Avrio’s Vicky Schiff on building a virtuous cycle in real estate

Environmental and social concerns have been an increasingly prominent topic of discussion in the real estate industry for the past few years – but it was only in the past few months that a US debt fund was first launched to specifically focus on upholding and promoting ESG principles.

Vicky Schiff, a veteran real estate investor and chief executive of the newly formed investment management company Avrio Management, in March launched Avrio Real Estate Credit as part of a joint venture with Toronto-based development company Dream Unlimited Corp and Denver-based investment manager and development company PaulsCorp.Flos

Coming from a real estate family – she grew up in Las Vegas, where her father was a casino developer – Schiff describes herself as having spent her entire life in the industry.
“I think there’s something very special about real estate, and also the people in it,” Schiff says. “Creating assets in which people live, work and play – there’s something incredible about that.”

Schiff has founded or co-founded five firms since 1996, in a range of sectors within real estate and private equity. Most recently, she was co-founder and managing partner of Mosaic Real Estate Investors. Schiff left the firm in 2021 and its real estate credit funds were sold to New York mortgage real estate investment trust Ready Capital the following year.

“When we sold our platform, the market was getting pretty frothy,” she recalls. “Lenders were fighting over quarter basis points to make a loan, and there were a ton of players in the market, both experienced players and newer entrants. You come to the point where it doesn’t make sense to compete – and compete to lose, at the end of the day.”

“Whether it’s sustainability, materials, lighting – technology is getting much better”

Schiff opted to spend about 18 months on the sidelines as she mapped out her next steps, but remained connected and engaged. Having worked with Dream for about a decade, including serving on some of its public company boards, Schiff and the firm in mid-2022 began exploring ways to develop a platform together.

Dream was already a very experienced owner, developer and operator, but had not focused on a formal real estate credit strategy, explains Schiff. “It made a lot of sense, given where we are in the capital markets, to create a new debt strategy in partnership with a company that was very experienced in constructing, managing and operating real estate,” she says.

Schiff points to Dream’s “very, very high standards for both reporting and transparency,” and notes that the tie-up complements the firm’s ongoing efforts to build out its private equity business. “It’s a way to supplement what they do on the ownership and development side,” she says.

Building best practices

Dream and PaulsCorp backed the formation of Avrio Management earlier this year, with Schiff at the helm. Shortly after, Avrio launched Avrio Real Estate Credit as a lending platform providing flexible debt capital for multiple asset classes across the US. The platform, which first ESG-focused commercial real estate debt strategy of its kind, will target loans ranging from $25 million to $150 million.

Schiff had been looking at how new building projects are undertaken, as well as affordability standards in real estate. “Whether it’s sustainability, materials, lighting – technology is getting much better,” she says. “So, there was an overall movement in the market to save costs and get more efficient. And it was driven by the developers and owners themselves, but also by tenants demanding that the buildings they move into have certain sustainability qualities.

“It started by realizing that people were doing some of these things anyway, so why don’t we measure it in a more meaningful way? It developed into this idea that not only could we step back and measure something, but we can also help create a database of best practices. We could create a virtuous cycle of doing this – either through material, or technology, or corporate governance and decision-making – an share best practices with our borrowers.”

Avrio has a proprietary measurement system and a questionnaire that borrowers complete as part of the loan application process. “It’s not, ‘If you don’t do this, you’re not getting a loan from us.’ It’s more like, ‘We see what you’re doing, let us help you and get better scores,’” explains Schiff. “And then as time goes on, we continue to measure their behavior and what they’re doing.”

Avrio is unlikely to invest across all sub-sectors within real estate, and Schiff points out that Dream’s expertise in certain categories – most notably housing and industrial – is likely to have some bearing on the sector opportunities explored.

“[Our platform is] a way to supplement what they do on the ownership and development side”

“I don’t see us being a big office lender,” Schiff says. “I personally have never liked the office market anyway, but it has nothing to do with what’s happening now. It’s more that you have to rebuild the building every five years, and every time a tenant moves out you have tenant improvements. Or you have short-term leases and you’re not really getting that credit that you need.”

Schiff is instead drawn to opportunities in the housing sector. “It could be build-to-rent; it could be buying rental portfolios; single-family homes; it could be middle-class apartments, student housing or even student housing ground-up construction,” she says.

In industrial, Avrio is interested in opportunities that support the small-business community in the US. but will look up and down the capital stack. “We’ll do anything from first mortgage all the way up to preferred equity. We’re cut off at the 70 percent loan-to-value mark,” she adds.

Shifting perceptions

The real estate industries of Europe and Canada have what Schiff describes as an entirely different mindset when it comes to ESG, Schiff says.

In the US, the subject of ESG remains somewhat divisive and still leads to debate, despite making good financial sense, Schiff says. “Everything we do has to make sense from an economic standpoint. We’re not a charity,” she says.

Cutting-edge developments that embrace ESG principles can attract better credit and longer-term leases, translating into a higher price-per-foot value, she adds.

“What does ESG really mean? It’s environmental, so it means less energy costs; you’re more efficient. What company in the world – a manufacturer, for example – wouldn’t want to be more efficient? Why is that bad? What company in the world wouldn’t want to spend less on energy? Why is that negative? It’s not,” she says.

“If you’re a public company and you’re making decisions at the board level, you want to make sure that one person isn’t making all the decisions because that is called good governance – you’re getting a balanced approach to decision-making,” Schiff says. “The social aspect is really the affordability issue in this country. We’ve got to solve this, otherwise I think we’re kind of doomed. The fact that these things have a negative connotation in some circles makes no sense to me – because they all produce a better bottom line, financially.”

Some environmental initiatives are something of a no-brainer, she adds – citing the use of LED lighting, which will clearly save building owners and tenants a lot of money compared with less energy-efficient approaches.

“But then there are other things too,” Schiff continues. “What’s the affordability of workforce housing as the percentage of the median household income in the market? We need to solve this affordability problem. That’s really the question: how we are going to have a sustainable country? Affordability and housing are a problem everywhere as people are moving in and other people are getting pushed out on the affordability side.”

“[Real estate owners] can still make plenty of return, create a nicer asset, bring in more sustainable practices, charge a little bit more rent – but that rent falls within an affordability and that benefits the renters,” Schiff argues. “And they create a nice place for people to live – and those people in turn are more productive. It’s just this virtuous cycle.”