Neha Santiago
Head of Real Estate Private Credit at Cerberus Capital Management
What are the key lending opportunities you see as we round out 2021?
The pandemic has amplified the opportunity in the lending space, and this momentum is continuing. Sponsors who received short-term accommodations from their lenders are in need of refinancing solutions. At the same time, they are capitalizing on existing relationships and reliable lending sources to line up financing for upcoming transactions. They need certainty and ease of execution given transaction volume.
Our flexible mandate allows us to approach the market with an opportunistic lens and we’ve been in a great position because we have no pre-COVID investments. We can look at complex business plans in a thoughtful, sophisticated manner. We’re also able to leverage Cerberus’ entire real estate platform to get up to speed quickly in specialized situations or alternative asset classes. We’ve been actively putting capital to work since mid-2020 and have a positive outlook on the opportunity set ahead.
What’s the one thing you wish you’d known in March 2020 that you know now?
The pandemic underscored something we’ve always known, which is negotiating a well-structured deal pays off in the long term. In most cases, a secure structure is more important than a few basis points. I would also say the pandemic highlighted that in-person connectivity is critical. While there is certainly an appeal to working from home, like wearing athleisure attire, our team is excited to be back in the office, walking properties and reconnecting with partners in person.
Pick your poison (and tell us why you’d drink it): retail or hospitality?
Hospitality, but playing it carefully. We are focused on leisure, drive-to markets with limited to no dependency on group or business travel recovery. Our ideal target is newly acquired assets with fresh sponsor equity behind it and conservative capital structures.
Where are you seeing the most competition for deals today? What’s the greatest weapon in your bidding arsenal?
There is a lot of competition in the commercial real estate [collateralized loan obligation] lending space right now, which is driving narrower spreads and weaker structures. We don’t believe in the race to the bottom to win deals. We focus on opportunities where we can leverage our strengths and put our platform’s real estate expertise to work. For example, we’ll look at heavier value-add opportunities, like hotel repositionings, and alternative asset classes, like self-storage. Sponsors also place a premium on working with established relationships and we have a great network of institutional-quality partners.
New York City: “I want to be a part of it”?
We want to selectively be part of it. New York City has seen a recovery in certain asset classes much quicker than expected, like multifamily, and has sustained continued positive momentum in others, like industrial. We continue to be cautious around the hospitality space as the ultimate recovery of international and business travel will be a key factor going forward. There continues to be uncertainty around long-term office needs, which, coupled with new supply, makes that asset class more challenging.
On the heels of rebounding occupancy levels and diminishing concessions, we recently made bridge loans for high-quality multifamily assets in strategic locations and with strong lease activity. We’ve also financed a conversion of a parking facility in Manhattan into a Class A self-storage facility. Self-storage as an asset class is counter cyclical and tends to perform well in a recessionary environment.
What’s your favorite secondary market and why?
We’ve been very focused on tax migration and Sun Belt states that are benefitting from the influx of residents and the relocation of employers. There are also favorable dynamics in markets with a lower cost of living and higher quality of life. Florida is a big focus for us. We’re still optimistic about core urban markets, but those may just take some time to fully recover.
Are you adding life sciences deals to your loan portfolio? Why or why not?
We’re bullish on the life sciences industry and its need for additional space long term. However, it is a heavily specialized asset space, so some of the opportunities we’re seeing are big repositionings. We’re also concerned with oversupply and risk-adjusted returns given the compression of spreads and the pricing of the underlying financing. We believe in the continued growth of this sector but are focused on other asset classes right now.
Lightning Round
Stabilized or transitional assets?
Transitional.
First work trip post-COVID?
Miami.
Fast-food guilty pleasure?
The new Krispy Kreme on 85th Street and Lexington Avenue.
Peloton bike or outdoor cycling?
Peloton Tread!
Last book you read?
“Mr. Popper’s Penguins,” by Richard and Florence Atwater with my 8 year old.
