1 00:00:00,000 --> 00:00:08,940 This is the real estate shop where each episode will bring you a top industry expert to share their current programs or projects that are making an impact in our communities today. 2 00:00:09,780 --> 00:00:12,720 Be sure to check us out on Spotify and Apple podcasts. 3 00:00:13,540 --> 00:00:22,660 Welcome Chad to the real estate shop. Appreciate you coming on to give us an update on the debt market from the agency side of affordable housing. 4 00:00:22,660 --> 00:00:35,100 Before we jump in, I just want to kind of do some context for the younger kids that are out there that are listening. You know, Chad and I, we actually hooked up at a conference, man. I want to say it was 2018 in Miami. 5 00:00:35,780 --> 00:00:44,980 And, you know, the moral of the story is, you know, you make that one meeting and stay in touch, you know, with the brother over the years, you know, been trying to do some deals. 6 00:00:44,980 --> 00:01:00,220 Your podcast wasn't even on the table. So now, you know, Kerber and I have a podcast and lo and behold, bam, here's Chad. So, you know, word to the wise, you know, when you work these connections, man, just stay in touch because you never know where it's going to take you to. 7 00:01:01,660 --> 00:01:07,180 But just to get started, Chad, how did you get started in the industry and what was your background? 8 00:01:07,180 --> 00:01:14,460 Yeah, I appreciate it, Steve. Thanks for having me. And yeah, man, you kind of took me through a little walk down memory lane. 9 00:01:15,460 --> 00:01:24,460 Yeah, I remember that conference. It was actually, I think, at the Pelican at the restaurant on the water there. So, we connected. 10 00:01:24,460 --> 00:01:46,460 Well, yeah, no. So look, I got my start in the business back in 2011. You know, I can tell people, I mean, it really, you know, I think it really took a downturn, right, for an industry that had been kind of red hot running for so long, right, through the, you know, early mid 2000s kind of post the dot com bubble. 11 00:01:46,460 --> 00:02:04,460 And then obviously running up to, you know, the Great Recession of 08. You know, I was in New York. I had finished up school at Columbia and I was working down on Wall Street and kind of in the equity research space. 12 00:02:04,460 --> 00:02:22,460 And, you know, I had a close friend and fraternity brother who knew someone at what was, you know, then my former shop, Centerline Capital Group. And, you know, I've been kind of looking for some ways to get into the real estate and structural real estate finance world. 13 00:02:22,460 --> 00:02:50,460 In particular, you know, in particular, kind of the multifamily space and Centerline happened to be an agency lender and you know got connected with someone in HR, who happened to actually be a black woman and so she was very helpful and instrumental and kind of pushing my resume, you know, internally and pushing for me to, you know, get an opportunity just to interview. 14 00:02:50,460 --> 00:03:06,460 And I think roughly about seven or eight interviews later. I actually ended up securing a position. So started in New York as an analyst cut my teeth in the agency world and, you know, just kind of work my way up the food chain. 15 00:03:06,460 --> 00:03:27,460 And, you know, saw that company go through several iterations of the acquisitions and my travels took me from New York to coming down to Miami to help launch an office for, you know, the next kind of parent firm that had owned the company and, you know, staying with them until 16 00:03:27,460 --> 00:03:44,460 recently until last year, where I made a move and now sit at my current firm at MIT Road to Capital Corp. And I run Florida and kind of southeast expansion for the, for the agency and mortgage banking business. 17 00:03:44,460 --> 00:03:45,460 Nice. 18 00:03:45,460 --> 00:04:00,460 So tell us, like, what type of work you do. I know for the benefit our folks of course I know that you're in the debt space, heavily involved with the agency loans but kind of walk us through, you know exactly is what you do on a day to day basis how you find clients 19 00:04:00,460 --> 00:04:02,460 and that type of stuff. 20 00:04:02,460 --> 00:04:24,460 Yeah, yeah so on the most basic level my role is is like you said to originate debt for the agencies and the agencies are Fannie Freddie and hunts so what that means is is simply, I am you know going out and sourcing potential deals where we can provide the 21 00:04:24,460 --> 00:04:40,460 debtor loan, mainly in the multifamily space, and that is you know across portable housing market rate, and the agencies also play and you know the senior housing space manufacturer housing student housing, etc. 22 00:04:40,460 --> 00:04:55,460 So yeah essentially my job is to develop those relationships, whether they be, you know, folks who kind of gotten in the business and they're going a little bit and you know may not be the largest borrower to, you know, the high network individuals, 23 00:04:55,460 --> 00:05:07,460 all the way up to the institutions who want to day to day, develop own operate, you know multifamily across the country. 24 00:05:07,460 --> 00:05:17,460 And just to show you how small world is curving jump in and you've had your own relationship with with Chad, you know being the market study guy. 25 00:05:17,460 --> 00:05:34,460 Kind of let everybody know how you and Chad hooked up as well, just to give folks a broader sense of how close to tight niche, this industry really is a chat at a conference as well I think was NHNRA in in Florida at the breakers. 