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Where Hudson Realty is looking for new bridge lending opportunities

With its HUD business bulked, the New York manager eyes more transitional multifamily amid inflation, interest rate and cost pressures.

Hudson Realty Capital is sizing up more investing and lending opportunities in the healthcare and multifamily sectors to build out the New York-based manager’s portfolio in the second half of the year.

Richard Ortiz, co-founder and managing principal for Hudson, told Real Estate Capital USA the firm wants to lend on more multifamily assets in transition – especially those needing sufficient rehabilitation – and ground-up construction to sustain business momentum into the last half of 2022.

With markets entering choppier waters following the rise in interest rates and ongoing inflationary pressure, Ortiz said the firm is seeing continued demand for repositioned assets. In the last two years, Hudson acquired a HUD license and has since staffed up and grown the segment to expand the firm’s opportunity set beyond more plain-type multifamily and healthcare assets.

“One of the differences between us two years ago, as opposed to Hudson today, is that we are able to provide bridge loans – whether it be projects that are being renovated or constructed – or direct to a HUD,” Ortiz said.

He said combining both disciplines has stirred up appetite among clients and because of structural changes to HUD parameters in recent years, the process is more seamless compared to past procedure in 2018 or before.

Akin to other multifamily lenders, inflation and construction costs top the list of concerns for Hudson’s practice in the segment. “You are starting to see some increase in the short-term rates, so that is obviously going to increase the load on construction projects,” Ortiz said. “But more importantly in the past three months,  multifamily [loans are sizing to lower proceeds] due to increases in the 10-year [Treasury].”

The fluctuating rate environment has shown more lenders are caught between refinancing as it is related to debt service coverage and what projects can afford, Ortiz said. He noted the result is a crisis opportunity where Hudson – which does not necessarily originate loans for a capital markets execution – can tap into stretch mortgages which can solve the proceeds issue for developers in need.

“The more recent joint venture we have with RXR Realty and now being a co-lending platform with an owner and operator of real estate gives us additional insight to offer products such as mezz and preferred equity to solve these capital problems as we start to see proceeds quite frankly start to come down as interest rate costs have increased,” Ortiz said.

Hudson is continuing to look toward the healthcare sector for more lending opportunities in the current environment. Ortiz said the healthcare business has been and will continue to be more central for Hudson’s HUD business on a go-forward basis.

He noted the healthcare sector has been more attractive to operators and more competitive. “A lot of [owners and operators in the healthcare space] are just now starting to stabilize and get back to the business plan as it relates to the operational piece of the business post pandemic,” Ortiz said. “Additionally, what is also happening in the space is that the labor costs associated with those operators are increasing as we are in an inflationary environment.”

The same bridge-to-HUD exit template holds true for Hudson’s book of healthcare exposures too. Ortiz said the firm aims to provide a lower rate, long-term fixed cost so operators can run their facilities as they work toward further stability.

Outside a steady multifamily and healthcare lending rhythm, Hudson is also looking at office through a new lens to see where the sector could settle in a post-pandemic working environment in which financing needs are still persistent. As industrial deals hold their pace across the commercial real estate debt landscape, Hudson is also minding the amount of optimism in the sector as cap rates start to adjust on a national basis.  

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