ESG Real Estate Loans
- Feb 16, 2022
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Senior Manager, Publications, EisnerAmper, speaks with Chris Callahan, President & CEO of X-Caliber Capital, an impact-focused commercial real estate, direct lending firm based in New York. He shares his views on investing in ESG-focused real estate loans, including the greatest opportunities and challenges in the space, what the firm is doing to champion DEI and more.
Elana Margulies-Snyderman: Hello and welcome to the EisnerAmper Podcast Series. I'm your host Elana Margulies-Snyderman and with me today is Chris Callahan, President and CEO of X-Caliber Capital, an impact-focused commercial real estate direct lending firm based in New York. Today, Chris will share with us his views on investing in ESG-focused real estate loans including the greatest opportunities and challenges in the space, what the firm is doing to champion DEI and more. Hi Chris, thanks for being with me today.
Chris Callahan: Thanks so much for having me, Elana.
EMS: So Chris, tell us a little about your firm and how you got to where you are today?
CC: Absolutely. Originally started career in CMBS trading, heading up a number of different platforms, Credit Suisse, Bank of America, and Nomura. Over a 20 year career on Wall Street, kind of fast forwarding after that when I purchased this company called the Farris Company. Main business line was housing and urban development, blending platforms specific to the multifamily and healthcare spaces. Did that back in 2017. Company based out of Kentucky, moved it up here to where we are presently headquartered. Just north of New York City, in Irvington, New York and named the company, X-Caliber capital.
The real mission was pretty simple. I mean, the focus was certainly on affordable housing. Using the expertise at the firm, provide the best terms and solutions. All of our clients, borrowers were really kind of looking to build, refinance, acquire anything really in the multi-family housing, seniors and healthcare facility spaces.
Now it's been four and a half years or so. Employee growth has definitely accompanied business expansion. Back when I bought the company back in 2017, we had five people and I think about two weeks ago, we went over 50 people. So as we kind of gravitate and look forward across the business lines and in 2022 and onward. Our main focus is obviously, lending in the multifamily and healthcare space to owners and operators who are kind of providing that affordable housing that care to our seniors and healthcare facilities and others that are looking to make energy efficient improvements, upgrades that are operating rural businesses.
EMS: So Chris, impact investing has become increasingly popular the last few years for a variety of reasons. And I would highly welcome your thoughts on this topic and more specifically investing in ESG focused real estate loans.
CC: Sure. I mean, look, there are various ways investing in ESG loans that can make an impact by really addressing several of the nation's most important issues. Many of the loans can directly target these problems from just increasing the supply of affordable housing to improving the environment, to providing quality care for our seniors. And also again for really supporting rural businesses. One example, shortage of affordable housing is really been an issue in our country for decades. Particularly with the pandemic, it's gotten worse and it hasn't gotten better. One report back in August by the National Low Income Housing Coalition mentioned that the country lacks many as 6.8 billion homes for households with the income kind of at, or below the poverty guideline where we normally pegged at 30% of the local median income.
And again, looking back pre pandemic, that's nearly double the number where it was. Back in 2019, we're looking at 3.6. So really the pandemic made a bad situation even worse. So that's an issue that'll continue to be an important one for our nation. Addressing this issue together as a public-private partnership may help move the needle where owners are incentivized to invest in these properties. And we're doing our part by providing the owners with access to capital to really promote their investment in affordable housing. Environmental sustainability, improves the quality of life for all and focusing on the environment from and whether it be energy efficiency and energy renewables, to reducing water consumption, to even lowering the carbon footprint. It's important not only to our nation but to the world. Providing capital to allow for these improvements really does make a difference.
We're seeing it with the metrics, really can't quantify and collected a real, tangible and measurable outcomes. As generations live longer, the need to provide good quality care is something our current generations aren't experiencing even with their parents. It's critical to ensure there are financing solutions available to help ensure and improve the quality of life for our loved ones as they live longer.