26 00:05:34,460 --> 00:05:51,460 I mean, you know we exchanged emails prior to that. We talked about some deals, but never met in person so and Chad lives in Miami, and I said hey, would you happen to go into this, this conference and he said yeah I'll be there I got a lot of stuff going on 27 00:05:51,460 --> 00:06:08,460 and I'll pop in and I got some meetings lined up already at the conference so let's do it so we, you know we both met at the event and I had a chance to connect and you know our, we still talk, probably on a regular basis. 28 00:06:08,460 --> 00:06:23,460 And I'm talking now about deal flow and things he's seen in the market and things I'm seeing so you know it's been amazing to see how how both of us have kind of grown since that conference and, and we talked about stuff beyond business like we talked about managing 29 00:06:23,460 --> 00:06:35,460 a household, you know, Chad has three, three kids I've got a young daughter and and working on a second now so you know it's it's grown beyond just a business, so it's beautiful to see. 30 00:06:35,460 --> 00:06:50,460 Absolutely. And now Steve I had one quick further point to that real quick, Kervin's exactly right, and you know even for the introductions that you know we made for one another, you know still talk to folks from, you know potential sponsors he's introduced, 31 00:06:50,460 --> 00:07:04,460 you know I know some of the folks I'm introduced to him. And even on top of that, you know currently your business partner is an old colleague of mine as well, from my first shop, you know in the business from that that firm, Senolon. 32 00:07:04,460 --> 00:07:19,460 So I think, yes, you know, it lends itself to say that you know good people in this business definitely tend to stick together. And I think again Steve to your earlier point of, you know, just how small of a business, it is as well. 33 00:07:19,460 --> 00:07:33,460 Exactly, because the crazy thing is, like Kervin's other business partner at the time was a client of mine when I was back at the resident group in early 2000 so he told me that he kind of connected with her and she's a partner, you know in a 34 00:07:33,460 --> 00:07:41,460 very test credit space, I was like, this is really crazy. So it's a really really tight space. 35 00:07:41,460 --> 00:07:51,460 One of the things that we do this podcast, Chad, to give folks who are aspiring to be, you know, developers are getting to the business. 36 00:07:51,460 --> 00:08:05,460 So a little insight from developers and professionals. From your aspect, I know you deal a lot with sponsors so you're on top of the whole underwriting. You know, what do you see as the challenges to some of the smaller folks who are trying to get into 37 00:08:05,460 --> 00:08:13,460 business I mean obviously we know that sometimes we'll have to join venture with a larger firm to overcome those challenges, but you sitting on the debt side. 38 00:08:13,460 --> 00:08:17,460 You know, what do you see the challenges are for folks who are trying to break in. 39 00:08:17,460 --> 00:08:34,460 Yeah, no absolutely man I mean listen I think it's, you know, the main hot topic that has been for some time and I think will always, or now, I mean look we hope it's not always what I but I think that will persist for some time is always access 40 00:08:34,460 --> 00:08:35,460 to cap. 41 00:08:35,460 --> 00:08:51,460 Right. You look at, you know, sponsors who have been successful in this business. Typically, they have, if we're talking about on the development side right they typically have acquired a development side at a great basis. 42 00:08:51,460 --> 00:09:05,460 And what do you need to do in order to acquire that development side of the great basis, right, typically, you've bought the land all cash, or you may have some low lever financing on it. 43 00:09:05,460 --> 00:09:23,460 And you had access to that capital, whether it be debt or equity. In order to, you know, act quickly and act appropriately right there's one thing to be able to, you know, buy whether it's land or, you know, even an existing building, but it's having 44 00:09:23,460 --> 00:09:44,460 capital that is not only available to you, but also a creative to the business overall right and what do I mean by that is that it's not, you know, overly expensive expensive capital or capital that's not flexible and doesn't allow you to be nimble in the 45 00:09:44,460 --> 00:09:53,460 business right and that's the development front and you know even on the on the acquisition standpoint. 46 00:09:53,460 --> 00:10:04,460 It's the same thing. Right, if you're going to buy an existing building, you know, typically you're getting some type of loan from someone like me who's going to do, you know, the first mortgage to senior debt. 47 00:10:04,460 --> 00:10:08,460 Right, and then you've got to come to the table with equity. 48 00:10:08,460 --> 00:10:15,460 And one of the other responses of color it's, you know, having the equity to be able to write that check. 49 00:10:15,460 --> 00:10:31,460 Right, so or having access to good partners who will be able to help you write that check. And oftentimes, you know those same sponsors who like that access to you know that capital and flexible capital. 50 00:10:31,460 --> 00:10:43,460 You know, need someone who's going to be able to sign on the loan guarantees. Right, because we have network and liquidity requirements for our deals. 51 00:10:43,460 --> 00:10:50,460 So I think it's the you know the intersection of those two things which I think is has been the most prohibitive. 52 00:10:50,460 --> 00:10:53,460 You know, historically speaking. 