Thorofare’s Felix Gutnikov and David Perlman on Avoiding the Lending Herd 

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Busy fourth quarters are being experienced across the board, as deal parties rush to close transactions before year-end. With multifamily and industrial deals still commanding the lion’s share of market participants’ attention, savvy lenders are busy sourcing debt opportunities off the beaten path. Thorofare Capital is one such lender. 

Transacting from coast to coast, the firm is targeting special situations and deals that separate its expertise and experience from the herd. Thorofare Capital is on track to reach $700 million in originations this year, more than double the $330 million notched up in 2020. 

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Felix Gutnikov, a principal and the head of originations for Thorofare Capital, and David Perlman, the managing director of capital markets and the head of the New York office for Thorofare Capital, chatted with Commercial Observer about the key market opportunities they’re seeing. 

Commercial Observer: How would you describe your lending activities as we round out the year? 

David Perlman: We’re lending across the country, on all property types. What we’re focused on today is attractive risk-adjusted returns where there’s also some kind of special situation happening. We’re very credit focused, and we get into the weeds a lot with sponsorship, and what’s happening with their property and the market it’s in. We’re very good at jumping on opportunities that have some other extraneous situation going on, something that sponsors need help with that doesn’t necessarily fit nicely with another debt fund or another insurance company or another bank. So, we like to model ourselves as another tool in the toolkit for sponsors and brokers to use in order to execute on complex business plans. 

Like most lenders, we love to do industrial deals, and we love to do multifamily deals, but —as you know — those property types are being chased by the herd. We started a construction program earlier this year, formally, and we’ve been very active in that program and seeing lots of opportunity there. We’ve also been fairly active on the pre-development loan side, helping sponsors buy properties and get them entitled, or get some pre-development work done so they can get to the construction stage. 

We’re known to be able to close deals very quickly, within 30 days, and I think now we’ve closed well over half a billion dollars in six days or less. Those situations are a bit more expensive, but they typically stem from a bank or some other credit committee not approving a deal and giving the sponsor some kind of headache right before closing, so we step in. 

Felix Gutnikov: Our main focus for 2021 has also not been CRE CLO [commercial real estate collateralized loan obligations] originations and that was something that we were very active in from 2015 to 2019. In 2020 and 2021, we’ve really been showcasing our balance sheet, and our on-book, hold-to-maturity strategy. 

 Do you think you’ll return to the CRE CLO space, or are you quite enjoying the balance sheet life?

Gutnikov: For me personally, I’m quite enjoying it. It’s less of a commodity product, so we can focus more on downside protection and structuring covenants. I think you’re getting better overall economics, and it’s not driven in reverse by, “What can the paper be levered at in the CLO market? Here’s how I can price it.” You’re pricing it based on more of a bottom-up approach based on the deal’s risk, not necessarily where the capital markets are. It’s still to be determined, but next year, I think rates have to become a little more attractive to us in that space. It’s just such a commodity product, where people are losing business over 10 basis points, and that’s just not where we play.

 What are some other examples of the special situation-type deals that you’re working on today?

 Gutnikov: We made a $28 million special situation loan that was pretty well covered in the press [in July 2021]. It was in Wynwood, which is one of the hottest markets in Florida right now. This was a deal where we stepped in to help an existing borrower of ours close on an acquisition of multiple parcels. We did that deal in less than a week, and the reason the deal came to us was because there was a bank — a national bank that’s well-known — in the deal and they approached their due diligence in a way that backfired. Due to having to close in 30 days, I think they bit off more than they could chew and hired an out-of-town appraiser. Once they had that appraisal, it was too late to go backwards, even though they didn’t agree with the results. We knew — being active in the market and having a Miami office — that this was a great buy for our borrower, and that’s why we were able to act quickly with such high conviction.

We’ve always emphasized boots on the ground, and a local presence. I’m in Los Angeles, we added a Dallas office, we have a New York City office where David sits, we have a Miami office. So we truly have this national coverage where we can cover the map, almost like airport hubs. 

Exactly how stressful is a six-day close?

Gutnikov: It wasn’t bad, because we were able to quickly mobilize and add more bodies to the deal. Our colleague Brendan [Miller] went to see the property right away. So having the flexibility of being entrepreneurial and being a small privately held company, we dedicated our resources; there was no bureaucracy, and everybody pitched in. 

How have Thorofare’s lending parameters changed over the years? 

Perlman: When Felix first started [at Thorofare] in 2011 we were doing roughly $1 million loans. I remember he told me the first deal he did was a hotel in Orlando where there were vibrating beds or something [laughs]? Today, our average loan size is significantly bigger, and we’re trying to stay above a $15 million average deal size. 

The Orlando scenario reminds me of  the “Planes, Trains and Automobiles” scene where John Candy leaves a beer on the vibrating bed and it explodes and soaks Steve Martin’s side … 

Gutnikov: We’ve come a very long way [laughs]. Yes, the first loan that Il originated was less than a million dollars for a loan-on-loan financing. And then we did a $2 million loan on a hotel that LNR was selling via a REO [or real estate owned] sale back in 2012. It was in Buckhead, Georgia. Our loan was around $20,000 per hotel room, which is less than what the dirt is worth today. 

