David Perlman
Managing Partner and Head of New York Office at Thorofare Capital
Where in the capital stack are you most comfortable playing today, and where are you finding the best lending opportunities?
Senior loans. Primarily non-construction, especially with increased yields. Primarily targeting acquisition deals and industrial or multifamily product; however, will venture outside this temporary box for repeat sponsors and select special situations.
What’s your best piece of advice for borrowers seeking financing during turbulent times?
Relationships matter. With market volatility, leaning on your lending relationships to help with new acquisitions or refinancings is really the path to success. Liquidity is increasingly becoming more valuable, and lenders will focus on repeat sponsors for their future business.
Would you rather finance a well-established sponsor on a Class B office renovation in New York City, or the first-time developer of a multifamily project in the Sun Belt today? Discuss.
Depends if the Class B building is in a Class A submarket and if the basis is attractive. Generally speaking, for any renovation or construction project, we value sponsor and team experience, and history executing similar business plans as one of the top credit considerations. Therefore, one could argue that the risk is greater for a first-time developer in the Sun Belt to build and then lease a multifamily project in a heavily supplied Sun Belt market compared to a highly liquid NYC market in one of its best submarkets.
What’s your take on an impending recession? How bad might it get, and what are the silver linings (if any)?
The market is definitely pushing real estate, both commercial and residential, towards a recession with the higher interest rates and, more importantly, the pace of that rise. For the broader market, the fact that people still have jobs and money to spend makes judging the future market difficult. Clearly, the dollar’s strength has helped, and geopolitical turmoil drives foreign investors to the U.S. market.
When will we reach the bottom of the market, and when will we see a thawing in the debt markets?
The debt markets will probably overshoot and then settle at long-term historical rates. The asset inflation over the last 12 years will force assets to reset to a lower basis as valuations adjust for the high-rate environment. That will cause pain on the equity side and require new sources of debt and equity to fill in the gap. Hopefully, conservative underwriting since the GFC will mitigate turmoil in the real estate debt market and keep it on a solid footing to help sponsors with the upcoming price resets.
What would you do differently during the next pandemic?
Spend more time flying when no one was traveling. Did a bunch during that time and it was such a pleasant experience with affordable fares. I would also spend more time enjoying New York while it was quiet because I do not think we will see the city that quiet again. From the real estate side, we actively lent throughout COVID and did some of our best deals while gaining market share. In that regard, I would have been more aggressive in lending, especially on the hotel side despite the fact that we are now in a higher-rate environment. Most of the loans we closed during the pandemic have been refinanced.
What keeps you up at night, and what helps you sleep?
That, by 2030, our lives will be more stressful from changes in our climate. This real estate cycle is not keeping me up at night since there is still liquidity and the market is still functioning fairly well. I think the Fed could lower rates and/or buy assets again if things go south, so we have tools to turn to now. I am always in need of sleep, so I fall asleep fairly easily whenever I get the chance.
Would you rather…
Refinance a Class B office property or be locked in a room for a month with Vladimir Putin?
Out of principle, refinance a Class B office building. Although I would be motivated to box the guy.
Do a 30-day all-haggis diet or extend a suburban mall loan for three years?
If it was a Simon mall, I would extend. We have see some suburban malls that make for good redevelopment opportunities.
Lend on New York office or take a job as a septic tank repairman?
I am a booster of NYC. No city in the U.S. compares, and young people generally pick it as their first choice to move to.
Traverse Jurassic Park on foot, or relive 2008?
2008 was a great learning experience, but I have never trekked across Jurassic Park before and that would be a learning experience, too. It would be cool to see dinosaurs and I would be a low-meat option compared to other meatier dinosaurs, so not worried about being a meal.
Babysit triple infants who just ate their weight in beans or finance Adam Neumann’s latest venture?
Tough one since I have two kids under 3 and enjoy spending time with them despite the smells they emit. But I would take a senior position on Adam’s real estate. Just stay low leverage with enough structure to keep him in check.
Be paid in crypto or Nestle Crunch bars?
Paid in crypto because this body does not shape itself.
Be British prime minister, or the guy who has to tell everybody what the new interest rates are?
British prime minister so I can get prime seats for English Premiere League matches. I also think updating Parliament is like debating your deal at credit committee, and those debates are fun.