53 00:10:53,460 --> 00:11:04,460 Got it. 54 00:11:04,460 --> 00:11:25,460 I think it's important to think about multifamily buildings that are being financed with low income housing tax credits and you know obviously we've got the 9% ones that are competitive. 55 00:11:25,460 --> 00:11:27,460 When it comes to you. 56 00:11:27,460 --> 00:11:34,460 How do you kind of guide them through, you know, you might be better off doing a hoodlum or Fanny product or Freddie product. 57 00:11:34,460 --> 00:11:39,460 How do you get them to that point, what's the right product for them. 58 00:11:39,460 --> 00:11:56,460 I mean look I think it's really about understanding, you know, what you're looking to get out of the deal in the transaction. Right. Are you looking to get a deal done that's going to be developed you're going to sell that development, typically that isn't 59 00:11:56,460 --> 00:12:12,460 going to be a case right with affordable housing and I always like to open it up to because the agencies, we refer to the agencies to your point Steve we're referring to, you know, Fanny and Freddie and hood are really pushing what we call mission driven business 60 00:12:12,460 --> 00:12:30,460 and that's where the rents at these properties are, you know, at 80% of the area median income or less right we know, traditionally, an affordable project typically has what's called a set aside or units that are set aside. 61 00:12:30,460 --> 00:12:43,460 Right. Typically it's been 40% of the project at 60% am I less or, you know, 20% at 50, etc and now we're you know pushing up to 80. 62 00:12:43,460 --> 00:13:01,460 So looking at the deal, like I said, if this sponsor is looking for, you know, the highest possible leverage they can get, then yeah maybe it's one of our forward agency products right though, potentially under right to leverage up to 90% with a lower 63 00:13:01,460 --> 00:13:10,460 leverage, or what you have today where we're interest rates have gone typically you're not getting to that, you know that higher leverage. 64 00:13:10,460 --> 00:13:24,460 In addition to that you know you have the HUD product right which is oftentimes a longer term but also in some instances allows you to get a lot longer amortization. 65 00:13:24,460 --> 00:13:38,460 So you know Fannie and Freddie now, you know Fannie and Freddie has been open to looking at longer amortizations, but with the HUD product it's, you know, it's typically programmatic, right, if you build a deal with what's called the HUD 221D4, you know it's 66 00:13:38,460 --> 00:13:55,460 it's why I tell me it's a 40, you know, 42 year term essentially right a construction period with a permanent term. And so, you know, you also have a 40 year amortization with that. And what does that mean that just simply means that, you know, the payment you 67 00:13:55,460 --> 00:14:12,460 got to make on the loan is going to be lower than if you had a, you know, call it a 35 or 30 year or even, you know, in some instances a 25 year amortization, right and and that all goes to benefit your bottom line when you're underwriting the deal because, 68 00:14:12,460 --> 00:14:26,460 again, back to what you want to get out of it. It also depends on your capital partners, right, what type of returns do you need to deliver to them. Is this a deal like I said that you're going to hold, you know, for the next 15 years through a compliance 69 00:14:26,460 --> 00:14:41,460 period or is it a, you know, a workforce deal that you bought and you know you need to exit the deal in five to seven years. So I think it's really understanding, you know, the return profile and what you have to accomplish with the deal, which then will dictate 70 00:14:41,460 --> 00:14:44,460 what products that we look at. 71 00:14:44,460 --> 00:14:46,460 And the time to close. 72 00:14:46,460 --> 00:14:58,460 Yeah, time to time closes is definitely important as well you know Fannie free deals I mean we like to say, you know, a standard kind of 45 to 60 day close. 73 00:14:58,460 --> 00:15:17,460 You know, deals typically take a little longer to close right. If it's you know, development deal you could be looking at, you know, a 12 plus month timeline, 12 to 15 months if it's a refinance scenario, you know you may be in that four to six month range. 74 00:15:17,460 --> 00:15:27,460 Yeah, and to your point, your point, Kervin I mean it just really again kind of depends on that business plan and how you need to execute. 75 00:15:27,460 --> 00:15:34,460 Have you guys made any changes because of the current environment to how you're looking at the market and looking at bars. 76 00:15:34,460 --> 00:15:52,460 Look man we're you know we're obviously doing our best I mean, right now with the current environment I think, you know, a lot of the deals are being driven by again kind of those metrics I mentioned right deals that have what we call fire affordability, right, 77 00:15:52,460 --> 00:16:08,460 not necessarily that they're, you know, a lie tech or tax credit project right, it can be a project that has, you know, running restrictions where project based have contract or, you know, a sponsor could be coming in to, you know, buy a workforce market rate project 78 00:16:08,460 --> 00:16:25,460 and they're going to take you, you know, into a deeper affordable scenario where, you know, they're going to look for some tax abatement etc. to basically, you know, increase the returns on the deal. 79 00:16:25,460 --> 00:16:46,460 And so, you know, we are out pushing for best terms for sponsors and I mean listen I'm working on a deal right now, where they've got some, you know, voucher tenants at the property, and we're trying to get a 35 year amortization versus a typical 30 year amortization 80 00:16:46,460 --> 00:16:57,460 for a workforce deal. Right, so, you know, we're pushing where we can we're trying to, you know, get longer interest only when deals are coming in at lower leverage. 