How Combining the Capital Stack Mitigates Risk: Q&A

Charles Carey, Managing Partner, CIG Capital. Image courtesy of CIG Capital

Alternative investment firm CIG Capital continues to close deals despite the economic fallout brought on by COVID-19. With many financial organizations hitting pause on lending, CIG Capital Managing Partner Charles Carey sees uncertainty in the marketplace “as an opportunity” for the project finance company. Most recently, CIG Capital provided $125 million for a 624-unit apartment project in West Point, Ga.

So how does the firm’s long-term, combined capital stack and 100 percent finance model address some of today’s economic woes when it comes to multifamily lending? Carey touches on the subject in the interview below.

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How has the demand for multifamily project financing changed amid the COVID-19 crisis and the ensuing economic slowdown?

Carey: With certain lenders no longer lending, we are getting an influx of projects, including multifamily housing projects. The problem right now is the uncertainty of demand in the marketplace for most lenders—that’s why many are not lending. But for CIG Capital, we see it as an opportunity. We know the markets always rebounds and demand will be back or come back even higher. We don’t just look at temporary circumstances but what it will look like five years from now.

What types of deals and opportunities are you focusing on during these unprecedented times?

Carey: The funny thing is we haven’t changed what we do. This is what CIG Capital has done to help it become recession-resistant: We’ve combined multiple products within the capital stack—equity, construction loan, bridge finance, permanent loan and more. Furthermore, having a diverse portfolio of industries, utilizing consulting and equity positions within projects is paramount. Basically, we have taken a financial company with products such as bridge financing, permanent loans, equity and venture debt, and merged it with a consulting company to “de-risk” the product.

CIG Capital’s 100 percent finance model provides more control over a project’s outcome. Can you tell us a little more about this?

Carey: This allows CIG Capital to not have to rely on another funding group and to have complete control of a project’s risk. Not only do we provide 100 percent funding for projects, but we also provide the needed project management, consulting, leadership and ongoing support in order for the project to be successful. Similar to other related projects, requirements for multifamily developments to be approved for funding include location, needs to be met, overall business plan, size, leadership and collateral, among others.

How can multifamily lenders adapt and adjust their strategies in order to remain active?

Carey: Lenders need to stop looking at today’s issues only. Certain challenges are brought on by product restriction—some multifamily lenders tend to do more mezzanine/bridge type financing. Thinking outside the box and putting together a product that helps them take advantage of the needs in the marketplace could work as solutions. As an example, maybe extend to a 7-10 type bridge/balloon model.

If lenders don’t change how they approach risk, then they won’t stay in the industry. You’ll start to see many financial institutions go out of business or change their funding products. Lending institutions need to get out of their box and find solutions as to how they approach funding and risk. The best lenders are those that are willing to make changes, especially in today’s times. Lenders are meant to step up and help with the issues at hand and not rely on the old ways of doing business.