Why Short-Term Lending Works in Times of Crisis: Q&A

Sam Greenblatt, President & CEO, Electra Capital. Image courtesy of Electra Capital

Focusing on short-term financing solutions is the way many lenders have chosen to remain active amid the uncertainty brought on by COVID-19. According to Electra Capital President & CEO Sam Greenblatt, while certain asset classes have been heavily impacted by the pandemic, multifamily is one of the sectors that continues to perform relatively well. In the interview below, Greenblatt explains how the pandemic is shaping the alternative lending space.

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How have underwriting standards changed in terms of short-term lending since the onset of the pandemic?

Greenblatt: Our underwriting standards have changed a bit. We have lowered the amount of leverage we are willing to do on our products. Prior to the COVID-19 pandemic, we could go up to 93 percent of the capital stack on our participating preferred equity product and 90 percent of our standard preferred equity and mezzanine loan product. Today, the maximum leverage would be 90 percent on the participating preferred and 87 percent of the nonparticipating product.

Are there any lending products more susceptible to risk in the coronavirus-era?

Greenblatt: Clearly, we are very fortunate that we only do multifamily properties, which have been performing fairly well in this environment. We are focusing on deals where the leverage is not as high, in addition to very high-quality assets and sponsorship. The asset classes with the most challenges are retail and hotels.

Agency lending and bridge loans are among the few financing alternatives currently available. What can you tell us about the terms offered by these options and what can borrowers do to better qualify?

Greenblatt: Agencies have tightened their underwriting and have included funded reserves for their debt service that would be anywhere from six months to 18 months. Hence, net proceeds for this type of financing would require more equity from the sponsor. Bridge lenders are lowering the leverage on their products, thus requiring more equity for each deal or the need for the sponsor to obtain preferred equity or mezzanine loans.

Electra Capital primarily focuses on deals in the Sun Belt. Can you tell us why you chose that region and if you have any expansion plans in mind?

Greenblatt: We like the Sun Belt primarily because it is where most of the growth in this country is taking place. Most of these states also have a very business-friendly government. In addition, it is where our affiliated company—American Landmark Apartments—operates, which gives us additional support in those areas. We believe that we will eventually be expanding up the East Coast from Southern Virginia to Northern New Jersey.

What does your company look for in a deal when making preferred equity investments?

Greenblatt: We look at the quality of the asset, as well as the submarket where the property is situated. We also look at the sponsorship and decide if that is someone we would like to do business with, not solely for the transaction at hand, but also in future deals. Relationships are very important to us.

What can multifamily lenders such as Electra Capital do to better adapt to economic uncertainty?

Greenblatt: It’s important for lenders to be very clear and honest in their ability to provide capital and be able to execute, so that sponsors can rely on them in order not to risk losing deposits and money on deals that they are purchasing.