81 00:16:57,460 --> 00:17:17,460 You know, for those forward committed loans that we're doing what that means is, you know, someone goes out they get an allocation of credits and they're going to build a lie tech project, you know, we have a forward commitment loan product that will essentially 82 00:17:17,460 --> 00:17:29,460 be locked simultaneously which are construction loans. So, you know, trying to be number where we can there too like I said pushing for that longer amortization, etc. 83 00:17:29,460 --> 00:17:40,460 Yeah, but I mean in today's climate man it's really just about being, you know, prudent and underwriting, and, you know, trying to push where we can. 84 00:17:40,460 --> 00:17:47,460 Any changes in the liquidity requirement at all. Much people have to come to the table. 85 00:17:47,460 --> 00:17:51,460 I mean for the for the most part it has been status quo. 86 00:17:51,460 --> 00:18:04,460 You know, we are trying to, you know, mitigate. I'll say where someone may have a slight shortfall we're trying to, you know, mitigate that we're structuring the deal. 87 00:18:04,460 --> 00:18:21,460 You know, but as far as kind of, I guess, for lack of better words, what's in black and white in the guy right has not changed. But, you know, we are trying to be helpful where we can, I mean look you know Steve and I were talking about another 88 00:18:21,460 --> 00:18:37,460 project that we're working on where, you know, a sponsor was working on having, you know, the potential tax credit equity partner sign on a deal and let me listen, you know that sponsor that meet the typical requirements but you know we were trying to be, 89 00:18:37,460 --> 00:18:52,460 you know, helpful in the sense of saying hey, you know, kind of given the experience level here and if they successfully executed on some projects that you know me we'd be willing to lean in right on a construction loan that was kind of, you know, it was, 90 00:18:52,460 --> 00:18:56,460 it was in our footprint the sponsor was in our footprint right as a bank. 91 00:18:56,460 --> 00:19:15,460 While we didn't have a tax credit equity need in that particular market, because it wasn't footprint, we were, you know, trying to be reasonable and be open to say look, if you elect to take this you know forward committed product with our construction 92 00:19:15,460 --> 00:19:27,460 loan and we know that we don't have an open ended construction loan with some of the other things that went along with the deal right like there was a developer opportunity fund that was going to help with some liquidity shortfall during the construction period etc. 93 00:19:27,460 --> 00:19:42,460 Like I said the tax credit investor was going to sign on the deal. So, you know, we want to say hey yeah you know we will kind of stretch a little bit here for construction, and in an effort to help capitalize the transaction. 94 00:19:42,460 --> 00:20:00,460 But it's really kind of been kind of, you know, I guess in summary and in short, there's no programmatic or, you know, here is the box that we're, you know, we have said yeah this is where we're going to kind of change our requirements is really just kind of taking 95 00:20:00,460 --> 00:20:17,460 a realistic approach and looking at every deal on a one off basis to say, hey, let's kind of sit down and be thoughtful about this and really kind of understand demand drivers in the market etc and you know, do we think this is a valuable product project 96 00:20:17,460 --> 00:20:20,460 if we're going to lean in a little bit. 97 00:20:20,460 --> 00:20:22,460 Okay, sounds good. 98 00:20:22,460 --> 00:20:30,460 And you've been through a number of cycles before in the industry. 99 00:20:30,460 --> 00:20:43,460 Do you see developers, maybe looking at secondary market treasury markets, given the current environment to sustain their business, what changes are you seeing or you expect to, you know, you've seen in the past. 100 00:20:43,460 --> 00:20:57,460 I mean look this kind of really kind of first cycle right I mean we had a very long expansion with this last cycle right call it from kind of downturn from, you know, oh, no, no, and I got the business in 2011. 101 00:20:57,460 --> 00:21:14,460 And I mean what I can say is you know having seen it really kind of come full circle. 102 00:21:14,460 --> 00:21:30,460 And to your point, yes, absolutely I've seen sponsors that have, you know, moved into secondary tertiary markets right where they, you know, see value I was like I was just talking to somebody about a deal in Greer, South Carolina. 103 00:21:30,460 --> 00:21:48,460 You know, the holiday right, um, you know and markets that historically have not, you know, come up and you know you've seen the emergence of, you know, other markets kind of moved to the forefront between you know Nashville and Tennessee and obviously 104 00:21:48,460 --> 00:22:03,460 you know South Carolina's of you know gotten a lot of attention of late and you know obviously Texas and Florida's has been there but what I would I remind people to a lot is that, you know, as hot as Florida is and you know people focus on it. 105 00:22:03,460 --> 00:22:12,340 here to Florida in 2014, right? Prior to that, the agencies had not allowed us to extend credit 106 00:22:12,340 --> 00:22:18,420 on a programmatic basis over 65% leverage, right? Because of the historical kind of boom and bust 107 00:22:18,420 --> 00:22:24,980 in Florida. So, you know, that's recent, right? Like eight, nine years ago, when you