE TWO DIFFERENT PLATFORMS. ONE’S A HIGHER YIELDING PLATFORM. AVERAGE COUPON 7 AND A HALF TO 9 AND HALF PERCENT WITH A COUPLE POINTS, ONE IN ONE OUT. WE ARE SEEING A TREND GOING BACK TO THE CONVERSATION WE’RE HAVING EARLIER WHICH IS THIS CONDO CONSTRUCTION COMPLETION AND INVENTORY LOANS. WE LIKE TO COME IN AT THE END OF THE MOVIE WHEN WE HAVE PRICE DISCOVERY, MAYBE THERE IS A CONDO OR TWO UNDER CONTRACT. MOST OF THE RISK IS TAKEN OFF THE TABLE AND MAYBE THE PROJECT WENT TO LONG COSTS WERE TOO HIGH, THEY NEED FRESH CAPITAL OR GIVE THEM MORE TERM TO SELL THE CONDOS AND ULTIMATELY FINISH CONSTRUCTION. WE FOUND A NICE NICHE COMING INTO THESE COMPLETION DEALS ALL OVER THE CITY WHETHER IT’S HARLEM, UPPER EAST SIDE, NOLITA, AND GOING BACK TO YOUR COMMENT, WE ARE MORE OF A BOTTOM-UP TYPE OF LENDER. REAL ESTATE IS VERY IDIOSYNCRATIC TO THE NEIGHBORHOOD THAT IT IS IN. SO WE LIKE TO LOOK, WHETHER IT IS IN NEW YORK CITY OR REALLY NATIONWIDE, WE ARE LOOKING FROM THE BOTTOM UP AND MAKING SURE WE ARE COMFORTABLE AS A LENDER BUT MORE IMPORTANTLY THAT THE MARKET CAN ABSORB THOSE UNITS. LOOKING AT A CONDO DEAL IN NOLITA, WHAT’S THE INVENTORY OF THE MARKET? WHAT WAS THE PRICE DISCOVERY ON THE UNIT THAT WAS UNDER CONTRACT AND ON THE FLIPSIDE, OUR OTHER PRODUCT IS A MORE TRANSITIONAL MULTIFAMILY FOCUSED, WHICH IS L300, L500. THERE WE ARE FINDING NORMAL VALUE AT MULTIFAMILY IN THE 2 TO 3 YEAR TYPE OF TERMS WITH OPTIONS TO EXTEND. GUYS THAT ARE COMING OFF CONSTRUCTION LOAN THAT NEED TO STABILIZE TO A SALE, THOSE TYPES OF DEALS.>>ELI. LET’S TALK ABOUT YOUR DEAL IN FLUSHING BECAUSE THAT’S A UNIQUE AREA THAT NOT EVERYBODY LIKES TO LEND.>>SIMILAR TO WHAT MICHAEL SAID. WE FIND THAT — NOT THAT WE COINED THIS NICHE, BUT WE FIND YOURSELF ACTIVE IN THE TRANSITIONAL SPACE OF DEALS. SO ON THE DEVELOPMENT SIDE, WE WILL MORE LIKELY BE THERE WHERE THE BORROWER IS, WELL HEALED SPONSOR AND WE WILL COME IN FOR — BRIDGE TO CONSTRUCTION TYPE MONEY. AND THEN, ONCE THEY HAVE THE CONSTRUCTION LOAN, A LOT OF TIMES, WE WILL END UP PUTTING OURSELVES IN A SUBORDINATE POSITION IN THE POINT THAT MICHAEL MAKES, SAID BEFORE, ABOUT HAVING A LENDER IN THERE THAT HAS THE RESOURCES AND THE UNDERWRITING CAPABILITY TO BE ABLE TO TAKE A DEAL LIKE THIS DOWN IS IMPORTANT TO US. IF WERE GOING TO PARTICIPATE WITH SOMEBODY. IN REGARDS TO THE FLUSHING MARKET THAT WE WERE DISCUSSING WE FIND THAT MARKET TO BE AN ATTRACTIVE MARKET. BECAUSE WE FIND THE DEMOGRAPHIC TO BE KIND OF LIKE A CAPTIVE AUDIENCE. SO IT’S — THE SUPPLY AND DEMAND IN THOSE MARKETS DON’T FLOW WITH THE SUPPLY AND THE DEMAND OF THE REST OF THE CITY. THE ONLY THING IS, YOU NEED TO BE CAREFUL ABOUT WHO YOU ARE LENDING TO AND WHAT YOUR — EXECUTION IS GOING TO LOOK LIKE SHOULD DEFAULT HAPPEN BECAUSE YOU REALLY HAVE TO BE IN THAT MARKET WITH PEOPLE.