Finally, rural businesses are the lifeblood of many communities. Providing a wealth of services, employment and supporting both the economic and social wellbeing of rural America. But they also struggle with access to capital and solidifying a strong workforce, providing those businesses with the education and capital that can really help them support their efforts is super crucial to helping them survive and thrive. I think from a perspective of stakeholder value, particularly investors, premise is that companies are more likely to succeed if they create value for a wide variety of stakeholders. Whether that be society as a whole or its employees, as opposed to just the company itself. And that correlation of ESG analysis to performance is something that will certainly become more integral. Certainly, not only our decision making but our investors' decision making as well.
EMS: And Chris, where do you see the greatest opportunities looking ahead and why?
CC:Great question. I do see a few opportunities, most notably supporting affordable housing, in caring for seniors and helping improve the environment and also in supporting rural businesses. One of the best opportunities is the affordable housing sector. That again, that's also for a number of reasons, very low supply of inventory for affordable rental housing and really strong demand. Historically, multifamily performs pretty well throughout a majority of economic cycles. So really from an investor's lens, it's an attractive asset class because of its strong and reliable monthly cashflow. And then with the realization that there's not a major amount of turnover in these communities. So that again, translates well into from an Investors' standpoint, a very stable cash flow. Pretty understandable why investors are choosing to invest there. A social impact is more important to the generations ahead. When you combine a strong return on investment. With also helping support social change through both increasing the supply, while also improving the quality of lives of those who live in the communities. Really creates a win-win opportunity for investors.
EMS: So Chris, on the other hand, what are some of the greatest challenges you face and why?
CC: The diversification of our platform has fared well for us in good and bad times? So I think as a business, we're pretty well positioned. As a nation and addressing the force folks of our impact wheel, I believe the affordable housing crisis is and will remain a challenge. I do believe public-private initiatives will continue to make a difference and long term commitment and approach will help make a difference over time. Rising rents, stagnating income growth, and a real lack of supply have created really the perfect storm. Neither private business nor the government have the resource to tackle this growing problem alone. But some form of sustained multifaceted approach and partnership is really needed to help address this problem as a whole.
EMS: Chris, in addition to ESG, which your firm is embracing, I also noticed X-Caliber is embracing DEI with majority of employees, women. I would like you to share your thoughts on this and what else the firm is doing to integrate DEI into the culture?
CC: Absolutely. I'm fortunate to have an overall great team here and I value each and every one of them. We all embrace each other's differences because that diversity of thought and approach really does make us all better as a team. You know, in fact, if a team comprised of, I think as of last count, 65% women, many of them in leadership roles. And we do pride ourselves in supporting all of our employees regardless of gender. One of the things I'm most proud of, we were just recently recognized as a great place to work, the Global Authority on Workplace Culture. Our company performed really well in the qualifying survey. We actually had a hundred percent of our survey employees. The X-Caliber is a great place to work. That's something we work hard at. It's because we encourage an inclusive, respectful atmosphere and really have developed core values to support our co-culture.
EMS: Chris, we covered a lot of ground today. So I wanted to see what your plans are for the future for X-Caliber.
CC: Absolutely. We have a very strong and growing platform and are well positioned to be able to offer our client solutions and address many of the challenges we discuss today. Whether it's the lack of supply of affordable housing which continues to be a challenge. And again, we do remain committed as a firm to help support that crisis and do what we can there. Demand for green building and sustainability will continue to grow.
Although it may cost more to build with green materials, the efficiencies realized that reduced renter expenses and do produce the benefits for the environment will continue to drive that demand. The need to provide quality care for our elderly, who will only escalate as our population lives longer. And the demographics continue to shift and we need to ensure we can finance good quality care. And our nation's really built upon businesses and supporting their sustenance and smart growth especially in the rural areas. And we continue to invest in communities there, as it does stimulate local economies and makes the overall quality of life better for residents; we're focused on those areas for sure. And we look forward to continuing to grow our platform.
EMS: Chris, thanks so much for sharing your perspective with our listeners. And thank you for listening to the EisnerAmper Podcast series, visit eisneramper.com or more information on this in a host of other topics and join us for our next EisnerAmper Podcast. When we get down to business.
Transcribed by Rev.com
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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.
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