think about 108 00:22:24,980 --> 00:22:30,500 how long, you know, we've been in this business and folks have been doing business. So even 109 00:22:30,500 --> 00:22:34,980 oftentimes I have to remind people that, you know, you have a lot of projects in Florida that are, 110 00:22:34,980 --> 00:22:43,060 you know, just going to start to cycle because, you know, kind of the requirements and lending 111 00:22:43,060 --> 00:22:48,180 levels change for Florida. And then to the, you know, to your other point, I mean, yeah, 112 00:22:48,180 --> 00:22:54,260 with developers, I mean, I think it's about, you know, costs, right? Land costs have, you know, 113 00:22:54,260 --> 00:22:58,260 been driven up in a lot of markets. I mean, especially we've seen it here in Florida, 114 00:22:58,260 --> 00:23:04,100 but even others throughout the country. So it really kind of, you know, comes to a point 115 00:23:04,100 --> 00:23:11,380 where you have to say, okay, you know, what does replacement cost look like? Does it make more sense 116 00:23:11,380 --> 00:23:18,340 to acquire an existing asset versus develop? And then I think on the opposite spectrum of that, 117 00:23:19,140 --> 00:23:23,300 and kind of something that, you know, we see a lot and have to advise sponsors on is that, 118 00:23:23,300 --> 00:23:28,820 you know, as borrowers are chasing yield, oftentimes what that means as well is that 119 00:23:28,820 --> 00:23:34,580 you've got to look for older product, right? So you have sponsors that are chasing, you know, 120 00:23:34,580 --> 00:23:41,140 70s, 60s vintage product, because I think, you know, kind of 80s and early 90s have been the 121 00:23:41,140 --> 00:23:46,260 focus a little bit more, but, you know, 90s didn't need as much, and it was still kind of 122 00:23:46,260 --> 00:23:51,940 expensive for some time. So when you're chasing 60 and 70s, you know, vintage product, typically 123 00:23:51,940 --> 00:23:58,020 you're going to have very large capex budgets, right? We're talking north to 20, 25,000, you 124 00:23:58,020 --> 00:24:04,500 know, adored. So, you know, sponsors are having to make a business decision to say, is it worth, 125 00:24:04,500 --> 00:24:12,100 you know, chasing that product? Or yes, do I just go look at, you know, listen, is it applying to an 126 00:24:12,100 --> 00:24:19,300 RFP? Or is it just, you know, finding a site and chasing competitive credits, 9%? Or, you know, 127 00:24:19,300 --> 00:24:24,900 do we just kind of buy right, take 4% and see how we can make a deal work by getting, you know, 128 00:24:24,900 --> 00:24:31,620 other incentives from the state or local municipality, et cetera. So, yeah, I think 129 00:24:31,620 --> 00:24:36,740 there's a lot more thought and underwriting that has to go into business plans and deals today, 130 00:24:37,700 --> 00:24:44,500 right, to be sound. And I think that will continue for a little bit, 131 00:24:44,500 --> 00:24:52,020 right, as we navigate the volatility in the market. I know Kerber, network, 132 00:24:52,020 --> 00:24:56,180 net worth and liquidity requirements, and I know that kind of varies on a deal-by-deal basis, 133 00:24:56,180 --> 00:25:01,460 but it's a common question that we get from folks who are trying to really break in. Is there a rule 134 00:25:01,460 --> 00:25:07,620 of thumb for net worth and liquidity? I know it's case by case, but is there like a generality that 135 00:25:07,620 --> 00:25:13,540 you can apply when you're looking at sponsors? Yeah, I mean, look, the general rule of thumb, 136 00:25:13,540 --> 00:25:19,860 right, is typically you want a net worth equal to the loan amount and a post-closing liquidity, 137 00:25:19,860 --> 00:25:24,500 right, so not assuming that they're going to cash out on some other deal and add it, like, 138 00:25:24,500 --> 00:25:31,060 kind of post-closing liquidity of 10%. You know, so net worth equal to the loan amount, 139 00:25:31,060 --> 00:25:36,260 post-closing 10%. I mean, listen, there are some exceptions, right? I mean, we have instances where 140 00:25:36,260 --> 00:25:40,980 you have, you know, nonprofits who are in the business of operating on real estate and have 141 00:25:40,980 --> 00:25:47,060 great track records, and, you know, everyone here I think knows that typically nonprofits 142 00:25:47,060 --> 00:25:52,900 operate at some slim margins sometimes and slim budgets, so they may not meet that function, 143 00:25:52,900 --> 00:25:58,980 and then that's where, you know, sometimes we've seen a tax credit investor sign on a deal as well, 144 00:25:59,540 --> 00:26:05,700 or, you know, they've had a decent net worth and liquidity, and it may not be equivalent to the 145 00:26:05,700 --> 00:26:11,780 loan or those metrics and where we have to, you know, kind of file and look for some type of 146 00:26:11,780 --> 00:26:18,820 exception, but that said, I mean, you know, while we want to try to be helpful, I mean, we do look 147 00:26:18,820 --> 00:26:27,940 for, you know, I would say, you know, a net worth and liquidity relative to the deal and that kind 148 00:26:27,940 --> 00:26:34,020 of aligns with, you know, either their overall portfolio and leverage, right, like, we just, 149 00:26:34,020 --> 00:26:39,060 we try to make the case holistically if they don't meet those exact requirements. 150 00:26:39,780 --> 00:26:45,940 Chad, you mentioned the 1960s, 1970s product. Do you see a lot of developers now looking at, 151 00:26:45,940 --> 00:26:50,100 like, historic tax credits and energy tax credits to support their capital stock? 152 00:26:52,340 --> 00:26:58,100 To be honest with you, Kermit, I don't play a lot in the historic energy tax credit space. 