Lender on Lender: Thorofare Capital’s David Perlman and Northwind Group’s Ran Eliasaf

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Neither lender is used to small deals. Perlman said his firm’s average loan size is $35 million, and that they’ve gone as high as $120 million this year. Eliasaf said that Northwind averages about $80 million per loan, and noted they did a $313 million condo inventory loan for 125 Greenwich Street last year. 

The conversation took place on Halloween, and Eliasaf got into the spirit of things by asking Perlman what scares him the most about the current marketplace. 

“Immediately, what’s scary is what happens on Nov. 5. Nobody really knows how the election will go,” said Perlman. “I’m curious how people on both sides will take the results, if there will be a change of policies, and —  if there is — how we on the real estate side will have to react to it.”

Eliasaf agreed that national politics are mostly “a huge unknown,” but hedged his response by noting that, because his firm does most of its lending for deals in New York City, he’s more concerned about state and local elections than anything federal.   

“For me, it’s really about what happens in New York politics,” he said. “Lots of stuff has been floated around here for universal rent control, good cause eviction, City of Yes, but all that stuff is so unpredictable.”

The duo then pivoted to office-to-residential conversions, a hot and slightly less scary topic. Eliasaf said that while many new residential units are expected to come online in New York City through these conversions, he’s not sure there’s demand to meet that supply. So far there are at least nine office-to-residential conversions underway in the Financial District. 

“I’m more pessimistic, especially in pockets like [the Financial District], which is supposed to add 5,000 units through conversions,” said Eliasaf. “We’re financing some of these acquisitions and conversions, but I’m still cautiously concerned with how well it will be absorbed and what the actual rents will be, because every business plan is underwriting $110 per square foot in rents.”

“From your perspective,” Perlman cut in, “when you do a loan like that, what type of loan-to-cost [ratio] are you going up to, and how are you looking at construction costs? I’m curious because we like that space too, and I’d like to see how you guys are feeling about the underwriting.”

Eliasaf said that his firm is mainly doing acquisition and pre-development financing right now for those types of deals, and is giving borrowers 65 percent loan-to-cost (LTC).  “We’re not doing actual construction financing because of our concerns about absorption,” he said.

“Well, we’re not doing pre-development, so this is pretty nice because we can take you out,” mused Perlman.

“We’ll tie it in a nice bow for you,” Eliasaf smiled back. 

“That would be nice,” Perlman replied.    

When the conversation turned to interest rates, Eliasaf confessed his belief that the market, in general, has overpredicted the extent of future rate cuts. Not only does he expect the Federal Funds Rate to remain above 3 percent, he said, but there’s also a risk it could even be hiked again. 

“But I’m never the one to predict interest rates. If I was, I’d open a hedge fund trading on interest rates rather than commercial real estate lending,” he said, smiling and adding that too many diverse factors are swirling around that will allow rates to ever go down significantly. 

“And that’s what’s causing loans on banks’ balance sheets to stay there and not get worked out, because they really need rates to go down to 3 percent to get some real relief and not be considered bad debt,” Eliasaf added. 

Perlman said he generally agreed with this hypothesis, adding that what the market experienced from 2010 to 2022 — with hyperlow interest rates — probably won’t ever occur again. 

“The Global Financial Crisis (GFC) really froze the market and they needed to bring rates down to zero, and they’ve been trying to find a way to bring them back up to the normal levels they were at prior to the GFC, so we’ll probably end up around historical norms to some degree,” said Perlman.

Eliasaf immediately agreed and said that what Northwind Group feels in its underwriting is that this is not merely “the new normal.” Instead, what we’re seeing now with interest rates at 5 percent is simply “normal.”

“What we had for a decade wasn’t normal,” said Eliasaf. “The market adjusted and it took about a year, but no one is hoping for a cap rate reduction to come and save the day. Lenders are expecting significantly higher debt yield coverages, and it just means there’s a lot more equity needed to get more deals done.”

To this end, both lenders began discussing the rise of nonbank lenders, an umbrella which both Northwind Group and Thorofare Capital fall under, having provided so much senior and mezzanine debt as well as preferred equity to fill dislocated and gappy capital stacks. 

Nonbank lenders doubled their market share of CRE originations from 2023 to 2024, and Northwind saw its own origination volumes double in that time frame, according to Eliasaf.  

“What’s interesting is that we’re [lending] at lower loan-to-values to better-quality sponsors and better-quality properties,” he said. “So it’s less risk and more reward for better-quality sponsors. It’s just an incredible time.”  

Eliasaf added that while he hopes it stays that way as long as possible, the reality depends on whether local banks return to their typical CRE origination levels in 2025. 

“I used to be at a bank — I think banks are still lending, it’s not frozen — but what has changed is banks want to cross-sell with their customers and clients,” said Perlman. “So in the past few years, they’ve been removing clients they don’t want, who are one-dimensional, and focusing on clients they can do debt with on the commercial real estate side and provide other banking services to.” 

Perlman said this phenomenon has opened the doors to alternative lenders to take more market share. The acceleration of private credit into alternative investment has also aided this private lending trend. 

