Q&A With Sabal: Mid-Sized Lenders Look to Strike Amid Shutdowns

Sabal is also looking for more action in the Greater Los Angeles area, and has been making a push to bolster its portfolio in the region. Jackson talked with Commercial Observer to describe the types of loans and assets they are working with amid widespread stay-at-home orders, and the opportunities they are finding in such unique times.

Commercial Observer: Are you still looking to do, and have you been getting requests for bridge lending, balance sheet lending and other loans? 

Pat Jackson: Yes, to all of the above. We’re a national lender with Freddie Mac and Fannie Mae, and we’re a HUD lender. Plus we have a conduit and we have a bridge program. So it’s been coming across all those areas. 

Right now, the opportunity to continue lending is related to our agency lending program which is Freddie, Fannie and HUD, as well as the bridge loans that we’re making. Right now, we’re not originating any new conduit loans, because, frankly, how do you price it when you don’t know what’s going on in the market?

It’s certainly not business as usual. … But a lot of our competitors have dropped out for a whole host of reasons. Whether it’s liquidity-driven, or the warehouse lines have screwed up, issues with market falls, or they just don’t have the interest or the wherewithal to weather the risk profile of what existing loans are today.

What sort of expectations do you have? What projects are you hoping to get involved with? 

We’re happy to be able to talk about doing any performing loan. Any loan that we think has a continuation of a cash flow string and a robustness in the platform. We don’t do construction loans. We don’t do heavy reposition loans. So we’re going to start doing that.

We work in the $2 million-$20 million range. We think there’s a historically underserved spot in the $2 million to $20 million range that fits in our sweet spot and our capabilities, especially being a national lender. A $10 million loan in Tulsa is a lot different than a $10 million loan in New York City.

What sort of opportunities have you seen recently in the Southern California region? What opportunities are you looking for there?

We’re funding a big portfolio in the Los Angeles area. It’s all workforce housing and multifamily. There’s a big need for that. It’s very recent. 

We look at the rent profiles of the borrowers, and you can get comfortable that it’s going to be a rent profile that’s going to stay in place. Some of the borrowers we’re dealing with recently, they have so much excess cash flow even. So it’s a loan that we can get done even if they have some trail off of short-term rental income because of the coronavirus. 

What asset classes are you targeting and expecting within this new landscape? What sort of requests have you been getting?

The only thing we have on the board right now is multifamily. But we do all of the core commercial real estate asset classes: multifamily, industrial, office, self-storage, retail — and we’ll put that last. 

It’s hard to basically look at retail right now, and say what it’s going to look like 30 days from now, much less six months from now, as far as performing status. When it comes to specialty assets like bowling alleys and theaters and churches — forget it. We’re not touching any of that stuff. 

Do you see industrial properties as being the asset to rebound quickest with multifamily? 

Yes. Multifamily and industrial and warehouse will be the areas that we think weather the storm the best. The worst areas will be retail and hospitality. Office is to be determined, because I think you’re going to find a lot of companies that look at what’s happening and say, “you know what, we didn’t miss a beat. And everybody is working in their jammies, and why do we have all this expensive working space? Maybe we could do it differently.” 

Now, I don’t think we’re going to see a mega-trend shift, because there’s a certain limitation to what you can do in your jammies, and there are benefits to having people together. A big change won’t happen immediately, because people already have their leases. When things readjust, it’ll be, “get back to work guys.”

What sort of volume have you seen since the shutdowns? What do you expect for the duration of the stay-at-home orders? 

Volume has gone radically down. We were having an absolutely great year so far with mind-boggling volume. Since then, it’s definitely gone down, but we’re busy, we’re just not lending at the rate that we were.

One reason is rates have gone way up because there’s a lot of uncertainty in the market. There is a lot of uncertainty in borrowers wondering if their loan will qualify. They don’t know what their rent collection will be next month. 

We’re an NOI lender so if your rent collections have dropped below a certain threshold you’re not going to qualify for the loan. So, I think that generally the market has been put on ice for the last three or four weeks. For the first three weeks of the shutdowns, things were very slow for us. But we were super busy (last) week. 

I think a series of things are happening. First, the word is out that we’re still lending. Second, there’s more clarity as to how these agencies are going to look at loans, and ultimately how it’s going to work with underwriting. That shows people they can get a loan.

You mentioned wanting to do more in the Southern California markets? 

We want to do a lot more here because we think for the market, the workforce housing product is underserved. You read about it in the newspaper every weekend. We think there’s a real opportunity for us to do a lot more.

What do you think people will have learned in the lending market from this pandemic? What will be the outcome on the other end of all this?

There are a lot of companies that thought lenders were going to be there for them. … They left a lot of people hanging that had applications and loans in the works. And then they simply said, “I’m sorry we’re going to reject your loan.” That’s not because of the underwriting criteria, but because they said we don’t want to be participating in the market right now.

And I think that borrowers have long memories, and if you burn them, it’s going to be hard to get them back. …. We hope the takeaway is, pick your partners well, because you want to know who’s going to be there for you through thick and thin. And we’re in thin times right now, and a lot of people are being abandoned by their lender partners.