153 00:26:58,100 --> 00:27:05,140 I do know that sponsors are looking for those alternatives to fill the gap. Funny enough, 154 00:27:05,140 --> 00:27:09,380 I was actually looking at a project here in Fort Myers, and they were looking at 155 00:27:09,380 --> 00:27:17,220 historic on the project because there was some retail component, and it was a historic building, 156 00:27:17,220 --> 00:27:21,300 like, I think a mill or something along those lines, and they wanted to kind of preserve 157 00:27:22,180 --> 00:27:27,620 the facade and the building itself and then attach some multi to it on the side. So 158 00:27:27,620 --> 00:27:33,700 I do know that sponsors are seeking those, you know, additional dollars, and I mean, listen, 159 00:27:33,700 --> 00:27:39,700 we've seen the emergence of, you know, the PACE financing and the ground lease world. I mean, 160 00:27:40,500 --> 00:27:47,300 what I would tell, you know, your listeners is that on a relative basis, a lot of, 161 00:27:47,300 --> 00:27:52,740 aside from the historic tax credits, right, like, kind of the PACE and the ground re stuff and, 162 00:27:52,740 --> 00:27:57,060 you know, things like that are just a little bit newer to the front, so don't be, you know, 163 00:27:57,060 --> 00:28:02,980 frustrated when lenders kind of, you know, either dismiss projects because those, I know they look 164 00:28:02,980 --> 00:28:07,540 like good avenues to help capitalize deals, and I think in some instances they are, and I think 165 00:28:08,100 --> 00:28:14,740 as it just becomes more prevalent, I think we'll start to see it, you know, become a little more 166 00:28:14,740 --> 00:28:21,620 constant in deals. You made a good point about C-PACE. I was almost not going to really talk 167 00:28:21,620 --> 00:28:27,380 about it, but there is, you know, a little confusion that I was actually trying to clear up, 168 00:28:27,380 --> 00:28:32,740 so this is relevant. Like, from what I understand, like HUD products won't use C-PACE. I believe 169 00:28:32,740 --> 00:28:38,820 Fannie may not. I understand Freddie can, but they either need regulations, regulations are being 170 00:28:38,820 --> 00:28:43,860 drafted, you know, but you got like a Naveen out there who's got billions of dollars of capital, 171 00:28:44,420 --> 00:28:50,820 you know, ready to deploy for C-PACE. What are your thoughts on C-PACE? And, you know, 172 00:28:50,820 --> 00:28:54,500 am I accurate that HUD doesn't use it, Fannie doesn't use it, but Freddie may? 173 00:28:56,180 --> 00:29:04,820 Uh, I think you're pretty spot on, Steve. Well, I have heard that HUD has done a handful of deals, 174 00:29:04,820 --> 00:29:10,660 and when I say handful, I'm literally referring to counting on one hand, and I think that number 175 00:29:10,660 --> 00:29:16,900 has slightly grown, so I think they have. You're right, Fannie has not looked at PACE to my 176 00:29:16,900 --> 00:29:21,620 knowledge, I'm at this standpoint, and yes, Freddie does have some guidance around it, 177 00:29:22,580 --> 00:29:28,820 but again, just like I mentioned, I think, you know, it's always about adoption speed, right? 178 00:29:28,820 --> 00:29:37,620 So yeah, Freddie, as far as I know, has not closed anything with PACE, and listen, I think it's a 179 00:29:37,620 --> 00:29:43,460 bigger front, right? I know sponsors oftentimes get frustrated, because, you know, we've looked 180 00:29:43,460 --> 00:29:50,340 at some PACE stuff, and to my knowledge, there were not my deals, I have not done them, but 181 00:29:50,340 --> 00:29:57,780 I do know that M&T has done some loans where PACE has been in the senior stack on the construction 182 00:29:57,780 --> 00:30:03,300 standpoint, but what I will tell you, what you're seeing, and I think you'll hear this from the 183 00:30:03,940 --> 00:30:09,860 PACE folks as well, too, is that what you're seeing is that senior leverage is coming down 184 00:30:09,860 --> 00:30:18,100 when the PACE is coming in, and or, you know, PACE can kind of be used to, you know, sell down 185 00:30:18,100 --> 00:30:26,340 effectively on the deals, because of the fact that we do have to look to REFI, because the agencies, 186 00:30:26,340 --> 00:30:31,700 you know, haven't become widely, you know, adopters of it yet, you've got to get that PACE out of 187 00:30:31,700 --> 00:30:39,780 there, right? And listen, this is, you know, no talking points from M&T, you know, nothing from 188 00:30:39,780 --> 00:30:46,020 NIMMA, I mean, kind of my own thoughts around it, right, is because we're talking about a big animal, 189 00:30:46,020 --> 00:30:51,300 right, and when I say a big animal, we're talking about, you know, two groups, Fannie and Freddie, 190 00:30:51,300 --> 00:30:56,420 that are, you know, doing 70-plus billion a year in financing with a model that's kind of been tried 191 00:30:56,420 --> 00:31:02,180 and true, proven and tested, right, with securitization, you know, Freddie has his 192 00:31:02,180 --> 00:31:08,500 K-Series, you know, Fannie securitizes deals one-off that are sold, so when you start talking about 193 00:31:08,500 --> 00:31:15,940 something like a PACE that doesn't, for lack of better words, doesn't necessarily sit in front of 194 00:31:15,940 --> 00:31:22,580 the senior, but it is being paid because it comes in like an assessment on the tax bill, right, like 195 00:31:22,580 --> 00:31:27,300 you, there's a lot of regulation around that, and you know, like I said, you have structuring with 196 00:31:27,300 --> 00:31:32,660 the securitization, there's probably ways it needs to be reported, so I think it's just, it's really 197 00:31:32,660 --> 00:31:38,820 going to take some time