Trends Watch: Bridge Lending

February 11, 2021

By Elana Margulies-Snyderman 

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Steven Fischler, CIO & Co-Owner, RMWC.

Discuss your investment focus -- How has COVID-19 shifted it? 

RMWC lends nationwide but with an increased focus on secondary markets and pro-growth states.  Our focus in on states and cities with growth-oriented tax and regulatory settings, and in select specialty markets with drive-to characteristics and constrained supply factors. Our pipeline with this focus is deep. However, the appeal of certain gateway cities (e.g., New York City, San Francisco and Los Angeles) has diminished in the near-term by COVID-19 and perhaps in the longer-term by poor leadership and policies leading to less safe and less desirable environments.   As an example, we still lend in New York and in similar gateway cities, but the metrics are different for us to lend in these markets:  We look for lower loan-to-value (LTV), best-in-class sponsors, and larger carry reserves in the loan. 

Why is this a compelling time for bridge lending?

Uncertainty in the market creates opportunities not just for bridge lending, but for non-bank lenders. We’ve been successful these past few months at growing our client base and targeting performing loans and are not focused on distressed or opportunistic segments. We’ve been closing loans that pre-COVID-19 would have been made by traditional lending sources who have pulled back. For borrowers, certainty of closing is more important than the last dollar of proceeds or the last few basis points of rate. We are seeing strong risk-adjusted bridge loans, construction loans and special situation opportunities. We look for opportunities that have business plans that are proving resilient to COVID-19 and can handle additional stress or construction deals that look past COVID-19; we are focused and underwriting on 2+ years out from now. 

How did investing during 2020 compare to other market downturns in 2008 and 2011? 

Investing in 2020 was different than in 2008. The year 2008 was a bubble that built up over a number of years and was something that investors, who were alert, saw coming. You had time to adjust your investments. 2020 was not something that could have been predicted, and no one has lived through a full, nationwide economic shutdown before—a complete stop to life. And once the country started up again, there have been on-and-off-again shutdowns on a state-by-state, city-by-city level.  There are very different experiences happening in places just minutes away from each other: a property in Lake Tahoe on the Nevada side of the border is open and operating, but a one-minute walk away on the California side of the border a competing property is completely closed.   This has made it more challenging to invest. But we’ve adjusted how we are underwriting loans and have been lending on circumstances where we feel the properties can withstand additional stress in 2021 and 2022.

What keeps you up at night?

My two-year old daughter.  In addition, a significantly delayed vaccine rollout is an ongoing cause for concern that hopefully can be avoided. The other is the amount of money being printed by the Fed and how it has forced investors to look beyond traditional investment metrics when searching for return on capital. This could result in a lot of pain three-plus years from now. We seek to mitigate this risk by staying with lower leverage, shorter duration collateralized loans.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper LLP.

 

About Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.