How Nimble Lenders Can Be Late-Cycle Winners
- Sep 26, 2018
Mordecai Rosenberg presides over Greystone’s lending business, which has been steadily expanding. Rosenberg is helping the firm navigate a changing landscape marked by rising interest rates, mounting construction costs and more intense competition among capital providers. Against this backdrop, the firm has also been increasingly leveraging technology to further its lending practice, experimenting with new ways to meet clients’ needs throughout the capital stack.
What multifamily market trends have you observed recently?
Rosenberg: Rents have been increasing at a very fast rate over the past several years. This means that, particularly in the major urban areas, people start getting priced out. So we are seeing a lot of development in the suburbs surrounding urban centers, where the rents are certainly not cheap, but they’re less than they would be in a downtown area. And because more Millennials are moving to the suburbs, amenities that were traditionally more common in cities—entertainment rooms, lounges and fitness rooms with Peloton bikes and streamed exercise classes—are following them to these areas as well.
How is Greystone leveraging technology in its lending practice?
Rosenberg: In general, the industry has been behind the curve on the technology front. If you look across the industry, technology really hasn’t changed much. We see this as an opportunity. We’ve been trying to establish a new precedent for how technology is used in the commercial real estate industry.
About three years ago, we started a division called Greystone Labs, as our technology incubator. Now we have 10 full-time developers working specifically on technology products to enhance our own processes and make life easier for our team members and clients.
For example, we created an app which provides a control center to our clients, so they can see exactly where they need to be focusing their attention as part of the underwriting process. It allows them to assign tasks to other people on their deal team. It also makes it seamless and easy to transfer documents. We talked to our clients, and they told us what their pain points were. Then we built an app to meet their needs.
We also have a sizing and analytics tool launching soon that allows us to pre-underwrite a loan and instantly see rent and expense comparables, giving a property owner unique insights on their asset at a neighborhood level. Underwriting is still more art than science, but you want to have as many facts on the ground as you can to be able to make assessments as quickly as possible. With the power of this new tool, we have immediate access to things that an underwriter might typically have to wait a week to receive.
Which segments of the business are gaining the most momentum?
Rosenberg: For the past year or more, every month has been record-breaking. We’re really seeing increases across the board. We recently closed a $750 million debt fund, so we have nearly $3 billion in capacity for balance-sheet lending to complement our agency platforms. We’ve seen a lot of demand for bridge financing from people looking to buy skilled nursing facilities. That sector is growing substantially.
And we’re continuing to see tremendous demand across all of our businesses, interest rate increases notwithstanding. We’re seeing a lot of demand for new construction financing through the FHA 221(d)(4) product. That still remains as one of the few sources of capital available today for new construction, plus FHA loans provide the highest leverage, longest terms and lowest rates in the industry. Our small-balance loan business also has been growing precipitously.
We’re in a mature industry with a set of accepted norms as far as how long it should take to close a loan and how easy that should be for our clients. What we’re doing every day at Greystone is trying to break through those conventional limitations in order to provide an experience that is different from anything else clients have had in the past. When you do that—provide a better experience while being faster and more efficient—the result is a growing pipeline and expanding market share.
Overall, the greatest opportunity that I see is our ability to focus on making processes easier and faster. And not just to marginally improve them, but to totally transform the client experience.
What makes Greystone unique?
Rosenberg: We’re a fairly large lending firm, but we’re still privately owned and well capitalized. This means we can meet our clients’ demands up and down the capital stack in a way that others can’t. If we have a client that can’t close an acquisition because there’s a financing gap, we have the ability to provide a mezzanine or balance-sheet loan to fill that gap. We’re one of the few CMBS lenders that can provide mezzanine loans behind our CMBS loans, filling a real need in the market. The ability to remain nimble instead of stuck on protocol is very helpful.
As it says on our business cards, Greystone is “Where People Matter,” and that is really the guiding principle behind everything we do. From the top down, our belief is that the company exists to support the success of all of our employees and our clients—not the other way around. My goal as a leader is to help all of our teammates become as successful as they can in their careers, even if that’s outside of Greystone. We work hard to make life easier for our teams and clients.
How has Greystone managed its rapid growth?
Rosenberg: Our culture is a strong bonding force. It helps to have a team working with the same principles and ideals even when our employees may be spread apart.
As we grow, we want to make sure we’re doing so in a way supports our business and our people. Anytime we bring someone on board, we’re ensuring that we have the right systems in place – including organizational processes, technology and personnel systems — to support each individual so that we can maintain the integrity and quality of our service.
We hire self-motivated self-starters, and we empower and trust them to make their own decisions. They learn to trust their instincts, which allows us to decentralize some of our decision-making and processes. This also enables efficiency.
Tell me about a recent scenario in which Greystone provided a nimble execution of a financing transaction.
Rosenberg: Our client had been scrambling to arrange financing with a competitor for the $29.4 million acquisition of a 280-unit community in Houston, Hollow Tree Parc. When the competitor came up short, we received the deal with very little time left to close. We were also unsure if the property would meet the energy and water efficiency requirements for a Fannie Mae Green Rewards loan, so while we sorted out the debt component, we underwrote the equity portion of the deal, around $9.2 million.
Greystone has a large network of equity limited partners, so we narrowed down potential matches to a group of 10, and within a week, were able to find a successful match to meet 90 percent of the buyer’s equity requirement. It took fewer than 50 days to close the deal, which totaled $30.6 million in debt and equity, including higher proceeds from the Fannie Mae Green Rewards loan.
What challenges and opportunities is Greystone encountering?
Rosenberg: Rising interest rates have been one of the biggest challenges to the industry. There’s continued uncertainty about the ultimate state of the government-sponsored enterprises. Generally, uncertainty is not helpful.
With regards to new construction, costs are up. The combination of both construction costs and interest rates going up means that a lot of new construction projects that worked a year ago are not penciling out today.
As far as opportunities for Greystone, the agencies continue to be very competitive in the multifamily debt business, so pricing has gotten very aggressive. From a historical standpoint, interest rates are still very low, which is good for borrowers.
There’s been a lot of consolidation in the lending space, with bigger banks buying smaller lending shops. With those acquisitions, there’s often comes a lot of bureaucracy and red tape. For us, that continues to be a strong differentiator.
What’s next for Greystone?
Rosenberg: The opportunities are wide open to reimagine what’s possible for Greystone in terms of how real estate lending, investment and advisory business is done. I’m really passionate about continuing to push the envelope and make the process easier and faster for our clients. We have a strong vision of where we’re going: We want to be the easiest lender to work with, and the easiest to work for. Having that vision is energizing to our team and to our clients, and it’s been a magnet for attracting top talent. Overall, we’re really excited about what’s to come.
Image courtesy of Greystone