Mesa West hits $2bn first quarter, aims for the Sunbelt and beyond

Mesa West Capital has sights set on originating more multifamily financing in the southeast US, Texas and beyond as office sector uncertainty persists into the second quarter of the year.

Matt Snyder, executive director at the Los Angeles-based private lender, told Real Estate Capital USA the firm debt platform has largely been tracking where broader real estate equity investors have been angling, resulting in a deeper focus on industrial and multifamily opportunities in markets where rent and valuation growth is strong.

Mesa West’s strategy has driven it toward new deals in burgeoning locales such as Nashville, Tampa, Orlando and Raleigh, which Snyder said have historically been considered more secondary markets but have the fundamentals – including job, population and income growth – of more premier urban areas.

“We have made loans in those markets, which are new markets for us, and we are going to continue to explore opportunities in those markets as you are seeing all the fundamentals continue to get stronger,” Snyder said.

Mesa West’s platform revolves around providing floating-rate non-recourse financing in three- to five-year terms, averaging loans in the $75 million range for the top 15 metro areas in the US.

Snyder said the firm generally finances business plans to increase value on a multifamily asset in the short term before entering long-term financing or exiting through a sale. “A lot of what we are financing is transitional in nature,” he said. “It is going to vary whether it be full renovation of units or simple light value-add and then prepare for a sale and move the rent roll.”

In the first quarter of 2022, Mesa West originated $2 billion in new deals across 15 loans ranging in size from $35 million to $458 million across office, multifamily, senior living and industrial assets.

The firm most recently made an $85 million loan on April 21 for the acquisition of Hampshire Hill, a 534-unit multifamily property in the Minneapolis suburb of Bloomington. Mesa West provided the first mortgage debt to Bader Diamond Funds, a Minneapolis-based opportunistic investor, who plan to make a value-add play on the asset.

Snyder said Mesa West’s robust multifamily pipelines have been driven in part by agencies pulling back on allocations and debt funds getting more competitive on their pricing. “You are also seeing capital flows out of the office space into the multifamily space,” he said. “A lot of traditional firms that were solely office are now moving into the multifamily space.”

Fluctuating rates over the last 60 days have cast some uncertainty on multifamily momentum and valuations from Mesa West’s perspective. Snyder noted the 20 to 30 percent rent increases seen in months and quarters prior is not sustainable either, changing the equation on valuable multifamily opportunities further.

“Whenever you see outsize premiums in valuation and rent, you are always going to see an increase of supply to try and balance that supply-demand equilibrium,” Snyder said. “It is going to be interesting over the next few months to see how interest rates and how the cooling of rent increases is going to affect multifamily valuations moving forward.”

Mesa West is specifically dialing in on what Snyder identified as cap rate creep in markets where cap rates have been low for the past two to three years. “There is still an undersupply in a lot of these markets because we are still seeing very strong absorption,” Snyder said. He added there is constraint cropping up where hard costs are ticking up by 20 to 30 percent compared to their 2021 levels, which might keep an artificial cap on supply.

Snyder said Mesa West is not limiting itself geographically as it looks for additional multifamily opportunities to expand its market share. “We are going to continue to stick to what we do, which is top markets, top sponsors and top assets within those markets.”