Columbia Pacific Advisors Has Never Sold a Loan & Billy Meyer Doesn’t Plan to Start

While his firm captures equity commitments from a variety of private investors — driven by investments from family offices — he himself is a limited partner in the company’s open-ended, evergreen fund vehicle. Two of his sisters have invested in it as well as his parents, who have committed some of their retirement money. Many of Columbia’s team members are also investors. It’s a driving factor behind how Columbia’s debt division does business; it’s an eager lender that underwrites with the worst-case scenario in mind. 

“If a doomsday scenario happens, we want to make sure that our team and our investors can still sleep well at night knowing their investment capital is very well protected,” Meyer said. “I have some of my parents’ retirement money in this fund. That’s a reality: do I feel confident enough in this deal that I’m protecting my parents’ retirement money and my own sanity.”

“Welcome to the world of true private lending,” Meyer added. “You’re using your own money, not somebody else’s money. Of the [five] partners that started this fund, every one of us has money in [it] as an LP — our own cash that we could take out and put into something else. It’s unique.”

Columbia’s lending activities target all asset classes — from seniors housing and self storage to traditional multifamily, affordable housing and office and retail — with a focus on cash flows and in-place value. 

“We have roughly $900 million [in debt] deployed and working today,” said Meyer, who joined Columbia in 2011 following a stint at Holland Partner Group. “Our average loan is in the low-$20 million [range] and our average term is 19 months. We’re in every region of the country today and we’re in almost every asset class you can think of.”  

The lender doesn’t leverage its own debt and is so precise and stringent in its ways that it has never sold a loan (and currently doesn’t have any plans to do so, even given the circumstances).

Meyer spoke with Commercial Observer a few weeks ago to discuss Columbia’s current position and how it’s weathering the COVID-19 storm. 

Commercial Observer: How has your seniors housing loan portfolio been impacted by COVID-19?

Billy Meyer: We feel very blessed because we haven’t experienced many challenges in our seniors portfolio; the properties we have are doing very well. There’s one asset that is experiencing some slight challenges, some hardship to a degree. It’s a property that’s brand new construction that’s in lease up, and our bridge loan was for the purpose of bridging them to a stabilized occupancy level to prepare them for a long term refinance. Because of the quarantine and the shelter in place [order], they haven’t been able to accept new tenants and residents so their lease-up is flat and not improving. They need some sort of modification to the existing loan; it’s a short-term loan and they’re very close to getting to that stabilized occupancy level. They just essentially needed some more time, so what we’re doing is exploring simply giving them another three months. We’re doing it with a forbearance agreement that provides them [that time]. Fortunately, [our other seniors housing deals] still have significant cash flow and NOI and are able to pay their debt service and don’t have any COVID-19 residences to date, so we’re pretty lucky there. 

What’s the dialogue been like with your borrowers as you reassess your debt portfolio?

I can say that we reached out to every single one of our borrowers even before they reached out to us. [About two months] or so ago was high-alert and high-priority where our team divided and conquered and reached out to every single one of our sponsors, asking them a list of questions checking in to see how they were doing — “Do you have any COVID-19 tenants and residents?” — reevaluating how you think COVID-19 will impact your business. [Like,] do you have a plan and what is it? Do we need to talk through this?  Do you think it will impact your ability to continue to make monthly payments? If you think it will, by how much and what are your ideas to get over that? We were trying to take a very proactive approach to working with them. What we found is that our portfolio is in a much better condition than what we were expecting as a result of COVID-19. We are still very wary about the ripple effects and how stable the portfolio will be in the future. We’re learning new things on a daily and weekly basis, so we are constantly communicating with our sponsors on a weekly basis to confirm we are all on the same page and working together to get through this. 

What are borrowers asking for, and how have you responded? 

There were some people trying to take advantage of the situation. There was one property that is 99 percent occupied with a 1.40x debt service coverage — very healthy cash flow — and they asked for a two month forgiveness of mortgage payment because of COVID-19. I called them and asked them what this was about, and I told them it wasn’t valid, for various reasons. The forgiveness wasn’t relevant for his situation, so it was quickly resolved. 

There were a couple of others that were basically on the altar to get refinanced out by other conventional lenders and they asked for more time; we’ll happily do that. We said no problem, consider it done. [In that situation, we’ll take that approach] on any asset class. We also had another one that was at the closing table and they were selling the asset. The sale was getting delayed, so we are giving them an extension during COVID-19 so that they can complete the sale. We’re not going to swipe the rug out from underneath them when it comes to executing their plan. We’re motivated for them to execute their plan. Any good loan for us is a loan where we get paid off, so we want nothing more for them to [be successful]. So it makes all the sense in the world for us to accommodate their request and give them more time, 

One of our borrowers said that because of COVID-19 — and this is a seniors housing facility — many of the payments and rent checks came in from the parents and children dropping off rent checks. They said because of COVID and shelter in place, their monthly rent checks were coming in late so could he have a delayed payment, not a reduction or anything, and we said of course. It’s not that big of a deal but it is one request we did get — instead of the first or fifth of the month it got pushed toward the end of the month. 

