Michael Lavipour
Managing Director of Investments at Affinius Capital
Describe the past 12 months in one word, then expand on your choice.
Balance – and expanding upon that, it’s really a balance between offense and defense. Anything done in 2021 and 2022 required an incredible amount of time and energy to maximize results. At the same time, the market opportunity today is greater than it’s been in awhile. You need to be able to balance energy across the two to be most effective.
What are/aren’t you lending on today, and what’s changed in your loan terms?
We are open for business and lending on multifamily and industrial, but also on hospitality and to some degree some specialty asset classes. We’re doing a lot of new development. While construction starts are now slowing, there are still sites that are ready to go. Most of our business is construction loan takeouts from 2021 and 2022 starts. If there were themes, they’d be new real estate across the board, or newer vintage assets. We’re not always the last dollar — we’re often seeing mezzanine players and preferred equity players come in behind us. What’s changed is sizing parameters, and the resulting leverage levels are coming down.
Has certain lenders’ retrenchment been beneficial to your pipeline? Discuss.
It’s been very beneficial for our pipeline. The bank pullback we’re seeing today and will see in the coming years is probably the largest I’ve ever seen. There’s a combination of factors contributing to it — embedded losses on banks’ balance sheets, poor risk-based capital charges for banks that wrote loans in 2021 and 2022 that now don’t cover debt service, and a lack of payoffs given that there’s not a market-clearing level for valuations. There’s basically no liquidity in the bank marketplace, and they are the biggest player in commercial real estate finance in a normal market. So, their pullback has been very beneficial to our pipeline. There’s also a bifurcation within private credit — those with permanent capital (open end funds, mortgage REITs) have had to allocate their liquidity toward existing assets and those with serial closed-end funds have been the beneficiaries of lending into this vintage. So the established players who have a fund with a 2022 or 2023 vintage are sopping up a lot of that market share. Our pipeline is down from 2021 and 2022, but by less than half, and when you compare it to the supply of transactions out there — which is down further — our velocity of lending represents a pretty large increase in market share.
What’s your approach when it comes to loan extension requests?
The goal is to create a capital structure that has both the time and money needed to get to stabilization and not just put a Band-Aid on it. The approach is to improve the position likely by lending somewhere between where the loan is today and where the new market would provide financing terms. If we feel safe about a deal, we’re focused on increasing yield, and if we feel we’re at risk, we’re focused on an infusion of capital from the sponsor. But in all cases we’re not doing free extensions for sport.
Will rate stability calm market volatility, or is that wishful thinking?
I think that rate stability will aid in the healing process by providing a benchmark or a clearing level for capital to cycle through. To some degree if you know rates are holding at a certain level, you can more easily make decisions on that basis whether they are good or painful. If you have rate volatility, people are unwilling to make a move in the hope that rates may move in their favor. Rate stability provides for a clearing level which gives people the ability to more easily make decisions.
What scares the bejesus out of you in today’s market?
Other than office? I think that bank retrenchment is good to some degree to help our pipeline. But in our space, the best position is for banks to have a cold, not to be on their deathbed. And if losses pile up so much that liquidity dries up for a long period of time, it’s not good for anybody.
If you could make like Scott Baluka and quantum leap back to November 2022, what would you tell yourself?
I’d say make asset management decisions based on where you think the market is heading and not based on yesterday. I think people often have a tough time coming to grips with changing market realities and they focus on decisions based on what the market looks like, or had looked like, and not where it’s going.
Lightning Round:
Multifamily or Industrial?
Multifamily.
Taylor Swift or Beyoncé?
Taylor Swift.
‘Ride or dies’ only (relationship borrowers) or taking on new borrowers?
Both.
Vacay time: Mountains or beach?
Mountains.
Complete this sentence: If I weren’t a lender I’d be …
Retired.
