Tim Richards
Managing Director at Goldman Sachs
Describe the past 12 months in one word, then expand on your choice.
Unpredictable. At the beginning of the year, there was a brief moment when it appeared the CMBS market was becoming more constructive. Spreads were tightening and the indexes were relatively stable. On top of that, the CMBS market successfully launched a five-year-only financing pool, which provided new financing sources for our clients. It felt like we were on track to return to at least 2019, then the bank failures began. Given the unpredictability, many of our clients have revisited their financing playbook and are refocusing their efforts to a smaller group of lenders that they’ve worked with in the past. I think those clients have positioned themselves well and were able to take advantage of moments with positive market sentiment such as we saw in early August. During this time period, we have been actively supporting our clients by originating more than $5.5 billion of securitized loans across a variety of property classes.
Tell us about a recently closed deal you’re proud of.
At the end of the first quarter, right before the bank failures began, we signed up a fixed-rate, mixed-use loan for a new client. The loan request had a modest cash-out that was being recycled into a rate buydown. Any movement in the index or spread would require the sponsor to come out of pocket for the refinancing. Although the market became extremely volatile, with spreads gapping out significantly (after a promising first few months of the year), our team found a way to close the loan at the same coupon that we had laid out in the term sheet. The window to close on those terms wasn’t open long, and we were proud to deliver for our new client and for a long-term broker relationship.
What are you lending on today?
In this market, our collective team has been spending a lot of time financing retail properties, particularly malls. Year to date, we’ve financed $1.9 billion of malls and outlet centers. It feels like a lot of investors are coming around to the fact that top-tier malls will continue to have a dominant place in our economy. When you think about how draconian COVID was for malls and yet they’ve come out stronger, with higher tenant sales volumes and strong leasing activity, I think it puts together a really compelling thesis. In addition to the retail activity, our team has also been actively lending on hotels and data centers.
Has certain lenders’ retrenchment been beneficial to your pipeline?
Yes. The pullback on regional bank lending has led to more financing opportunities in our conduit business. One of the few positives of this market is that there are still financing options available to borrowers (albeit not at rates that any borrower loves). When trying to draw parallels to the GFC, the fact that there’s still lending liquidity is a big differentiator. By establishing a dedicated five-year conduit pool, I think the CMBS industry has created a powerful option for clients by giving them the runway to weather the financial storm and pay minimal defeasance costs once rates normalize.
Will rate stability calm market volatility, or is that wishful thinking?
Our team’s internal view has been for a while that rate stability will calm market volatility. If you have a sense of what terminal rates should be, we think it will give investors more confidence to build a playbook around. I remember going through the loan maturity schedule when I was a new analyst at a mall REIT, shortly after they emerged from bankruptcy. A lot of those loans had 6 to 7 percent coupons, so returning to that environment from a historical context would not be outside the norm.
What scares the bejesus out of you in today’s market?
All the multifamily properties that were purchased by operators who syndicated out their equity, borrowed at high LTVs, and used floating-rate debt to finance their acquisitions. I honestly didn’t have interest rate cap purchasing on my “Reasons in 2024 to Return Keys to a Lender” bingo card.
If you could make like Scott Baluka and quantum leap back to November 2022, what would you tell yourself?
If I could make the leap, it would be back to November 2021, where I would do my best Galileo impression, spreading the gospel to all our clients of the benefits to converting floating-rate debt into fixed-rate.
Lightning Round:
Multifamily or Industrial?
Multifamily — anyone who refinanced their home during COVID isn’t moving for the foreseeable future. There’s a big supply/demand imbalance in that space that isn’t going to be fixed in the near term. Not to mention all the household formation that occurred during the second half of the pandemic.
Taylor Swift or Beyoncé?
Beyoncé, nothing better than the Queen Bey. Plus there’s always the potential to see Jay-Z.
What would be the title of your Lifetime biopic?
“A Fish Out of Water: A Journey From New Hampshire, to Chicago, then Brooklyn Heights”
‘Ride or dies’ only (relationship borrowers) or taking on new borrowers?
Conduit financing is a big pool. Come on in, the water’s just fine.
Vacay time: Mountains or beach?
White Mountains of New Hampshire.
Complete this sentence: If I weren’t a lender I’d be…
The head coach of the greatest team in the world: Arsenal Football Club
