Ready Capital is tapping a niche within the small- to medium-balance lending sector: providing financing for sponsors seeking to complete the development and construction of multifamily, build-to-rent and lot development.
The firm will originate short-term loans of $5 million to $20 million in what it believes are high-growth markets nationwide, including areas like the Sun Belt, said Adam Zausmer, chief credit officer. The program complements Ready Capital’s existing construction lending program, which provides financing of up to $75 million for multifamily and industrial properties.
Exacerbating the supply-demand imbalance in the housing sector is the lack of liquidity that Ready Capital sees for sponsors who are seeking to develop these properties. Further, the platform is part of a larger effort to be able to provide sponsors with debt solutions for the life of their projects.
“This product offering is consistent with our strategy to lend through the full life cycle of commercial real estate,” Zausmer said. “We can provide construction financing and then as that project approaches completion, we can transition it into one of our bridge products, followed by a Ready Capital originated agency takeout via Freddie Mac as that project stabilizes.”
While today is a challenging environment for commercial real estate, Zausmer believes now is a good time to be a lender. “You only see windows like this every 10 years,” he said. “We are underwriting to distressed assumptions that are lender favorable, which means higher cap rates and lower rents. But as the economy recovers, the properties we are financing today will be delivered at a time when market conditions are improving.”
Ready Capital believes it will be able to be highly selective in choosing which loans to fund. “These construction projects will be delivered years from now, in the early stages of a recovering market, when there will be little competitive new supply in the market,” Zausmer said.
The firm believes there are few competitors in the small balance market within this niche. Ready Capital’s acquisition of Broadmark earlier this year will help the firm to extend its reach, Zausmer added.
“We are one of the few lenders with a deep background in small balance lending and the ability to focus on transactions as small as $5 million. Lenders often stay away from the small balance space due to logistical complexities and a lack of infrastructure,” Zausmer said. “But we have staff across the country with construction expertise who can penetrate these local markets and close transactions efficiently and quickly for our clients.”
The firm is not a lender on luxury projects or those typically classified as high-end.
“Our focus is on good-quality, reasonably priced housing for individuals earning an average income,” Zausmer said. “The oversupply we are seeing in the multifamily market is concentrated on the higher-end, luxury side, where many developers seek higher rents in order to justify high land costs and heavy construction budgets. This is the antithesis of our small-balance residential construction finance program which is premised on targeting reasonably priced, economically viable housing and multifamily projects.”