Pembrook Capital Management is working to expand the social impact of its commercial real estate debt investments by taking its business into a new area: originating more loans to back diverse developers.
Stuart Boesky, the New York-based commercial real estate private equity manager’s CEO and founder, tells Real Estate Capital USA: “This has been a major focus of the firm as part of a push to change the racial and economic inequalities that were exposed by the pandemic.”
The firm aims to finance borrowers that are developing or redeveloping affordable rental apartments for tenants, as defined by the Department of Housing and Urban Development, who are spending more than 30 percent of their income on rent.
As part of this drive, Boesky brought on board two senior advisers in August: Detroit attorney David Baker Lewis, who co-founded the municipal finance practice at law firm Lewis & Munday and who is known for his acuity around the use of tax-exempt bond financing; and Ghebre Selassie Mehreteab, founder of the NHP Foundation. The 501(c)(3) has invested nearly $3 billion in the preservation of affordable housing.
Finding the perfect fit
Although there are many minority developers focused on developing and preserving affordable housing, it is trickier to identify sponsors that fit in with the firm’s average loan size of around $20 million.
“The initial focus of these advisers is to be able to help us get capital into the hands of minority developers,” Boesky says. “It’s been tricky for us to get a big pipeline of deals from minority developers, many of which are working on very small deals. But one of the questions we have is how do we thread that needle and find the minority developer with the skill set, background and network to do deals of that size?”
Pembrook is looking for developers that want to move to the next level of projects. The firm has invested more than $700 million in affordable or workforce multifamily strategies – or more than 12,000 units for around 31,000 tenants – over the past 14 years. About 70 percent of these investments have been in predominately minority neighborhoods.
“Finding these developers who have done enough business and who would be a good partner for us is going to be a really important part of the strategy going forward, and also part of what’s needed to address income and racial inequality in housing,” Boesky adds.