ACRES Capital has acquired the management responsibilities of Exantas Capital Corp.—a publicly-traded mortgage REIT — from C-III Capital Partners, the company announced.
As part of the transaction, ACRES CEO Mark Fogel has been appointed CEO and president of Exantas and Andrew Fentress, ACRES managing director of capital markets, has been appointed chairman. ACRES has also hired 18 C-III employees in the process to allow for a smooth transition.
ACRES’ asset management and origination platform, coupled with its ability to source and maintain sponsor relationships, will now benefit Exantas as the REIT restarts its origination efforts.
“We feel like there’s great synergy here— I hate using that word, but it’s true — with respect to what this REIT is trying to accomplish, the types of assets that come out of ACRES and the access to the middle market space that we have through the brokerage network, our origination network and with direct contact with sponsors,” Fogel told Commercial Observer. “This will just expand our deal flow in the middle market space and we’ll have the opportunity to do a lot of different things that we couldn’t do before.”
Fogel went on to explain that ACRES has traditionally been focused on middle-market transitional lending and the new agreement with Exantas will open up opportunities for both firms. “Whether it’s ground-up construction, renovation or adaptive reuse, ACRES has been focused on the middle-market space where lenders like Exantas or CLO-type lenders don’t play because their returns are very dependent on warehouse lines and CLO execution and so they’re generally gearing themselves more towards stabilized produc,” he said. “To date, we haven’t really leveraged our portfolio. We’ve gone after transitional-type assets which — once they receive their certificate of occupancy — are class-A properties that are really well located in good markets with good sponsors. We felt that we were missing out on the opportunity to keep those assets with us. We like our sponsors, we like the assets, and having been through the war with them in a construction loan, we know they would be great borrowers as the properties begin to stabilize and head towards a permanent loan.”
Prior to the Exantas transaction, ACRES had approached investment bankers about the idea of doing an IPO, and was gearing itself towards one when then the market collapsed through COVID.
The Exantas deal then came along and “it just seemed like a great and logical fit, because what Exantas does is very similar to what ACRES does, meaning that most of their loans are in that $10 to $40 million range and 70 percent of their portfolio is multifamily, while the rest is spread out amongst hospitality, office and industrial — similar to our portfolio. So, it was almost a perfect fit as far as portfolios go.”
Now that ACRES is behind the steering wheel, “we’ll continue to do what we’ve always done,” Fogel said. “Our pipeline has always been strong and what we’ve always done at ACRES is exactly what we’ll do with ACRES/ Exantas. Once everybody knows that we now have the ability to make a different kind of loan, I think that pipeline will only increase. In any market in any up market, down market, middle market, there’s always an opportunity to make a good loan.”
Despite there being a tremendous amount of competition in the multifamily sector right now, ACRES isn’t too concerned, Fogel said. “Because ACRES can lend on the construction side of multifamily, it’s a leg up on anybody else in that we can go after sponsors who need construction loans. That will hopefully convert over to a loan with Exantas’ balance sheet once the certificate of occupancy has been put in place. So, I think we will get our share of construction loans through sponsors who have a diversified portfolio whether they not only have existing assets, but have the ability to build from the ground up.”
Fogel also sees renewed opportunity in the less-crowded spaces of office, retail and hospitality.
“I do think that there’s going to be a tremendous amount of really good opportunities in those spaces with the lack of competition, because nobody’s really going after those sectors,” he said. “I’m not saying that’s what we’re going to target, but I will say that I think there’s going to be there are huge reset on pricing and value in all those sectors — which will allow really good sponsors to buy properties at much better prices than what you saw at the tail end of 2019.”
Exantas also just secured $375 million in new financing from Massachusetts Mutual Life Insurance Company and a fund managed by Oaktree Capital Management. The new financing will provide liquidity for current financing requirements and for new investments.
“Oaktree and Mass Mutual have been our partners for a couple of years, so they didn’t come out of the blue,” Fogel said. “We have a great working relationship with them, and when this opportunity came about, they were excited, and obviously they recognize that this is a good platform.”
Fogel said he looks at ACRES/Exantas now as simply a bigger financing firm with different pockets of capital that has an expanded repertoire in terms of the transactions it can do — not to say that there’s not some work to do as the transition takes place.
“Just like any other lender out there, Exantas was dealing with the effects of COVID on its portfolio,” Fogel said. “It’s not nearly as dramatic within this balance sheet as it is for some other lenders because 70 percent of it is multifamily related. This transaction really is not us buying a broken platform; it’s a good platform and in a good place.”