ACRES Capital’s Mark Fogel on Adjusting to the New Market
It’s been a tumultuous few weeks for most lenders — to say the least — as the full impact of the coronavirus is felt throughout the industry. While some deals have come to a halt, others are progressing and presenting pockets of opportunity for the lenders still able to offer financing. ACRES Capital CEO Mark Fogel chatted with Commercial Observer last week to describe what he’s seeing.
Commercial Observer: How are you coping with the pandemic’s impact, and what’s been keeping you busiest the past few weeks?
Mark Fogel: What was really keeping us busy early on was making sure our portfolio was in good order. Our asset management team was reaching out to all of our borrowers to make sure there were no issues that were going to surprise us further down the line. With construction loans, we were asking, for example, are there issues that are going to delay your business plan or are there other things happening in the market that worry you? We got our house in order there, and we call our sponsors every three days today. On that front things are going well, although construction did stop in New York so some of our projects are on hold.
Our second order of business was to make sure our capital is in order in terms of dry powder to go forward and seek out new opportunities with. We’re in the process of raising more capital and right now and this is an environment where people are very interested in what we’re doing. Third, we’re looking at opportunities that exist in the market today and are coming our way.
Can you describe some of those opportunities?
It’s coming in different waves. The first wave was the deals that were supposed to close last week or the week before — or even in the coming weeks — with lenders who then backed out of the market completely. Those borrowers got hung. They have hard deposits and are desperate to find another lender to bridge the gap. Another wave we’re seeing is lenders who have the loans on their balance sheets or in their system that their warehouse lenders and repo line [providers] don’t like. They’d rather get liquid on those positions, so we’re seeing some note sale opportunities. Nobody is really offering discounts yet but that’s probably coming as these groups are going to have to pay down their repo lines.
I think the next wave is two-fold; there are a lot of construction deals that have lenders who are going to stop funding draws, because that draw money comes from repo lines. You’ll see them either looking to dump those notes or sponsors will come to us and ask us to jump in mid-construction to take out the existing loan.
How’s your pipeline looking?
We closed two deals in the past two weeks. One in South Beach and one in Illinois. We stuck by our terms on those deals and followed through. We had about seven others lined up in the underwriting stage; a couple were put on hold by our sponsors and we had several construction deals where we had to say, “We’re not looking to walk away from the deal, it’s not what we do, but the market has changed quite a bit right now and you can either wait out the market then come back to us and hopefully he terms are still there, or we can restructure the deal now to something that makes sense to us and our investors.” Any capital is precious right now and we want to invest it in the right way. It’s hard for us to continue to raise capital if we’re making loans in a changed environment with terms that reflect the market three months ago.
How are you assessing loan opportunities in this uncertain market?
We’re looking at deals we would have done anyway but we’re lowering our leverage levels and increasing our economics. We had a deal come our way in California, a partially constructed multifamily project, half of which is leased. It was going to be closed by a lender as a L+300 loan at 75 percent loan to cost. The sponsor is in a jam and we liked the deal so we are doing it at 70 percent loan to cost and at L+750. So a lower basis and increased returns.
How are you keeping your team engaged today?
My team is incredible. Everything you do before a crisis to make sure your team is committed and dedicated to the cause is so important, and it shows in times like these. They’re working harder than ever and I couldn’t be prouder of the entire team. I try not to talk too much about what’s happening in the world as business is a refuge for some people. My team is really enthusiastic. We have set meetings every day and we’re keeping them busy and engaged.
How are you, personally, staying motivated?
I try to keep to the same rhythm. I start my day at 8:30 as always, although I now work from my basement. I work until around 6:30 then play with the kids outside if the weather’s nice, then I veg out at night and watch something funny, like “Curb Your Enthusiasm.”