Fidelity Bancorp prepares to scale bridge platform as banks step back

The firm is seeking to line up patient individual and institutional capital to target small balance loans on transitional assets.

Fidelity Bancorp Funding is gearing up to expand its small-balance bridge lending platform, with the aim of raising capital from institutional and high-net-worth investors to help fill the gap as banks scale back their activity.

Charlie Woo, president of the firm’s bridge lending platform, joined Santa Ana, California-based Fidelity Bancorp this month from San Francisco-based bank Wells Fargo to spearhead an initiative that will include growing loan originations and borrower relationships as well as expanding the firm’s roster of investors. Woo will draw on his experience in the real estate finance sector, which included a long tenure as a vice-chairman in Wells Fargo’s investment bank.

“I was very active in the private credit and bridge lending sector but was more active from an M&A and capital raising standpoint. In that role, I saw an institutionalization of the capital flowing into this space,” Woo said. “The lure of doing this on the principal side was too much.”

In his role as president of the firm’s bridge lending business, Woo will wear multiple hats. “It will include everything from sitting on the investment committee to continuing capital raising as well as overseeing a lot of these loan originations and servicing functions,” he said.

Woo has a long relationship with David Frosh, Fidelity’s chief executive, who outlined a space in the market for alternative lenders to expand their market share. “Regional banks originated 62 percent of all commercial real estate loans in 2022. Higher interest rates and the resulting balance sheet stress has caused these banks to tighten their purse strings, which has created a significant growth opportunity for private lenders,” he said.

During his career, Woo has observed an environment in which there has long been room for private credit and bridge funds.

“The need is greater than ever,” Woo said. “From our standpoint, it means that we can fill in that gap for sponsors, but we can be very prudent and more selective about the deals we take on. And from a capital markets standpoint, some situations that regional banks could or would do because it fits their parameters, they are finding that they can’t because of extraneous factors. That is where we come in.”

Woo believes there will be greater high-net-worth and institutional allocations to commercial real estate debt.

“When I was sitting on the other side, tens of billions flooded in to fill that void and I expect that will continue at a pace that is even greater. It is a great space to be in as an investor, whether as an institution or an individual. But as some of the regulations get tight, there will be a lot of good, prudent loans that private lenders can fund,” Woo said.

“If you have patient capital, whether it be from individuals or institutions, a track record that you can point to, and a good approach for borrowers who are seeking capital and a secure foundation for investors who are looking to put money into the space, it is a great medium to be in.

“My prediction is that there will be more institutional money that comes into this space, but it will be commingled with individuals. Then it is long-term, patient capital from a variety of sources and can weather a lot of storms, as long as your loan portfolio is safe and producing.”

The firm is looking to originate loans of less than $20 million in a variety of sectors, including multifamily, mixed-use, industrial, retail, single-family residential and properties in varying stages of construction or rehabilitation. “A lot of the bridge loans present themselves because there is some sort of transitional period, which is what we are trying to solve for,” Woo said.