By Mike Ratliff, Senior Associate Editor
MHN recently caught up with Alexander Cohen, CEO and co-founder of Liberty SBF. The Philadelphia-headquartered firm specializes in small-balance commercial lending products. The firm lends either directly from its balance sheet or originates on behalf of investment partners. Topics discussed include trends in the capital markets, the firm’s entry into apartment lending and lending for pools of single-family rentals.
MHN: Thanks for taking the time to speak with us. Can you give us a bit of insight into the history of Liberty SBF?
Cohen: We started the company in late 2011 with a focus on small business lending. My partner and I had been involved in the retail banking space for a long time, specifically at M&T Bank. We really saw a lack of capital being provided on specific types of small business loans. Some of the larger lenders had scaled back originations, and there was a real decline in lending to those more special use real estate assets like limited service hotels, industrial assets, auto dealerships and day care centers. We saw an opportunity to come into the market and bring back lending and liquidity into that space.
Since then we have seen more and more liquidity flow back into the small lending space. It is starting to seem like community banks are beginning to focus more on the special use stuff, particularly through the SBA 504. But, for a while, there was a real decline in liquidity for those borrowers, which again, is why we started the company.
MHN: Liberty SBF has recently gotten involved in the residential side about the business. How has that expansion progressed?
Cohen: We actually just closed a multifamily deal. It was a $3.25 million loan for a multifamily asset outside of Los Angeles. We worked with a large conduit partner on that deal.
That said, one of the more interesting parts of our business that we have really started to focus on is providing non-recourse financing to owners of pools of single-family homes that they rent out. We signed up almost $15 million in loans in 2013 for that purpose.
We are seeing a mixture of both private individuals and companies picking up those pools. Obviously Blackstone has put a huge amount of money into that space. Now you are starting to see that there is liquidity to sponsor smaller scale transactions, say, someone who might own 150 properties or less. We can do that from $1 million and up via a non-recourse facility.
MHN: Are you seeing any trends with interest rates as a result of the Federal Reserve tapering its bond buyback program?
Cohen: We have started to see some spread compression, particularly in the multifamily space. CMBS is giving the agencies a run for the money in terms of pricing and structure. You are looking at rates in the low 5 percent range, which is pretty attractive for smaller assets fixed for 10 years.
As far as Chairwoman Yellen’s appointment, some would say that she is even more of an inflation dove than former Chairman Bernanke. I think the market responded pretty positive from a rate standpoint when her candidacy was first announced.
That said, I think more than anything the employment situation in the country is the bigger factor. We think the economy is still fragile. As you continue to see more stable economic reports come out, I think you are going to see that 10-year Treasury note stabilize and stay pretty close to 3 percent for the year.
MHN: What advice would you offer an owner looking to finance a smaller multifamily property?
Cohen: Some of the things that are important to keep in mind as far as a borrower is keeping very good accounting records for the prior three years. Obviously there are a lot of stipulations that need to be provided on an ongoing basis. There is a lot more focus on the property in a non-recourse deal than in a full-recourse deal, where they would be underwriting both the sponsor and the business.
Another thing is to have a good management company in place, or at least have the ability to switch onto a brand name, or a company that will do the due diligence on that type of transaction.
MHN: And finally, how do you plan to approach 2014 from a growth perspective?
Cohen: Our ability to grow the business is predicated on being in spaces that are more under banked. We keep our fingers on the pulse of the capital markets, which is the ultimate measure of liquidity. One of the things that is unique to Liberty SBF is that half the management has spent as much time on the capital market side of the business as they have on the originations and underwriting side of the business.
That allows us to look at new opportunities, such as the pools of single family residential—places where we start to see the emergence of a private market, in this case with Blackstone and some of the other big funds playing in the space. Now the ratings agencies and investor constituency is starting to get more comfortable in the space. We see there is more liquidity in the capital markets, and we are able to take advantage of the platform we have already built and very quickly implement a product that we know can be very successful.