Over the past few years, Stockdale Capital Partners kept running into a problem. It was searching for sub-$50M loans for struggling asset types but couldn’t find any lenders who would provide them.

The Los Angeles-based company, which is both a lender and owner with $3B in assets under management, was at the same time getting increasing requests to provide similar types of debt — something that was outside its traditional bread-and-butter business model. 

That's when a new investment thesis was born.

Stockdale, which had for its 30-year existence primarily focused on equity investment, is now launching a business focused on providing flexible debt for more distressed types of properties, filling a void that it experienced firsthand.

The company plans to offer senior bridge loans and mezzanine loans, note purchases and special situation investments nationwide.

“As a borrower, when I realized there was such limited options, I thought to myself, ‘We have to do this as a lender,’ because I know we're not the only one in the U.S. that needs support on assets that may require a little bit more capital,” Stockdale Managing Partner Dan Michaels, who works on the firm’s investing and fundraising strategy, told Bisnow. 

At a time of elevated interest rates and global uncertainty, many lenders are steering away from flexible debt and special situations, Michaels said, while the big shops — the Apollos and Fortresses of the world — are moving away, too, favoring “traditional flow businesses” and larger dollar volumes.

“Our goal is to capture a part of the market that we believe there is a white space, and that is the big credit guys have gotten very big, and so anything below a certain loan dollar value, there are a dearth of active special situation lenders,” Michaels said. 

But in the post-pandemic real estate market dislocation, the need is greater than ever. That’s where Stockdale comes in.

This summer, the company hired its first employee to launch the new line of business: Alec Maki, who is coming in as a senior vice president. 

Maki, who comes from the debt originations desk at Fortress Investment Group, knows the business model well. But he is just the first of what Stockdale expects to be a few dozen new hires for the strategy.

The new venture is targeting loans between $15M and $75M on distressed assets and asset classes like office, life sciences and hotel, where the company sees limited liquidity. 

The initial goal is to deploy $300M over the next 12 months.

While the firm has occasionally done debt deals, including loan buys in the wake of the Global Financial Crisis, it’s now diving in.

“The reality is what the world needs now is flexible capital,” Michaels said. 

As interest rates continue to remain elevated well above what they were in the early years of the pandemic, the need for special situations debt is going to persist, creating more opportunity for Stockdale. 

Last month, the Federal Reserve raised its benchmark rate for the first time in three years, and yields on 10-year Treasury bonds inched past 5%. 

“It'll cause the return of real estate values to pre-Covid levels to take longer, and it'll cause more opportunities from a debt perspective,” Maki said. 

Stockdale's new investment thesis runs counter to how a lot of firms react during times of global uncertainty, Michaels said. But Stockdale is contrarian, and that opens up more opportunities. 

“I honestly feel like people have PTSD still from the Global Financial Crisis,” he said. 

“So when anything hits, correlation goes to one, everybody stops. That could be a war headline, Liberation Day, obviously a pause in overall market liquidity because of rate hikes, and so any dislocation that impacts liquidity flows is a benefit to us because that allows us an opportunity to step in and provide resources where others may not.”