Finance  ·  Players

How Asset Management Shaped Lender Strategies in 2023

During a year of dislocation lenders took control of managing borrowers' assets

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For many lenders in the commercial real estate field, a loan is made to a borrower under the assumption that at best it’s paid back with interest, and, at worst, the borrower hands back the keys to the asset on which loan was taken. The rather frustrating nether region, however, is the world of loan modifications predicated around asset management and negotiated workouts. 

The lucky lenders have asset management capabilities in-house, and are ready to tackle loan modifications as and when needed, on their own loan portfolios and others.

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One example is Acore Capital, which last year originated — or made either material or minor modifications — on 194 loans totaling $14.5 billion. Acore Managing Partner and CEO Warren de Haan told Commercial Observer that over half of its 260-loan balance sheet required modifications of some form in 2023.  

“We have 27 originators in five offices all across the country, and every one of them has been involved with the asset management team to get to the best answer of balancing our investors and our borrowers because sometimes the objectives of those two are different,” said de Haan. 

Kara McShane, head of commercial real estate at Wells Fargo (WFC), emphasized that the specific challenges facing the office sector also forced her real estate group to focus on portfolio management in 2023. 

“We implemented a series of deep-dive management routines that essentially provide us with real-time credit risk insights into our portfolio, which sets us up to better anticipate and manage any unforeseen risk,” she said. “It also allows us to be more strategic with how and where we deploy capital in order to optimize the portfolio. For example, we saw meaningful progress in reducing office exposure this year.” 

Jonathan Roth, co-founder and managing partner of 3650 REIT, said that over the last year his firm has seen “a lot of opportunities to step into construction products midstream,” where either the borrower needed to replace the existing lender or the existing lender was unwilling or unable to continue funding the loan. 

“So we as a firm are stepping in, taking over, and it’s not without peril, because you really have to understand construction, which we do, as we have a large group of folks in our firm who understand ground-up construction from A to Z,” explained Roth. “We have such a broad mandate, such a broad array of lending products, that we can slot ourselves into the particular need of a particular borrower in a particular moment.” 

The leadership at Bank OZK (OZK), no stranger to construction lending, has structured its real estate group’s originations, closing and servicing teams into their own specialized lanes. Brannon Hamblen, president of Bank OZK, said that while some institutions use third-party asset managers, his bank takes an uncharacteristically “hands-on approach” to the loans it makes.  

“Right here outside of my office, I can hit 50 different people in the asset management team, and on average that group has 14 loans per person,” said Hamblen. “And the detail they get into in the servicing process allows us to be extremely responsive.

“Construction projects don’t always go as planned,” he added. “If the sponsor needs to shift or maneuver, we’re Johnny-on-the-spot to be extremely detailed to the needs when those arise.”