Real Estate Forum - October 2009

industrial. I think hotel is an asset class we’re very cautious about, though we’d consider it. With construction loans—given our development expertise and ownership of a construction company—we feel comfortable helping underwrite the risks. But at the same time, we’re very cautious about those types of loans.

LANE: We’re certainly not going into the business with the idea that we’re catching the bottom of the market here. We understand the implications of what is going on. The whole world is talking about what will be the next shoe to fall, commercial real state or credit cards. Our eyes are open, but given our expertise and our cautious way of proceeding, there are opportunities here.

LANE: W

What is your anticipated loan volume?

LANE: At the moment, we’re talking about maximum exposure on the books. It’s not very large loans. But we do have the syndication capability, and we’ve been dealing with a lot of financial institutions out there that believe our underwriting capability is substantial and are willing to take pieces of deals we believe make sense.

the books. It’s n

Are you finding it difficult in this envi-
ronment to find quality deals?
ronmen

LANE: Since the announcement, we have issued a few term sheets, so are we are finding there are quality loans with quality sponsorship. Compared to historical volume, it is slower than it would be. But there is still opportunity out there,

be it in acquisitions, refinancing and note buybacks.

What do your firms, as well as the
industry overall, gain from this JV?
What d
industry

FISHER: We like to think we are a horizontally and vertically integrated real estate investment company. We have operations in commercial space, we’ve invested in hotels, development, multifamily, etc. We feel very comfortable in the operations of real estate across different asset classes, and we’ve invested up and down the capital stack—we’ve obviously done equity investments, mezzanine investments. This provides us an ability to make first-mortgage loans, which is a new product offering, from Fisher Brothers’ perspective. We now have a strong partner in Modern Bank that gives us flexibility to operate in that sphere. We’re not looking to make 20% loans; we’re looking to make market-rate terms in first mortgage, whether it’s 6.5%, 7% or 8%. So it gives us a cost of capital that allows us to operate competitively in that space.

LANE: I’d break my answer down to two pieces. As you know, banks are capital sponges, in that they always need additional capital to grow, so we would have been interested in Fisher Brothers without their real estate expertise. However, given their real estate expertise, attached to our underwriting capabil-LANE: I

ity, we have to be a far stronger and more prudent player in the real estate business. At any time you can make yourself smarter and better, it’s to your advantage.

As more players see the opportunities in
the capital markets side of the business,
do you think we’ll see more such partnerships?
As more
the capi
do you think we

LANE: All of the private equity companies are certainly looking at doing something within the banking industry because they sense that there’s ultimately going to be some real value. The problem the private equity players are having is that the regulators are scared about hot money coming into the business and the current FDIC talk is requiring the private equity companies to maintain a 15% leverage ratio for three years, along with other restrictions. On that basis, very few private equity companies can and will be interested. You also have the complication of the bank holding company laws. So it’s not easy to invest, but given the needs, my guess is the regulators and the government will find a way to bring additional capital into our business, and you will see other investors coming into it.

LANE: A

doing someth

FISHER: I concur in that there will
definitely be additional sources of
capital. I don’t believe to will be as easy or
as plentiful as the current talk would make
it seem. Fisher Brothers is a long-term
value investor, so something that’s very
unique is that this is permanent capital—
there is no exit from this investment.
FISHER:

definitely capital. I don’t b

LANE: Permanent equity capital is something that banks need and the

Fisher Brothers was in a position to provide it. Private equity players have a clock ticking after they make an investment, and there has to be an exit strategy five or seven years out, so the constraints are very different. ◆