What opportunities are in debt structure products across the capital stack?
With the economy in an active investment phase in debt and restructured products across the capital stack, panelists discuss opportunities they see, including transitional assets, different geographies, and non-traditional banking resources.
Lisa Knee: Colony has been an active investor in debt and structured products across the capital stack. So what opportunities are you seeing now in this area?
David Schwarz: We've been focused on areas where we can achieve equity-like returns without taking necessarily last dollar risk. So we're looking at transitional assets, CMBS markets, balance sheet lenders are still very active and it’s still a pretty healthy market for assets with cash flow. But for certain assets that either have a repositioning element to them, have leasing holes in the asset or just may not be down the middle of the fairway for your traditional CMBS or balance sheet lender, we've been focusing on opportunities there where we can participate, whether it's through a preferred equity position, mezzanine debt or basically taking down an entire capital stack and really parsing it off ourselves and selling off an A note and maybe keeping more of a subordinate position. Generally speaking, we're pretty focused in the US and in Western Europe. We're not in Latin America, we're not in Eastern Europe, and we’re not in Russia. Generally speaking, if we don't have a good feel for the rule of law and we can't hedge the currency, it's not really a place that we're looking to put money out right now. So the European situation we think it's still pretty interesting. On a whole, and there's a lot of different dynamics to it, but Europe’s about three to four years behind the US in terms of how they've worked out their banking crisis in their financial situation.
Samantha Davidson: As a group that has a chance to allocate capital and so is really trying to look for optimal risk adjusted returns, the ability to lend on transitional assets for all of the market dynamics that were just mentioned we think is really interesting. Particularly because what we're finding is that you're able to achieve net returns that are commensurate or even higher than what you can achieve when you are taking more risk as a value-add equity investor. So I think as we think of places, assuming that your cost of the capital allows for this, it's an extremely interesting market opportunity today.
Christopher Schlank: Over the past four years, three years we haven't had one bid from a traditional bank. I mean every bid that we have for financing the deals that we do are coming from non-traditional banking sources. And as David said, it's a lot of guys that are taking the whole stack and then parsing it out to two, three trenches. So it's just the whole paradigm of financing for what we do on the value add side completely changed. And I don't see that changing. I think it's going to get even better or worse. I'm not sure what to say.
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