Oaktree Capital Launches $250M Commercial Real Estate Debt Partnership

Global asset management behemoth Oaktree Capital Management is behind a new debt platform aimed at making direct loans on commercial real estate and also helping regional banks finance those same projects.

Dallas-based Formida Capital opened its doors Monday as a new special situations lending partner financed by $250 million in equity from Oaktree. Jeffrey Giudice, managing partner and head of lending at Formida Capital, told Commercial Observer that the firm expects to close $1 billion in originations over the next year. 

“If you look at the middle-market landscape, you see these community, local and regional banks have pulled back from the market, and a lot are struggling and having issues,” said Giudice. “Liquidity has become hard to access for middle-market sponsors, and we’re looking to tackle it in two different ways.” 

The first avenue of expertise Formida hopes to establish is through direct lending on stretch senior loans — averaging $5 million to $75 million per loan and going up to 85 percent loan-to-value — as well as preferred equity loans and some mezzanine lending. 

The other avenue Formida will follow is the bank capital solutions business, where the firm will provide loan-on-loan financing to local and regional banks as the industry works its way through waves of refinancings and underwater capital stacks. 

Wade Hundley, president at Formida, told CO that his firm is already in direct contact with these regional banks to help them provide liquidity for customers whose CRE loans have come due amid a changing interest rate landscape. He said Formida plans to provide gap equity, risk transfers, and full stretch senior loans to take pressure off banks. 

“If they want to keep their customer, we’ll play. We’ll  provide that gap equity to get the bank where it needs to be,” Hundley said. “We’ll be creative to help the banks keep their customers and the customers keep their properties.”

John Brady, Oaktree’s global head of real estate, said in a statement that his firm sees “significant opportunities” to use Formida across several different asset classes and high-growth markets. 

“The need to recapitalize assets is immense, given the unprecedented and drastic repricing,” said Brady. “Due to the extended pullback in lending by regional and community banks, there’s an opportunity for Formida to bridge the gaps by offering both debt and equity solutions.” 

The firm is “asset-class agnostic,” according to Giudice, who added that the firm will be “extremely active” in hospitality and that it won’t be doing construction loans just yet. 

Giudice added that the strategic partnership with Oaktree allows Formida to take “more of an equity approach to debt situations” by playing higher in the capital stack. 

He gave an example of a sponsor buying an asset for $100 million in 2022 that might be worth only $80 million today and there is $75 million of debt on it. In this situation, Formida could provide a $70 million loan if the sponsor came to the table with $5 million in equity.

“There’s a lot of capital out there to reset the basis at 60 percent to 65 percent LTV, but there aren’t a lot of guys who can do it from a one-stop-shop at higher leverage execution,” Giudice  said. “And there seems to be a big need for that capital.”  

Brian Pascus can be reached at bpascus@commercialobserver.com