>>HOW DO YOU AS LENDERS, LOOK AT BOTH CO-LIVING WHICH IS MORE OF THE COMMON AND SO ON, AND THE CO-WORKING WHICH IS THE INDUSTRIOUS, WEWORK AND THE OTHERS. MICHAEL?>>WE’RE LOOKING A LOT OF CO-LIVING NOT SO MUCH IN NEW YORK BUT IN OTHER MARKETS I THINK IT’S INTERESTING. THE CO-LIVING I LIKE IS WHEN YOU ROOMS THAT HAVE THEIR OWN KITCHENETTES AND HAVE — >>>SO THEY ARE A SEPARATE APARTMENT.>>>MICRO STUDIO I CALL IT.>>>AS OPPOSED TO THE OTHER CO-LIVING WHERE IT’S — ONE BEDROOM AND THEN YOU ARE SHARING THE OTHER AMENITIES.>>>CORRECT. I LIKE THAT MODEL MORE AND WE SEE ESPECIALLY IN LOS ANGELES WE SEEN A LOT OF SUCCESS IN GETTING 150-200 PERCENT MORE DOLLARS PER SQUARE FOOT OUT OF THOSE DEVELOPMENTS. SO I THINK IT’S INTERESTING. I THINK WHEN YOU’RE BACK TO THE STUDENT HOUSING KIND OF ADULT STUDENT HOUSING, IT MAY WORK, IT MAY NOT BUT IT’S TOUGHER TO CONVERT IF IT DOESN’T WORK.>>>WE LOOK AT THE CO-LIVING SPACE SIMILAR TO WHAT HAPPENED WITH THE CO-WORKING SPACE. RIGHT? PEOPLE WANT, YOUNGER PEOPLE ESPECIALLY, WANT MORE AMENITIES. THEY WANT THEIR — THEY WANT MORE OPTIONS. THEY WANT MORE SOCIAL ATMOSPHERE IN THEIR APARTMENT UNITS. THEY WANT OPTIONALITY TO MOVE AROUND BETWEEN THE PROPERTIES IF THEY NEED TO, TO BE MATCHED WITH PEOPLE — ALL THESE THINGS. THERE WILL BE AN ASPECT OF CO-LIVING THROUGHOUT THE MULTIFAMILY MARKET IN SOME FORM OR OTHER GOING FORWARD PERMANENTLY, WE THINK. NOT EXACTLY SURE HOW IT WILL SORT OUT. I DON’T THINK ULTIMATELY PEOPLE ARE GOING TO WANT TO LIVE IN A STUDENT HOUSING TYPE ARRANGEMENT AS AN ADULT.>>>IT’S DIFFERENT TIME PERIOD FOR DIFFERENT PEOPLE.>>>WHEN YOU ARE A STUDENT AND YOU’RE FORCED TO DO THAT, SURE. WHEN YOU’RE AN ADULT YOU WANT YOUR OWN REFRIGERATOR AND DON’T WANT TO DEAL WITH OTHER PEOPLE. WE THINK IT’S GOING TO BE MORE SIMILAR TO THAT WHERE YOU WILL HAVE SMALLER UNITS WITH MORE AMENITIES.>>>ONE OF THE WORDS TODAY THAT PEOPLE GET PETRIFIED IS RETAIL. HOW DO YOU, AS LENDERS, LOOK AT THE RETAIL ENVIRONMENT. FOREVER 21 WENT OUT OF BUSINESS. BASICALLY, SEARS IS GONE. MACY’S IS SELLING PROPERTIES. THERE’S A LOT OF TRANSITION RETAIL. HOW DO YOU LOOK AT RETAIL IN GENERAL AS A LENDER? WILL YOU LEND ON RETAIL MICHAEL?