RXR Realty and Hudson Realty Capital have debuted a lending platform through which the partners hope to originate more than $2 billion of loans across multiple sectors in the coming years.
The partnership between RXR, a real estate owner and manager, and Hudson Realty Capital, a fund manager, will focus mainly on short-term lending opportunities on multifamily acquisitions and developments in new and established markets.
There’s also another twist to the strategy, said David Loo, a managing partner at New York-based Hudson Realty. “We were looking for a partner that can add to our fundraising capabilities, and where we can contribute our credit expertise. It’s a very natural fit between the two organizations,” Loo told Real Estate Capital USA.
A key attraction for Hudson Realty is RXR’s prominence as a developer, operator and owner. “RXR is a best-in-class landlord developer across multiple asset classes,” Loo said. “Their organization has in-house real estate development, property management, leasing – all the different construction services. They’re also an experienced mezzanine lender and preferred equity lender-investor.”
For New York-based RXR, the partnership was also an opportunity to jump more fully into the debt space. “We think now is a great time to complement our equity capabilities with an expansion of our debt capabilities,” Philip McAndrews, chief strategy officer at RXR, told Real Estate Capital USA. “We like the risk-adjusted return of debt products to complement returns in our equity portfolio. And we think pivoting and expanding our geographical scope across the US as an entity is availing ourselves of more investment opportunities for the benefit of our investors.”
For both partners, the platform allows for an expansion of its lending base. RXR has been expanding beyond its northeast base in recent years and into up-and-coming Sunbelt markets, including Tampa and Phoenix. It was a similar story for Hudson. “One of our strategies for the platform is to piggyback off of RXR’s national expansion,” Loo said.
Neither RXR nor Hudson are concerned that an expected rise in interest rates will slow down their partnership going into the spring. In fact, Hudson’s preference for originating mezzanine loans could be a boon – Loo believes that senior lenders may offer lower proceeds, increasing the need for mezzanine debt and preferred equity.
“In light of a rising interest rate environment, I think we’re going to see underwriting criteria for senior mortgages start to tighten,” he said. “Proceeds are going to start to come down and that’s going to create demand for more mezzanine [and] preferred equity opportunities.”
The ESG story
There is another factor both partners believe will be a part of the platform: making socially impactful investments and investing in areas with robust educational infrastructures.
“We like to say ‘eds, meds and well-led,'” McAndrews said, explaining the characteristics the partners are looking for in cities and regions that are outperforming. “It’s a way of investing that says we’re interested in being in superstar cites and superstar regions that are propelled by strong educational bases.”
The ESG factor will also be a priority. “One thing that was really important to us is RXR’s orientation as an ESG investor,” Loo said. “One of the planks of RXR is ‘doing good and doing well means doing better’ and that really resonated with us.”