Towards the end of 2019, BH LLC secured a high- leverage, $12-million senior loan on two retail- and-residential buildings in Manhattan’s East Village. At one of the properties, Momofuku
Noodle Bar serves as the anchor tenant and is secured in
a long-term lease; however, aside from the restaurant tenant, the investment is a value-add play for the company.
Fortunately, BH’s finance partners were understanding
of the investment. Infinity Real Estate teamed up with
BridgeInvest to provide the capital for BH’s $14-million
“We understand the upside that the borrower is trying
to capture through the value-add program and see a
clear path for the borrower to do so, and we’re comfortable providing financing through this lens,” says David
Berg, partner at Infinity Real Estate.
Lenders, such as Infinity Real Estate and BridgeInvest,
are one part of commercial real estate’s robust capital
markets ecosystem, however, they play a particular role
that is increasingly coming into play as the real estate
cycle matures. Often, value-add deals have a low in-place
cash flow or a business plan that intends to alter the cash
flow, which in many cases makes traditional lenders that
focus on debt-yield and coverage ratios reluctant to move
forward with a deal. As a result, alternative lenders, such
as Infinity, have found a niche in providing higher leverage to borrowers to execute on a renovation or repositioning investment strategy.
This is not to say BH Properties couldn’t have financed
the deal through more traditional companies. But then
again, why should it have gone the traditional route? The
capital markets remain robust as a maturing cycle has led
AS NEW DEBT VEHICLES ENTER THE MARKET,
LATE-CYCLE CONCERNS CAUSE EQUITY
PROVIDERS TO SHARPEN THEIR FOCUS.