>>GOING BACK TO THE CO-LIVING, CO-WORKING, I THINK WHAT YOU WILL SEE IS A LOT OF FOLKS ARE GOING TO TAKE THE INDUSTRIOUS MODEL WHICH IS GOING TO TAKE MORE OF A MANAGEMENT CONTRACT AND I THINK THOSE FOLKS ARE AHEAD OF THEIR TIME AND GOING AWAY FROM THE TRADITIONAL LEASE MODEL AND I THINK THE WEWORK LEASES ASIDE FROM BUYING THE BUILDINGS WILL TRANSITION OVER TO A TRADITIONAL KIND OF MANAGEMENT CONTRACT LIKE THE HOSPITALITY SPACE. BUT TOUCHING ON RETAIL — RETAIL WILL BE HERE. IT’LL BE HERE FOREVER. I THINK WERE TALKING ABOUT HIGH STREET RETAIL IS OPAQUE IN TERMS OF PRICE DISCOVERY. BUT IF YOU GO OUTSIDE OF THE NEW YORKER TRI-STATE AREA THE NEIGHBORHOOD SHOPPING CENTER WITH STILL YOUR GROCERY AND SHOPPING CENTER YOU DROP OFF YOUR DRY CLEANERS GO TO THE BAR AND HAVE A DRINK AND GET YOUR NAILS DONE. OTHER PEOPLE GO TO THE SALON. THAT’S GOING TO BE THERE. DESTINATION RETAIL WILL PERSIST AND YOU SEE A LOT OF THE MALLS GETTING COMPLETELY TRANSFORMED INTO DIFFERENT USES.>>>ROCK CLIMBING. ENTERTAINMENT ZONES. I THINK IF YOU UNDERSTAND WHAT THE RETAIL IS BEING REPURPOSED INTO AND YOU’RE COMFORTABLE WITH THE BUSINESS PLAN, THERE’S A PLACE FOR IN TODAY’S WORLD AND THE FORESEEABLE FUTURE.>>ELI HAVE YOU –>>I WANT TO GO BACK ON THE CO-LIVING ALSO.>>IT’S A HOT TOPIC.>>I THINK WE SEE IN THE CONDO INVENTORY LENDING WE DISCUSSED EARLIER. I THINK THERE HAS TO BE, IN OUR VIEW IT HAS TO BE A COMPONENT OF A FULLBACK UNDERWRITING OF WHAT THE DEAL IS GOING TO LOOK LIKE.>>>AND USE THE APPROPRIATE RENTAL AS OPPOSED TO THE SUPERFICIAL RENTAL.>>>CORRECT. NOW GRANTED, YOU BE A LITTLE MORE AGGRESSIVE BECAUSE IT IS A FULLBACK AND THERE IS A VALUE TO WHAT’S BEEN INVESTED IN THE DEAL AND FOR THE FACT THAT IT IS A CO-LIVING PROPERTY NOW, BUT YOU’RE GOING TO HAVE TO HAVE THAT COMPONENT. AS FAR AS RETAIL IS CONCERNED, I THINK I JUST ECHO WHAT EVERYBODY ELSE SAYS. RETAIL IS A BIG — BUT YOU KNOW, HIGH-TRAFFIC, URBAN RETAIL IS ONE ANIMAL. I DON’T THINK WE’VE SEEN THAT AFFECTED THAT MUCH. 149TH STREET IN THE BRONX, MAIN STREET IN FLUSHING, THOSE ARE DIFFERENT MARKETS. AND THEN WE ARE ALSO SEEING A LOT OF DESTINATION RETAIL WHERE PEOPLE ARE BRINGING IN EXPERIENCES INTO RETAIL AND IS JUST CHANGING THE FACE OF RETAIL AND DEMANDING A TYPE OF TENANCY THAT SERVES THAT.>>>SOMETHING THAT YOU BROUGHT OUT IS SOMETHING WE DISCUSSED IN THE GREEN ROOM, WAS THE UNSOLD CONDOMINIUM LOANS. THE UNITS OVER THERE. AND THE TWO TOP IDEA. ONE IS LIKE A — IS UNSOLD, IT REMAINS UNSOLD OR THE OTHER SITUATION WHERE BECOMES A RENTAL. AS LENDERS, HOW DO YOU LOOK AT THE UNSOLD IN GENERAL?