BEB Capital, a Port Washington, New York-based real estate debt and equity manager, this week closed its first commercial real estate credit fund.
The $150 million BEB Credit Opportunity Fund, which will originate middle market bridge loans in the multifamily and industrial sectors, comes as the manager is looking to scale its credit platform, said Keyvan Ghaytanchi, chief investment officer.
There were other factors as well, including a pullback by regional banks in the wake of the Silicon Valley Bank and Signature Bank failures which has led more sponsors to consider alternative lenders, Ghaytanchi said.
“We thought the credit environment was definitely ripe and was the right time for this product,” Ghaytanchi said. “There was also a lot of investor and borrower demand for that strategy.”
The firm, which launched its commercial real estate lending platform in 2020, believes having a dedicated vehicle will allow it to better communicate its strategy to the market and scale the business. The fund will target returns of 13-15 percent.
“The fund is something that will allow us to get deeper into the commercial real estate lending space. This is the beginning for us,” Ghaytanchi said. “A fund, which allows us to have discretionary capital, checked a lot of the boxes for the opportunities we want to pursue. It gives us the certainty that we will have the capital to deploy and will help keep us disciplined.”
The fund will concentrate on opportunities mainly on the US East Coast, with a focus on the US Northeast, the Carolinas and Florida. “We are not exclusive to that area and will look at opportunities in any of the lower 48 states,” Ghaytanchi added. “When we are looking at opportunities, one of the things we pay a lot of attention to is the business climate and the court systems, in the event that we have to go through a foreclosure process.”
About 80 percent of the firm’s loans to date have been in the industrial sector, where BEB has seen the biggest disconnect between borrowers and lenders. “We have also been able to win a couple of multifamily deals, which is an indication of where traditional lenders are,” Ghaytanchi added.
Lee Brodsky, chief executive of BEB Capital, said that over the long term, the firm is looking to build relationships with sponsors who might have worked with regional banks in the past.
“We play a lot where regional banks play and given what has gone on with regional banks, they have more stringent requirements because they are concerned about the runs we saw on Signature and Silicon Valley. We are filling that void that those banks left,” Brodsky added.
The firm is hoping to build long-term, repeat relationships with sponsors in the coming months.
“Given the rate environment and where the forward SOFR curve is pointing, there are economic reasons why people are looking at bridge loans,” Ghaytanchi said. “We are starting to see borrowers who are looking for the best economic deal and who believe the interest rate environment will change. We typically don’t have long lockouts on loans, which will give investors who believe rates will drop more flexibility to refinance. This is something they might not get with regional banks.”
A main area of concern for sponsors is flexibility. “Sponsors are looking for as much flexibility as possible,” Ghaytanchi said. “Borrowers want to see shorter prepayment locks or options to extend, and it is all because of the uncertainty. They don’t know if two months from now, the rate environment will change. They’re also looking for the best economic deal with the most proceeds and the lowest rates.”
The firm has deployed more than $100 million of capital on the lending side since February 2022 and expects to deploy another $100 million by year-end. On the equity side, the firm is investing via a programmatic joint venture with Rockpoint Group with a $1 billion targeted investment pipeline.
“I would say this is the moment where credit is an important place to be,” Brodsky said. “We started this platform in anticipation of a moment in time when we would be focused on credit, and it would be accretive to our organization. When you want to be an institutional-grade, multifaceted real estate firm, you have to have both sides of the house – credit and equity. And this fund is really a testament to the fact that we are able to execute on both sides.”