“We are watching the markets carefully for opportunities toacquire real estate and related assets at discounted prices in locations that we believe will exhibit resiliency. This is the same tacticutilized by private equity firms after the 2008-2009 financial crisiswhen they amassed enormous real estate portfolios at deeply discounted prices,” Yorio says.
While these price adjustments have not yet taken effect, thecompany believes that attractive opportunities will present themselves in the near term, she adds.
Among other measures, the company has launched theCompound Recovery Opportunity Fund, a retail investment fundfor distressed real estate focused on public securities for hotel andreal estate-related stocks.
CORONAVIRUS DISRUPTS THE DISRUPTORS
Compound is part of a new generation of real estate finance companies that launched with the idea to disrupt the more traditionalparts of the industry. As the economy is expected to struggle for atleast a year, if we are lucky, it will be telling to see what steps thesefirms take to survive—and whether they will be successful. In somecases, a complete 180-degree turnaround in their models will benecessary. Other companies will double down on what is neededright now.
Before the coronavirus entered the US, Paul M. Fried, executivemanaging director and head of equity capital markets for GreystoneCo., was another industry watcher who believed that technologyand new thinking could make real estate more accessible to abroader range of investors.
“I think this idea of reaching out to investors whose check size is
too small to garner the attention of large investment houses, is
good,” he said at the time. “It’s a natural means to fit certain types
of sponsors and projects with smaller investors or smaller check
writers that otherwise wouldn’t find each other.”
But once the coronavirus forced employees to work from home,
other technologies became a lot more essential, at least to
Greystone.
“We have been investing in tech support systems for severalyears, and while we employed video conferencing as a way to connect offices around the country for meetings, it’s now our newnormal for conducting virtually all aspects of business,” Fried says.
Fried predicts that the current pandemic will force others in theindustry to incorporate tech as quickly and as much as possible
While they may not be working to develop products for theperson who wants to put $50 or $100 into a real estatetransaction, large capital providers are innovating with thesmaller borrowers in mind.
In the CMBS sphere, KeyBank has combined risk retention with the servicing, allowing it to reach smaller investors.
KeyBank has taken pools out of $125 to $150 million,while maintaining a relationship with a B buyer. “We’reretaining risk collectively, but we are the one servicerthroughout the servicing stack, which is unique versustraditional pools of CMBS,” says Matt Ruark, head of commercial and healthcare mortgage production for KeyBankReal Estate Capital.
Ruark says the program, called Streamline, came out ofKeyBank’s desire to deliver “liquidity to smaller loans andservice our clients.” The firm’s ability to risk-retain incombination with its servicing platform made this possible.
“This streamlined CMBS product was designed todeliver liquidity to that $2-to-$15-million borrower,” Ruarksays.
Ruark says the traditionalconduit execution can beexpensive to close and it doesnot always compete well withthe bank market for smallerloans. “The capped cost andone servicer allows us to provide capital that competeswith the bank market morefavorably than the traditionalconduit,” he says.
Innovation is also occurringwith the new bridge products hitting the market frommany sources. In a low interest-rate environment, sponsors and capital providers are getting creative to boostreturns. Borrowers have moved up from 60% or 65% LTVsto 70% or 75% as they take on mezzanine debt.
“There are many different bridge programs out there,”
Ruark says. “These programs are providing capital across
asset classes.”
HOW KEYBANK IS
REACHING SMALLER
CMBS INVESTORS
ALTHOUGH THIS CRISIS IS UNLIKE ANYTHING WE’VE
SEEN BEFORE, WE ALREADY SEE FAMILIAR PATTERNS
EMERGING—AND WE’RE DOING EVERYTHING IN OUR
POWER TO USE THEM TO OUR ADVANTAGE.
JANINE YORIO
CEO AND CO-FOUNDER OF COMPOUND