>>>WELL THERE ARE A FEW DIFFERENT KINDS OF INVENTORY LOANS THAT WE’RE SEEING. THE LOANS WE TALKED ABOUT COMING OFF DEVELOPMENT WHERE IT’S THEY NEED MORE TIME OR WANTS TO GET A BETTER RATE NOW THAT THEY HAVE DE-RISKED THE PROJECT. THOSE ARE THE MOST ATTRACTIVE AND THE MOST COMPETITIVELY BID. THEN WE’RE SEEING LOANS WHERE THE UNITS HAD BEEN MISPRICED OR SLOW, THEY WANT MORE TIME. THEY WANT TO FIGURE OUT THEIR STRATEGY. AND THEN WE SEE THE ONES WHERE THE CAPITALIZATION IS A DISASTER. THE PRICE OF THE UNITS IS TOO HIGH. IT’S UNLIKELY THEY’RE EVER GOING TO SELL AT THE PRICE THEY ARE MARKETED AT. IT’S A KICK THE CAN DOWN THE ROAD STRATEGY AND YOU’RE WAITING FOR THE DEAL TO BLOW UP. WE ARE SEEING ALL THREE OF THOSE. OBVIOUSLY THE LAST ONE IS THE ONE WE SHY AWAY FROM. THE MOST COMPETITIVE IS THE OTHER. IT ALL COMES DOWN – IT’S BOTTOM UP.>>YOU WERE SAYING IS LIKE A TALE OF TWO CITIES IN THE CITY OF NEW YORK, TRIBECA, IS FINE, DEPENDING ON THE AREA, AND FINANCIAL DISTRICT IS TERRIBLE. BECAUSE THERE’S TOO MUCH INVENTORY COMING ON AND ADDITIONAL INVENTORY COMING ON EACH AND EVERY DAY.>>>NEW YORK IS A BIG CITY. IT’S A MICRO MARKET CITY. TRIBECA WE SAID THERE’S ONE UNIT OF FOUR BEDROOMS OR MORE UNDER 15 YEARS AVAILABLE AND THIS ONLY FORTY SOMETHING UNITS COMING ON. YOU’RE LITERALLY GOING THE OTHER SIDE OF THE WORLD TRADE CENTER IS THE FINANCIAL DISTRICT YOU’VE GOT — AT THE PRICES ARE SELLING AT 10 YEARS OF INVENTORY. THEY’RE A MILE APART. IT’S WHAT BLOCK YOU ARE ON WHAT NEIGHBORHOOD THE DEMOGRAPHICS AND BUYERS ARE DIFFERENT. IT’S A MICRO MARKET CITY.>>>I THINK THERE ARE THREE THINGS THAT WE LOOK AT IS DOES THE BUILDING WORK AS A RENTAL? IF NOT, ARE YOU COMFORTABLE IN AS A PRICE PER SQUARE FOOT? BUT WHAT DOES THAT EQUAL ON A WHOLE DOLLAR BASIS. IF YOUR PRICE PER SQUARE FOOT IS A LITTLE BIT HIGHER BUT THE WHOLE DOLLAR IS A BITE-SIZE THAT THE MARKET CAN CONSUME, THEN MAYBE THE DEALS WORKS. IT’S A 5000 OR 10,000 SQUARE-FOOT APARTMENT AND THE WHOLE DOLLAR CHUNK IS MASSIVE THAT’S A DIFFERENT ANALYSIS. WE ARE HYPER FOCUSED ON THOSE THREE LITTLE –>>WE ONLY LEND ON CONDOS IF YOU CAN UNDERWRITE IT AS A RENTAL. WE ARE NOT GREAT CONDO LENDERS BECAUSE OF THESE ISSUES. HUGE BITE SIZES, OPAQUE BASIS PER FOOT AND THEN THE SPONSORSHIP. WERE SEEING A LITTLE CASH OUT AT THE END DOOR PAY UP THE RESERVES, GIVE ME TIME. I’M NOT WILLING TO, YOU KNOW, ADJUST MY PRICES YET, BUT WILL SEE WHEN THAT HAPPENS.