for the, you know, the adaptation of it to the marketplace, so I would 198 00:31:38,820 --> 00:31:45,060 just tell, you know, tell people to continue to get smart about it, you know, and build a knowledge 199 00:31:45,060 --> 00:31:50,740 base around it, because I do think eventually it will become, you know, more widely used. 200 00:31:50,740 --> 00:31:58,340 Got it, and then one last question from me, and I know Kermin has one more, in the industry itself, 201 00:31:58,340 --> 00:32:02,340 both, you know, it's not probably particularly too affordable, but we're seeing a lot of 202 00:32:03,140 --> 00:32:10,420 programs prop up for Black and Brown developers, I'm seeing it on the developer side where shops 203 00:32:10,420 --> 00:32:15,220 like, you know, Enterprise will come in and they want to be a co-developer for, you know, an upstart 204 00:32:15,220 --> 00:32:23,540 Black or Brown firm, we just did a podcast with NEF, and they have a program as well where they'll, 205 00:32:23,540 --> 00:32:28,900 you know, backstop a guarantee. Do you see any of that going on in there with some of the depth 206 00:32:29,700 --> 00:32:35,220 there in terms of programs targeted for Black and Brown developers? 207 00:32:36,660 --> 00:32:43,220 Yeah, yeah man, definitely, definitely seeing, you know, folks make strides, you know, like I said, 208 00:32:43,220 --> 00:32:46,580 we're, what we're doing, looking at deals, we're trying to do the same as well too. 209 00:32:48,020 --> 00:32:54,820 You know, I have friends who have, you know, gone out and, you know, they kind of already had their 210 00:32:54,820 --> 00:33:01,860 own shops where they raise funds, and they've been able to partner with, you know, some big names in 211 00:33:01,860 --> 00:33:08,900 the industry, and or, you know, kind of family offices that have said, hey look, we want to be, 212 00:33:08,900 --> 00:33:15,940 you know, impactful in a way that'll help you grow your business, and what is that, right? We need, 213 00:33:16,900 --> 00:33:23,380 I use the pun since we've had gas shortages here in Florida, right? They need the gasoline behind 214 00:33:23,380 --> 00:33:28,500 them, really, right? They've kind of built out the business, they've worked for, you know, some of 215 00:33:28,500 --> 00:33:34,500 the most reputable names in the industry, right? When you're talking about, you know, large 216 00:33:34,500 --> 00:33:40,900 acquisitions, you know, EQR and BlackRock, Blackstone Grow, etc. And so now they've kind of 217 00:33:40,900 --> 00:33:48,740 gone on and launched these platforms, so we, you know, we are seeing some movement in that arena. 218 00:33:48,740 --> 00:33:54,420 It seems like, you know, every now and then I'm seeing someone who's joined kind of an impact 219 00:33:54,420 --> 00:34:01,460 capital, you know, either lending or equity shop, and look, I think like anything else, again, it 220 00:34:01,460 --> 00:34:08,660 takes a very long time, you know, to put these things together, to develop a business plan, 221 00:34:09,300 --> 00:34:14,260 to allocate the dollars, to create an execution around it, because at the end of the day, it's 222 00:34:14,260 --> 00:34:22,260 still about ROE, right? It's return on what the equity is. So look, I would love to see us farther 223 00:34:22,260 --> 00:34:27,540 along in the space. I think we're making good strides. I think, you know, it will continue 224 00:34:27,540 --> 00:34:35,780 you to move. And I think, you know, folks like, you know, the real estate shop and, you know, 225 00:34:35,780 --> 00:34:40,900 what you and Curran are doing, or, you know, being the beacons of light that have to continue 226 00:34:40,900 --> 00:34:48,180 to put a spotlight where there is room for improvement, right? And there is the ability 227 00:34:48,180 --> 00:34:58,340 to not only invest in, you know, BIPOC minority, to grow some other acronyms out there, but invest 228 00:34:58,340 --> 00:35:05,460 in people, you know, who may not fit the typical status quo of being a portfolio manager, or 229 00:35:05,460 --> 00:35:12,500 allocator, asset manager, and or developer sponsor, acquisition group, I'm trying to kind of capture 230 00:35:12,500 --> 00:35:18,900 everything here. But, you know, we're seeing it, we're seeing them emerge. And I think we just have 231 00:35:18,900 --> 00:35:27,380 to continue to, you know, make sure the conversation stays at the forefront, that it just, it doesn't 232 00:35:27,380 --> 00:35:33,220 become something that, you know, just kind of becomes, you know, okay, the norm, or, hey, 233 00:35:33,220 --> 00:35:39,460 we tried and we were not successful. Because we do know that real estate is a slow business, 234 00:35:39,460 --> 00:35:47,860 and it takes time. So Curran, take it home, man. Appreciate it, Chad. Always good talking to you. 235 00:35:48,820 --> 00:35:54,020 I think Curran's going to wrap us up. Yeah, for sure. Chad, I think this has been really, 236 00:35:54,020 --> 00:35:58,260 really informative. Any last comments about the way you think the market's going to go, 237 00:35:58,260 --> 00:36:02,900 given the current conditions, or any advice you have for borrowers that are looking for capital 238 00:36:02,900 --> 00:36:12,020 right now? Yeah, I mean, look, the big thing that I will always say is, look, if you got a deal, 239 00:36:12,020 --> 00:36:18,900 and the numbers work for you, close. Close your deal. Because if one thing, recent times, 240 00:36:18,900 --> 00:36:24,180 haven't shown you is that, you know, we don't know what, you know, what happened, right? I mean, 241 00:36:24,180 --> 00:36:28,420 yeah, the interest rate volatility is going to continue to