How have you transitioned to remote work during this time? 

It’s very active. I talk to my whole team, and we have team meetings on Zoom every single day, at least once. We have a lot of other calls throughout the day. We do screen shares so we can walk through [each deal] in our portfolio, and the whole team can talk about each and [every one]. Then we delegate tasks around who’s doing what and when and how. It’s absolutely made our job far more hectic. We’re busier than we were before because everything that needs to be done needs to get done [as soon as possible], from every vantage point. We are communicating via different means, so instead of us all working in the same office and hooting and hollering, we are actively working in teams and [using technology]. We are still extremely active, but I would say it takes a little more from a management perspective to stay in touch with [everyone] and also assisting with delegation and following up on accountability. Being more on top of that is important. It’s a little management intensive but we’re structured really well for that and we can handle it. You’ve got to do what you’ve got to do. 

Are you still searching for opportunities and which ones are you interested in pursuing? 

So, in the first 30 days we were kind of on pause just so we [could reassess our] portfolio and [get a sense for where] the vulnerabilities are and were and will be, but we feel we have that covered now and we’re comfortable with where we’re at. We are still actively lending and sending out term sheets and pursuing new loan and funding opportunities throughout the country. But, it’s really on a case-by-case basis. I’d say the big difference in our underwriting practices is that we have a standard sensitivity analysis that we run on every deal and the only difference is our sensitivities are more sensitive. So, if it’s a 6 cap asset and we try to stress it — what does it look like at a 6.5 or even a 7 cap? — what does our loan and cash flows look like in that situation? We might even push it to a 7.5 or an 8 cap. 

How did you get existing deals across the finish line, and what happened to deals that were still in the earlier stages? 

There were a couple of deals that we had that we put on pause — a couple of hotel deals — because we were not going to do anything for 30 days. We are all going to figure out what’s going on here and then assess it then. But we are looking for more. The structure of our fund is set up very well to be a resource during a recession and lend through a depression. Our fund is 100 percent private money, like we don’t have any institutional investors in our fund. So, combined with our money that is already raised and combined with the fact that we keep all of our loans on our own balance sheet and don’t lever our funds, we have the ability to continue to loan off our balance sheet. This is where we could really thrive. 

Tell us about your investor base and the sentiment from them about what’s unfolded. What’s the dialogue been like recently? 

Our investor pool is made up of families and friends and other family offices, and as a response to COVID-19, we have had a very very low redemption request to the point of less than 2 percent. Our structure is we have one evergreen, open-ended fund and we can continue to raise more money as we continue to grow and we can also redeem existing investors upon request and availability of capital to pay them back. We have strong support from our investor pool to continue doing what we’re doing, a high level of confidence from them on our execution strategy and a comfort level to keep their capital contributions rather than liquidating, or redeeming. And we have actually even raised more money since COVID-19 started. We raised more money on the first of April. 

Has there been a difference in the way you approach them to continue to fundraise, in order to maintain a level of confidence and comfort? 

I wouldn’t say there’s much of a difference in what we do. We’ve been preparing for some sort of market corrections for more than three years now. The awareness of our investor pool on what does this product offering in the marketplace look like during a recession or depression. What happens to this product? And what we have told them is we’re also investors. Personally, I’m also a limited partner. We prepare for the what-if scenario and maintain disciplined underwriting on a deal by deal basis. This is a product and a portfolio built to weather the storm and we’re prepared to keep our heads above water and remain fully operational. We’re structured for it and our boat is prepared for rough waters. 

In preparation for a downturn or an economic adjustment, we felt the proper procedure for us was to assume that the what-if scenario would happen during the term of our loan. What happens to this asset and this execution strategy that the sponsor is [executing] during this bridge loan. We ask ourselves those hard questions and we make sure there is a solution to recover from each one of those potential situation — like, they completely run out of cash flow or maybe it’s not an economic downturn and the sponsor gets badly injured and is not able to work; can we pick up the reins and continue moving the process along. You assume the doomsday happens and you have an exit strategy. We were expecting the doomsday scenario to happen in our previous underwriting. Our reevaluation is just going through those scenarios and double checking, or confirming, they’re still in place or not. We’re just essentially following that protocol we’ve already put in play to see if it’s in line or if it’s better or worse than we thought when we underwrote and then moving forward [after that]. That’s where we unfortunately had to pass on some deals that might have made all the sense in the world if the doomsday scenario didn’t happen and everything went as expected.