Developers With Lending Arms Eyeing Opportunities Amid The Coronavirus Crisis
Developers that broadened their reach into debt in recent years are now looking at what this new landscape may mean for their business.
As the fallout from the health crisis takes its toll on the economy, many are considering what role they will be playing in future projects — and what new opportunities these circumstances may present.
Over the past few years, equity investors and developers have aggressively stepped up on lending, filling a gap created by banks’ caution. And as the cycle stretched out, some commercial real estate players were already questioning if those deals would stand the test of time.
Now, with at least 14,000 people dead from the virus around the nation as of Thursday, millions of Americans filing for unemployment at record-shattering levels and construction sites sitting empty, most are preparing for economic pain of Great Depression-level proportions.
Some of these alternative lenders are considering if they will need to step in and assist on projects that come under stress. Others are looking to make more loans as competition for deals thins out.
“We’ve evaluated our positions and we’re comfortable with what is going on, maybe they need a little bit of capital, because of the disruption,” RXR Realty President Michael Maturo told Bisnow. “On the other side of this, there may be opportunities to step in where there is some distress and to provide some recovery capital.”
In 2018, RXR Realty formed a joint venture with a Canadian pension fund, kicking off with $300M of equity. Maturo said many of the loans have been for the development of residential apartments, including a condominium loan for a St. Regis flagship in Rye, New York. The company has also provided preferential equity on office buildings in New York City, he said.
Since the crisis has deepened, Maturo said RXR has moved to allocate a portion of its fund for investing in distressed assets, both through loans and through acquisitions.
“People that are in it will look to exploit it,” he said. "People that have these lending platforms — they will be stepping in and investing in opportunities."
RXR is certainly not the only developer that has ramped up its lending capacity.
Moinian Group, Kushner Cos. and Related are all developers that have branched into lending in recent years. Naftali Group has Naftali Credit Partners, which provided $62.85M for a condominium development at 208 Delancey St. last month.
Silverstein Properties has created its own lending arm, known as Silverstein Capital Partners. A year ago, the venture joined with Otéra Capital Inc. to provide a $664.1M construction loan to JDS Development’s planned 1,066-foot-tall apartment tower 9 DeKalb Ave. in Brooklyn.
Late last year, Silverstein said it was looking to double its lending to more than $1B throughout 2020 to provide debt to condo developers hit by a sluggish sales market.
"[We have] fewer deals facing problems than our competitors,” said Slate Property Group’s Daniel Ridloff, who runs the developer’s lending arm, which it launched in 2018. He noted Slate’s lending has primarily been in the multifamily space, which he believes to be a safer sector of the real estate market right now.
He said the firm is checking in every week with borrowers, and there have been no red flags so far. He declined to give specifics on the loans Slate has provided, but it reportedly lent $45M to Bentley Zhao’s condo development in Long Island City in 2018.
“It’s not like our competitors that are lending on hotels and retail plays," he said. "Our whole thesis is that we can step in, but we have no intent of ever having to.”
He agreed that some lenders may be dealing with “problematic loans” and shrinking away from deals. Slate is being “super active” in looking for opportunities, he said, as others take a step back. Some opportunities the firm is looking at, he noted, are where others have walked away from deals.
“The banks are not touching new business for our space,” he said.
Rubenstein Partners is looking to deploy its debt fund more aggressively as debt funds and lenders withdraw, Director of Acquisitions Jeff Fronek said. The main focus, he said, is refinancing and acquisition loans, he noted, adding that the debt fund has become one of the firm’s top priorities since the coronavirus began to spread.
“There is a big liquidity crisis,” he said. “And we are looking at deals that are just much more attractive, because the pool of active debt funds and lenders is much thinner.”