 In your eyes, what are the key points in Thorofare’s evolution to where you are today as a lending platform?  

 Gutnikov: At the end of the day, our company is the people. And our evolution has been supported by our investors’ conviction in our ability to generate strong risk-adjusted returns at multiple points in the real estate cycle, but also the people.  David was a big addition in New York for us [Perlman joined from Natixis in January 2020]. His relationships in the capital markets and having a seat in New York; adding Eddie Prosser to the team, who’s a partner now and really institutionalizing our credit processes. Then, Greg Cotton boasts over 20 years of experience in construction and construction-related asset management, coming over from banks and asset managers. So we’ve really bolstered the team with really capable and experienced people. And add to that the fact that we’re privately held, entrepreneurial and able to pivot with different changes in the market.

 Perlman:  We do asset management in house, too, which makes not only the origination experience smooth, but also makes the asset management for the sponsors’ experience smooth. I almost view originations as similar to dating and asset management as similar to marriage. Sometimes people get caught up in solely the origination part and forget to look at the asset management side —but that’s how it’s going to be further down the line.  

 How did your loan portfolio fare during the pandemic, generally speaking?

 Gutnikov: We were very proactive right from the beginning. We started working from home on March 10, [2020], and we were reaching out to every single one of our borrowers before hearing from them, asking to get on a Zoom call to talk to them about what we can be doing and what they could be doing. We were certainly firm, but with a white glove. Like everybody, we had concerns and some issues, but we were able to work things out. And luckily, today we have a fully performing portfolio. We did not have to go through any enforcements or foreclosures, so we were on the offense and very active. 

We closed a loan on March 24, 2020 for two medical office buildings in Beverly Hills after a lender that was relying on the CLO market backed off from closing the loan, in June 2020 we closed a deal for a Purell hand sanitizer building and that summer we really started a run of lending. During 2020, we did about $330 million of originations, and while that’s a small number for a lot of the larger publicly traded mortgage [real estate investment trust]s, for us that really differentiated us because it showed the market that our platform went into COVID well positioned to be durable during volatile times. I think that’s — in part — why we’re are able to win business today, not necessarily purely based off terms, but rather the qualitative factor of us literally not being out of the market for 12 years straight, regardless of what’s going on outside.

 How are you winning multifamily and industrial opportunities today? 

Perlman: We closed a deal in Denver in September [a $17.5 million bridge loan for a multifamily property in a Denver opportunity zone] pre-TCO [or temporary certificate of occupancy], and beat out a couple of other debt funds. There was a structural element that we were able to get comfortable with in a market that’s very strong. We were able to get our pricing, and the sponsor got financing that allowed them to acquire the property, get TCO and also have the flexible yield maintenance to take us out once the property is finished up.in July 2021

What is the biggest opportunity for Thorofare today in the market?

Perlman: The biggest opportunity, in my opinion, is staying ahead of the herd as much as possible. We’ve noticed some spots that we like, one being construction lending. We feel like we can do non-recourse construction lending up to 70 or 75 percent [leverage] and get the execution, the pricing and the sponsorship that we need. We think that the market there is still relatively thin, although people are creeping into that space. We also like being part of strategies that are maybe new. So we do see a lot of new inbound strategies like the [industrial outdoor storage] opportunity we saw months ago. We started jumping into that early on, and now we see it getting crowded. But we’ve seen other things, too, like suburban office-to-multifamily conversions, which is new. We’re swamped right now with closings. So that’s an opportunity for us because we’re able to continue to get a lot of good opportunities, since a lot of people have pulled back for the rest of the year.

Is there anything in the market that’s worrying you today?

Gutnikov: The supply chain issues and the cost of materials and labor for some construction and heavy renovation projects. Those numbers seem to be moving so quickly, that if you underwrote a new loan in October of 2021, and closed it in November of 2021, by January of 2022, those prices will have moved significantly. The cost to build some of these projects is so high now that the return on the cost is not really incentivizing developers. So, what concerns me is sometimes the developers say, “I’m not going to make enough of a profit on project one, so I have to have project one, two, and three in order to make the amount of money I want for that year.” And if I’m the lender on just project one, I’m constantly worrying about what could impact them finishing project one. So, what’s worrying me is some sponsors being stretched a little thin, because when there’s not enough juice in any single squeeze, you have to have three squeezes. 

 Perlman: I would add, in the industrial space, how many Amazons are there left?  At some point, there’s going to be an overheating of some of these sectors and we’re picking and choosing our spots based on sponsorship, and based on seeing true credit metrics. On the hotel side, it’s labor costs, and just attracting labor with the market the way it is. And then in the Southeast, how do you factor in all these single-family home rental products when you’re looking at multifamily? Because they aren’t captured in the multifamily vacancy statistics. And how will that impact the next market downturn with single-family homes suddenly becoming much more affordable? And so will people move out of multifamily to move into a single-family home? These are some of the questions we have.