>>>TO MICHAEL’S POINT, IRONICALLY, WHEN WE SEE A LOT OF THESE — AND MAYBE YOU’LL AGREE WITH ME. WHEN YOU SEE THESE INVENTORY LOANS, ONCE YOU START PEELING THE ONION AWAY YOU REALIZE THAT 30, 40 PERCENT OF THE UNITS ARE THOSE BIG BITE-SIZE UNITS AND THAT’S WHERE YOU VALUE IS COMING FROM ON A PRICE PER POUND BUT YOU’RE NOT MOVING A $12 MILLION UNIT OUT THE DOOR.>>SO WHAT DO YOU DO WITH A $12 MILLION DOLLAR UNIT?>>>THE SIMPLE THING IS 10% OF YOUR UNITS, GO INTO 20%, GO INTO 30%, HAVE TO DROP IN PRICE EVERY MONTH UNTIL YOU CATCH UP.>>ELI WAS SAYING THERE’S A LOT OF DISTRESSED DEBT BECOMING AVAILABLE. WHAT YOU MEAN BY THAT?>>>I THINK A LOT OF THE DISTRESSED DEBT THAT I’M SEEING IS AROUND THESE CONDO INVENTORY LOANS. THEY WERE ORIGINATED EIGHT MONTHS AGO. THERE’S NO RISK IN THE DEAL. ALL THE SKIN THAT THE SPONSOR HAD IN THE GAME.>>>THEY TAKE OUT ALL THEIR MONEY ALREADY.>>>THERE’S NOTHING BURNING OTHER THAN TO GET THESE UNITS OUT. NOW THEY’RE DEALING WITH THE MATURITY. THERE DEALING WITH AN INFLATED CONDO VALUE. AND YOU KNOW, MAY BE LIABLE WAS SOMEONE ELSE WERE THEY STARTED BUT ALL THESE THINGS COME TOGETHER AND A DISCOUNT IN VALUE OF 20 PERCENT AND –>>WHAT ABOUT BANKS? ARE THEY BECOMING MORE CONSERVATIVE TODAY THAN BEFORE?>>>NO ONE WAS LENDING IN 2010. IT’S HARD TO FIND A MORE CONSERVATIVE WORSE ENVIRONMENT UNLESS IT’S 2009.>>>2019 IS MORE AGGRESSIVE BUT I THINK ONE OF THE THINGS I BELIEVE IS UNDERWRITING STANDARDS HAVE NOT DRAMATICALLY SHIFTED. PEOPLE TAKE DIFFERENT VIEWS ON RISK, THERE HASN’T BEEN — EVEN WITH ALTERNATIVE LENDERS I HAVE NOT SEEN A SHIFT TO PRO FORM RENTS AND THINKING THINGS ARE GOING TO GROW QUICKLY. I THINK PEOPLE ARE PRETTY CONSERVATIVE.>>>I AGREE. I THINK 2010 WAS SORT OF THE REBIRTH OF THE INDUSTRY AND WHEN BANKS ACTUALLY STARTED TO BE ABLE TO LEND ANYTHING AGAIN. THERE WAS A SPECIFIC TIME. ’11, ’12, YOU STARTED TO SEE BANKS HAVE BALANCE SHEETS BUT BANKS HAVE BEEN CONSERVATIVE FOR 10 YEARS ALREADY. THAT IS WHY WE ALL EXIST NOW.>>>LET’S TALK ABOUT SOURCES OF CAPITAL. WE ARE TALKING THAT BOTH OF YOU HAVE TAPPED THE ISRAELI BOND MARKET AS A MEANS FOR YOU TO LEND. TALK ABOUT THAT.>>>JOE DID HIS INITIAL OFFERING WAY BACK IN ’14 OR ’15, I THINK BEFORE I JOINED THE COMPANY. WE DID ANOTHER RAISE A YEAR AGO IN ISRAEL 200 MILLION AT THREE PERCENT. THE MARKET IS DIFFERENT NOW. IN TERMS OF THERE HAVE BEEN A CERTAIN NUMBER OF ISSUES THAT HAVE COME UP.>>>NOTHING OF THE PEOPLE ON MY PANEL TODAY, BUT THERE HAVE BEEN SUBSTANTIAL DEFAULTS IN THE MULTIFAMILY AND CERTAIN CONSTRUCTION.