Ready Capital, a New York-based mortgage real estate investment trust, is expecting to see more opportunities to acquire properties from borrowers and lenders which see prolonged recovery periods for troubled assets.
The REIT is asking what the staying power is for borrowers and lenders which are in this position, CIO Tom Buttacavoli told Real Estate Capital USA.
“How long can sponsors subsidize non-cash-flowing assets. And how long can banks continue to give modifications or forbearance on loans?” Buttacavoli said. “Quite frankly, there are opportunities that come out of banks where portfolios or loans come to market because there is stress inside of the banking system or stress at the borrower level.”
Ready Capital originates loans on commercial properties across the major property types, targeting the full lifecycle of a loan. It is looking for situations like this as it evaluates the investment landscape in the coming year. The REIT originated $4.8 billion across all commercial real estate products in 2021, with $11.4 billion of originations since inception in 2014.
“We are looking through the lens of what represents the best relative value and are somewhat agnostic to whether or not we’re buying the fee simple interest in real estate in commercial real estate or we’re buying mortgage debt,” Buttacavoli said. “Obviously, there are certain areas where we want to be more overweight, like multifamily and industrial. Affordability within multifamily is an area we are focused, although we believe multifamily is attractive for numerous reasons.”
One question the company will be thinking hard about is the potential impact of inflation.
“The reality is that inflation is here and the question is for how long, what is the impact to us and what specifically does it mean to folks who are investing in commercial real estate,” Buttacavoli said. “Our general view is that with inflation, there will be rate increases and what comes is growth – wage growth, growth in income on assets. We’ve seen this before and know you want to be in long-income-producing assets that have the benefit of that income growth.”
Ready Capital continues to like the bridge lending business, which makes up a significant chunk of its portfolio. “The bridge business allows you to attach to the vision, development and the reimagining of assets,” Buttacavoli added.
While office is at best a small part of the REIT’s portfolio, there could be some opportunities. “My general view on office is that the covid-19 pandemic has changed the way we think about office, especially in the central business districts. The behavior of the workforce is different,” Buttacavoli said. “Reimagining the office market is still in the laboratory.”
To be sure, these are pure bridge lending plays.
“Some of the ways we are looking at the office market is through transitional and bridge lending,” Buttacavoli said. “Developers and owners are building concept plans and strategies to reimagine office space in order to create a competitive edge. Transitional lending has historically been a very important component of the realization of these types of strategies while maintaining the ability to prudently manage risk. Like with anything, it’s about being patient and thinking about good relative value.”
The company was on track to execute more than $5 billion of new loans in 2021 and execute a number of strategic partnerships and acquisitions that include the purchase of Ethan Penner’s Mosaic Capital Partners, which will allow it to grow in the coming year, Adam Zausmer, chief credit officer, told Real Estate Capital USA last year.