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Amherst bets on urban areas, gears up for lending team expansion

Rental housing and industrial are the firm's top priorities.

Amherst Capital is betting on an urban comeback, with the New York-based commercial real estate lender seeing significant levels of interest from borrowers in New York, Boston and Washington, DC.

“What we’re seeing – especially through my lens in New York – is the urban areas are starting to come back very strong,” David Schwarz, head of commercial real estate strategies, told Real Estate Capital USA. “Leases are getting signed, rents are increasing, the concessions are going away, and there’s more of an influx of people back into some of these areas – a bit of a boomerang effect.”

Schwarz, who joined the firm in September from Colony Capital, said one urban market that has not had the strongest comeback is San Francisco. He’s also observed that across all urban markets, there is an accelerating obsolescence of lower quality real estate, specifically in the office space.

“Class B and Class C office that hasn’t been invested in over time is out of favor right now, especially as people rethink their space needs,” Schwarz said. “There are deals with better buildings to be had, and [new buildings] are now being designed with Covid and how people want to work in mind.”

The firm recently originated a loan on a new build office property outside of Austin, Texas. “It was designed with lots of open space [and] geared towards creative tenants,” noted Schwarz. “This is definitely something that we’ve been witnessing and trying to capitalize more on as we as we evaluate opportunities.”

Broader business plans

With a focus on originating first mortgages on transitional properties across the US, Schwarz will also work on building out additional verticals to grow both its debt and equity platforms.

“[We aim to] pick up our originations pace and our deployment, and we do have some dry powder and capital that’s ready to invest,” said Schwarz. “[As part of this] we are working towards adding some strategic hires to the team at both the senior level as well as some junior resources to help on the execution side of things.”

Another focus will be fundraising for the firm’s existing open-ended vehicle.

“We are really starting to get our strategy together [and look at] how we are going to begin fundraising in 2022,” added Schwarz. “This is something that we’re going to start in earnest early next year.”

Sector specifics

Amherst has three focus areas – single-family rental, mortgage-backed securities and commercial real estate – each classed as separate business arms. It has $10.9 billion of AUM in total across its various strategies.

Some 67 percent of its loans have been with repeat sponsors, reflecting strong relationships with private equity sponsors as well as operators. “Oftentimes, [we] partner with these private equity firms, we are trying to do as much direct business as we as we possibly can,” Schwarz added.

Rental housing and industrial sit at the top of the priority list for Amherst, with Schwarz noting the sector has been one of the main beneficiaries of the covid-19 pandemic. It is also beginning to see more opportunities emerge in the office and hotel sectors.

“We are looking at these spaces through a finer lens,” said Schwarz. “We are a firm believer in not one size fits all for office right now, every project is specific and every market’s a bit different. You’ve really got to do [your due] diligence [regarding] properties, [looking at things like] leasing trends, demographic trends, what’s happening in individual markets.”