3650 REIT Rings In 2023 With New Transitional Lending Platform

“In today’s uncertain capital markets environment, we feel it is critical to offer borrowers a range of lending options to accommodate the full breadth of transactions that are being completed,” Toby Cobb, a co-founder and managing partner at 3650 REIT,  said. “This new platform represents another important and exciting step to fuel continued growth, as we utilize our team’s leadership experience through multiple real estate market cycles to find opportunities that meet our investment criteria.” 

Nishant Nadella, managing director and head of single-asset, single-borrower & transitional lending at 3650 REIT, will lead the new platform. 

“The transitional lending platform fills a crucial financing gap for borrowers in this part of the real estate cycle,” Nadella said. “Importantly, these loans will offer borrowers bespoke, short-term financing solutions as they navigate today’s challenging financing markets along with property-specific business plans.”

With a $13.1 billion loan portfolio already in its back pocket, the new platform complements 3650 REIT’s bridge and event-driven (BED) and stable cash flow (SCF) offerings. An active lender nationwide, the firm racked up $1.66 billion in loans between the two strategies in 2022, and expects to deploy around $500 million of loans this year under the new transitional program. As with all of its originations, 3650 REIT will service and asset-manage each loan under the new platform from origination to maturity — something that’s especially critical with properties in transition to stabilization.

Interest rates on loans made under the new platform will range from SOFR+350 to SOFR+550, depending on the various characteristics of each opportunity, such as sponsorship, property type and business plan, Cobb said.

The rollout of the transitional lending program is just the latest feather in 3650 REIT’s cap. The firm was founded in 2017 by Cobb, Jonathan Roth and Justin Kennedy and, in addition to its lending activities, the firm launched a preferred equity investment program in late 2021. 

When it comes to loan originations, however, the firm’s ability to service and asset-manage its own product gives it a competitive edge that not many of its peers can boast, and one that sets it up well for its new business, according to Cobb. 

“I think borrowers are quite comfortable with us because they understand how we’re going to behave as a servicer, so all of those things have led us where we are now, entering into a new space that fits very neatly between the two business models that we have been executing on for the last five years,” Cobb said. 

As we transition into another volatile year with more distress likely on the way, Cobb added that borrower-lender relationships are once again paramount to a business plan’s success, just as they were when COVID-19 pulled the rug from under everyone in 2020. 

“I believe that all borrowers are concerned about execution right now,” he said. “Clearly, they want to talk about rate and proceeds, but when push comes to shove, they want to know their lender is going to be there, execute and do what they say they’re going to do. 

“We’ve built a reputation around certainty of execution, and the pandemic was a reminder of how challenging it can be if you don’t have a relationship with your servicer going into difficult times,” Cobb added “I think a lot more people are once again thinking, ‘I’d really like to have a relationship with my lender and call the person who made the loan if there’s an issue.’” 

Further, 3650 REIT’s hands-on approach has resulted in a portfolio with zero defaults, thanks to its ability to communicate directly with borrowers and resolve issues quickly. 

“We don’t have any loans in special servicing and we don’t have any defaulted loans, so we’re now turning both eyes to new origination,” Cobb said. “Vintage matters in this business, and I think that the 2023 vintage transitional loans are going to be better than 2022, 2021 and 2020 vintage transitional loans.” 

In terms of a typical loan profile for the transitional program, Cobb said 3650 REIT will seek assets that have more cash flow than properties that fit the firm’s typical BED loan.  

“I would look for these assets to be closer to stabilization, or where the number of factors going into a stabilization would be less than our bridge and event-driven strategy,” he said, adding that CLO execution is possible for loans under the new program.