persist in the market for a little bit. 242 00:36:28,420 --> 00:36:33,380 I mean, listen, look, I wish I had the crystal ball. And candidly, I probably wouldn't be sitting 243 00:36:33,380 --> 00:36:36,900 here talking to you. We might be doing this interview on my boat, because I would know 244 00:36:36,900 --> 00:36:41,220 everything that was going to happen. And I probably would have picked the mega millions with the 245 00:36:41,220 --> 00:36:49,860 mega plier long ago. But listen, close your deal if you got a deal that's in front of you. 246 00:36:49,860 --> 00:36:57,060 Yes, rates are up. Historically, rates are not at a level that is going to be a big deal. 247 00:36:57,060 --> 00:37:04,580 A level that is crazy. You know, more seasoned, older developers will tell you, hey, I was doing 248 00:37:04,580 --> 00:37:11,860 deals, you know, when rates were 8, 9, 10%. Right? So while I understand that, you know, cost of 249 00:37:11,860 --> 00:37:18,980 living is higher now, you know, cost of bill is higher now, etc. Listen, we can figure out how to 250 00:37:18,980 --> 00:37:25,060 make this work. And, you know, understand that lenders and other folks, we're reactionary, 251 00:37:25,060 --> 00:37:33,540 right? We have to react to the market and where it is in order to ensure that, you know, 252 00:37:34,420 --> 00:37:41,140 we don't create the issues that do come with quantitative easing, right? And cheap capital, 253 00:37:41,140 --> 00:37:48,420 I think everyone got accustomed to, you know, much lower rates and spreads. And listen, I think some 254 00:37:48,420 --> 00:37:54,020 headwinds that we're going to face as, you know, many properties come up for refinance, 255 00:37:54,020 --> 00:37:58,740 recapitalization, and there's going to be, you know, there's going to be some shortfalls there. 256 00:37:58,740 --> 00:38:04,340 You know, anytime you have rates that, you know, have risen, you know, three, 400 basis points, 257 00:38:04,980 --> 00:38:10,740 it's going to be challenging. Right? I was talking to somebody funny enough about this, 258 00:38:10,740 --> 00:38:17,860 you know, the other day, you know, I started with M&T last July and, you know, rates, I think, 259 00:38:17,860 --> 00:38:27,140 kind of on an agency front, especially in affordable housing space are probably overall 85 to 90 bips, 260 00:38:28,740 --> 00:38:35,060 kind of for your typical kind of fixed capital markets, you know, seven, 10-year deal, right? 261 00:38:35,060 --> 00:38:39,620 If you're just acquiring a deal and extending use period or something like that and just getting 262 00:38:39,620 --> 00:38:46,500 your standard, you know, seven to 10-year loan. But that said, on the, you know, kind of structured 263 00:38:46,500 --> 00:38:53,140 arm and adjustable rate mortgage front, you know, rates are up, you know, 400 basis points. You know, 264 00:38:53,140 --> 00:39:00,740 we were doing seven-year arm deals at like, you know, three and a quarter. You know, today, 265 00:39:00,740 --> 00:39:08,260 those same deals are pricing, you know, seven and a quarter and or higher. Right? So, yeah, rates are 266 00:39:08,260 --> 00:39:13,940 up and we know what that means for values. They're going to need to come in as cap rates expand. 267 00:39:13,940 --> 00:39:18,900 But, you know, bottom line, if you got an execution that works and it hits your deals and everyone's 268 00:39:18,900 --> 00:39:23,940 happy, close your deal because you don't want to be the guy that's, you know, sitting next to me 269 00:39:23,940 --> 00:39:30,180 saying, oh, man, well, you know, our next guy closed and, you know, he got a rate 50 bips cheaper 270 00:39:30,180 --> 00:39:36,900 than meaning you wait two days later and you could have closed that X and now you close at a rate 271 00:39:36,900 --> 00:39:43,460 that is, you know, 50 bips wider because there was some swing in the marketplace. So, you know, 272 00:39:43,460 --> 00:39:48,020 I think we're going to face and sure, I think we're going to continue to face some headwinds 273 00:39:48,020 --> 00:39:54,580 with interest rate volatility. I'm hoping that it will settle here soon, but obviously we got to 274 00:39:54,580 --> 00:40:00,900 wait for the data to come out from the Fed and, you know, other smart folks that are doing a lot 275 00:40:00,900 --> 00:40:09,060 of modeling. And I think once we have that, I do expect kind of the volume and velocity of business 276 00:40:09,060 --> 00:40:13,780 to pick up, right? I mean, I, kind of the consensus that I've heard is that it's going to be on the, 277 00:40:13,780 --> 00:40:18,020 you know, back half of the year and third and fourth quarter that they expect to see the 278 00:40:18,020 --> 00:40:23,780 acquisition market open up a little bit, which I think in turn will, you know, make way for, 279 00:40:23,780 --> 00:40:28,260 uh, for everything else, right? You know, less competition and folks who's trying to pivot to 280 00:40:28,260 --> 00:40:35,940 develop me, change yield, et cetera. So, you know, I listen to the bottom line is we've always gotten 281 00:40:35,940 --> 00:40:43,220 through it. We'll get through it. You know, we just got to stay the course and, and we know that, 282 00:40:43,220 --> 00:40:51,220 you know, underwriting has been more sound, um, this time around, but there still remains to be, 283 00:40:51,220 --> 00:40:57,460 you know, some distress when you've got rates that are, like I said, up, you know, 400 plus 284 00:40:57,460 --> 00:41:02,980 basis points. So it remains to be seen, but I think everyone should just stay positive. 285 00:41:02,980 --> 00:41:08,500 Another day at the shop, content they can't get anywhere else.