>>OF COURSE. AND SO, LIKE WITH ANY NEW MARKET, THAT BRINGS, THAT’S A LEARNING EXPERIENCE THAT INVESTORS HAVE TO UNDERSTAND. THERE IS LESS LIQUIDITY NOW THAN THERE WAS TWO YEARS AGO. I THINK WE ARE ALL FIGURING OUT HOW BEST TO NAVIGATE IT. IT’S A COMPETITIVE PRODUCT. BUT IT’S NOT AS LIQUID OR LARGE AS IT USED TO BE.>>SILVERSTEIN IS HAVING A GREAT EXPERIENCE WITH IT. I THINK WERE ONLY THE AA RATING ON THE EXCHANGE. WE ARE CONSIDERED ONE OF THE BEST, IF NOT THE BEST OUT THERE. AND SO, WE HAVE GONE BACK AND TAPPED THE MARKET TWO MORE TIMES. THE DIFFERENCE, IN TERMS OF US VERSUS YOUR STRATEGY IS DEBT IS ONE PART OF THE OVERALL COLLATERAL THAT WE PLEDGE FOR THE BONDS IN ISRAEL. IT’S A SMALL PART. IT’S PRIMARILY REAL ESTATE OWNED ASSETS. THAT IS A SMALL PART OF IT.>>>OUR PORTFOLIO IS BACKED BY EQUITY INTEREST.>>AND SOME DEBT ALSO.>>>ALL OF THE LENDING THAT WE DO THOSE FUNDS IS COLLATERAL FOR THE ISRAELI ENTITY.>>MICHAEL, YOU GOT MONEY FROM INSURANCE COMPANIES. HOW DO YOU SEE INSURANCE COMPANIES TODAY LOOKING AT THE ENVIRONMENT?>>I THINK USING SPECIFIC TO THE MULTIFAMILY MARKET WITH FANNIE AND FREDDIE PULLING BACK A NUMBER OTHER MORE CONVENTIONAL LENDERS ARE FILLING THE GAP. A NUMBER OF YOUR TRADITIONAL SLEEPY LENDERS ARE HAVING THEIR DAY NOW AND PICKING UP AND FILLING UP THEIR BALANCE SHEETS WITH A NUMBER OF REALLY GOOD LOANS, SPECIFICALLY WITHIN THE MULTIFAMILY SPACE. I THINK THAT ECHOES — THE SAME IS TRUE WITH CMBS AND REGARDING YOUR COMMENT OF BANKS WHETHER IT’S LOCAL, REGIONAL OR NATIONAL BANKS. I THINK FANNIE AND FREDDIE PULLING BACK HAS HELPED. AND THE SAME GOES WITH OFFICE AND INDUSTRIAL. IT’S A COMPETITIVE LANDSCAPE AND THERE’S NOT A SHORTAGE OF CAPITAL. EVERYONE LOVES THE DEBT SPACE BECAUSE THE EQUITY SPACE IS DIFFICULT TO MAKE THE NUMBERS WORK.>>>WHAT ABOUT THE SUBURBAN OFFICE MARKET?>>>WE DON’T LOOK AT TOO MUCH SUBURBAN ANYTHING. BUT IN MY EXPERIENCE IT HAS TO BE FULL AND HAS TO BE A LONG-TERM LEASE.>>>WE DRIVE THROUGH IT ON THE WAY TO AND FROM THE MARKETS THAT WE LENDED.>>>I MEAN, IN CONCLUSION, THE APPLE SEEMS BRIGHT AND SHINY OVER HERE FOR THE PERIOD OF TIME AND I THINK ALTERNATIVE LENDERS HAVE BECOME A LARGER SEGMENT OF THE MARKET IN THE LAST DECADE AND I THINK IT’S GOING TO CONTINUE. I THINK PEOPLE, WHEN THEY REALIZE THERE ARE DIFFERENT OPPORTUNITIES, ALL OF YOU, WHEN THEY’RE LOOKING FOR LOAN AND CERTAIN OR APPLICABLE TO YOU, AND CERTAIN ONES AREN’T. BUT I’D LIKE TO THANK MICHAEL, JONATHAN, MICHAEL, AND ELI AND SEE YOU NEXT WEEK. ♪ [THEME MUSIC] ♪

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