“You’re now seeing new funds being raised all the time from equity groups, so they can have a complementary debt platform, and that’s an alternative lender, as well,” he said. “And there’s a big wall of maturities coming up with all sorts of scenarios and solutions needed, and the alternative side will be much more suited to fill those gaps than banks.”

Eliasaf agreed by highlighting the fact that banks specific to New York City have gone under or seen their business models collapse in the last year: New York Community Bank, Signature Bank and Dime Bank, were examples he raised. 

“In New York City, specifically, the market was dominated by three or four regional banks — they’re completely not lending, and that’s a huge change,” said Eliasaf. “And that’s part of the reason we’ve seen these opportunities to lend to sponsors who, for 30 years, typically only got bank loans. … It has just been astonishing to see how these major lenders have disappeared.”  

The next topic they touched on was CRE distress, and both argued — contrary to popular opinion — that the distress has been siloed largely into office, but that office itself is still a valuable asset class within some portions of any investment portfolio. 

“It’s the Class B office and worse that has been decimated. Class A office has been holding quite well,” said Eliasaf. “And everyone expected multifamily to have a freefall with the new interest rates, and, while values are down, the buildings there haven’t had a complete loss of capital in the stack. And hospitality is doing exceptionally well.”  

Perlman agreed, emphasizing that investors will likely keep 10 percent of their portfolio invested in office, rather than the pre-COVID levels of 20 percent or more 

“It’s like what we went through with retail: Office will need to reinvent itself,” said Perlman. “The office that’s too big, the Class B and Class C office, will need to find a new way to keep going, like retail did.”

When making this point, Perlman added that he’s starting to see the market dip its toes back into office. As cap rates have widened and expenses have gone up, new capital will be required to provide gap financing, mainly through preferred equity or subordinate debt, he said. 

“And, to David’s point, anyone who bought five or seven years ago, with relatively high leverage, is hurting no matter the asset class,” said Eliasaf. “And that’s true for any cycle. If you overpay and are over-levered, you will lose money. And we’re seeing that, but it’s not a scale where it’s systemic.” 

Perlman then asked Eliasaf if the 2022, 2023 and 2024 market has been tougher than the post-GFC marketplace of 2008 and 2009. Eliasaf answered by recalling that 15 years ago he was a real estate buyer, rather than a lender. 

“For me, during the GFC, we were just buying distressed debt, and in hindsight that was the best market we ever had,” he said, laughing. “Yet, on every deal, our hand was shaking, we thought we’re the only idiots who were buying, and we kept asking, ‘What are we missing here?’”

“We had the same feeling,” said Perlman. 

“But, at the time, we thought the world was falling apart and banks were failing and there was no liquidity, so it was much more scary than it is now,” said Eliasaf. “Today, we feel we have a good grasp on the general trends, so I have stronger conviction to put dollars out now than I did back then. But back then we made our best deals ever.”

The discussion shifted to how much the market has changed since 2008, namely the remarkable evolution of technology and the changes in how loans are sourced. Perlman said that, 15 years ago, he sourced bad debt by calling up each individual trading desk at a bank, and that he was one of five people calling around in what he termed “a very inefficient market.”

“Now, with the internet, you have a huge reach to get in touch with potential buyers. The loan sale guys get 400 to 500 eyes per debt sale announcement, compared to four or five,” he said. “It’s made the paper much more liquid, and I think the access to real estate is much greater now than it was then.”

Eliasaf agreed and said that those efficiencies have translated into advanced market cycles. 

“A cycle that took two years [to complete] 20 years ago, now takes six months today, and the market is correcting itself much faster,” he said. He compared the savings and loan crisis from the early 1990s, which required four years to resolve, to the post-COVID inflationary recession, which fixed itself in six to eight months this year. 

“If real estate investors were used to two years of a negative cycle, it’s much shorter now, and you have to move much faster if you want to catch a distressed deal,” added Eliasaf. 

The old friends closed the conversation by reflecting on the first loan they did together. In 2015, Eliasaf and Northwind Group bought 40 Exchange Place, a historic 20-story office built in 1902, with the help of Perlman. 

“It was a C-minus office building at the time,” said Eliasaf.

“It had good bones,” said Perlman. 

“But it was mismanaged,” replied Eliasaf. “It had like 100 tenants in it.” 

Eliasaf brought in Jeffrey Gural’s GFP as a 50-50 partner with a plan to rehabilitate the entire 300,000-square-foot building, improve the lobby, and keep it as an office. Eliasaf said it had a successful lease-up, and recalled Perlman gave him the $81.5 million rehabilitation loan while working at Natixis. 

“We ended up co-originating it with CIBC, and then you guys swapped it,” said Perlman. 

“It was one of the few [interest rate] swaps we actually made money on,” Eliasaf laughed. 

And, considering the interview fell on Halloween, the conversation couldn’t end without them asking one another what each was dressing up as for the holiday. 

“I’m going to dress as a boring adult,” said Eliasaf. “But my daughters will be salt and pepper shakers.” 

“My daughter is going as a unicorn,” said Perlman, with some resignation. “So I’m going as a unicorn.”

“But you are a unicorn, David,” said Eliasaf, grinning. 

Brian Pascus can be reached at bpascus@commercialobserver.com