Ready Capital, a New York-based mortgage real estate investment trust, is gearing up to expand its commercial real estate construction lending business after this month’s acquisition of Ethan Penner’s Mosaic Capital.
The REIT believes it can grow construction lending to what CEO Thomas Capasse termed a “prudent” allocation of its capital, or about $1.7 billion. Construction lending continues to be difficult for banks due to changes in capital charges, Capasse told Real Estate Capital USA.
“Banks are more conservative in terms of loan-to-value ratios. One of the things that was Mosaic’s secret sauce versus the banks was its ability to staple on a mezzanine or preferred equity tranche to the senior loan,” Capasse said. “Additionally, you have a counterparty which had the ability to deploy more quickly capital, turn around approvals and offer a higher leverage point. Banks would love to offer the full range of loans for the lifecycle of a project but are constrained by regulations.”
The Mosaic transaction is part of the REIT’s larger plan to provide a full range of services to commercial real estate borrowers. Capasse, who has known Penner since his days at Nomura Securities in the mid-1990s, noted that the business is important for Ready Capital’s clients.
“This was a really compelling, strategic transaction where the pieces of the puzzle fit together. Besides being financially accretive, the acquisition provided us with a tool in the product mix to provide owner-sponsors of lower to middle market properties with a full life cycle of products from ground-up construction financing to take-out CMBS or agency loan,” Capasse said. “Ethan was a visionary and pioneer in the CMBS business, and he will remain involved.”
The company in August acquired Red Stone, a multifamily affordable housing specialist, and wants to make similar, accretive platform acquisitions. “That is very accretive and now we have the ability to offer construction financing for affordable housing developers who are looking for a takeout via Red Stone,” Capasse said.
Ready Capital originates loans on commercial properties across the major property types, targeting the full life cycle of the loan. The REIT also wants to grow its commercial real estate lending business by expanding its current products.
The company is the largest non-bank lender to owners and sponsors of lower to mid-market commercial real estate assets, which Capasse defined as under $10 million. “We originate loans on everything from heavy transitional bridge financing take outs or originating Freddie Mac small balance loans.”
The REIT includes a unit that is one of 14 non-bank SBA lenders. “We are really a specialty finance company that is externally managed by Waterfall Asset Management.”