CRE Debt Markets

Growth amidst change: An interview with Tom Capasse, Chairman & CEO

He founded Ready Capital in 2011 and led the public REIT to become the largest specialty lender in the US, amid economic instability caused by the global pandemic. In an interview with Real Estate Capital USA, Mr. Capasse reveals the drivers behind growth, along with his outlook for 2022.

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REC-USA: What were Ready Capital’s biggest milestones in 2021?

We hit many milestones last year but clearly our execution of three accretive and strategic acquisitions was front and center in a transformative year. The March 2021 Anworth Mortgage Asset Corporation acquisition led to an increase in capitalization. The summer Red Stone Group deal expanded our presence in the affordable housing sector and the recent acquisition of funds from the Mosaic Group expanded our product offering into construction lending.

We were successful in increasing ROE, stockholder equity and overall assets in 2021. Our core return on average equity was a peer-group leading 14% while stockholder equity grew 56% and enterprise value 65%. Furthermore, total assets rose 72% to $6.9 billion ranking us among the largest publicly traded mortgage REITs.

We also posted record originations in all silos—up 82% in total--ranking as the fifth-largest Freddie Mac SBL Multifamily and seventh-largest SBA 7(a) lender. Bridge loan volume totaled $3.8 billion financed with issuance of $2.3 billion of CRE CLOs, ranking us as the seventh-largest issuer and showcasing our capital markets expertise.

How has the US lending market rebounded from the pandemic?

Many factors have driven the continued pandemic lending equation including travel, work and behavior patterns coupled with the impact of inflation.

One theme where we have found consistency and opportunity is sponsors’ search for the right products and financing to match the reality of the current environment. We still see uncertainty in the office sector, and CBDs of major urban areas remain precarious. Notwithstanding some opportunistic situations, workforce behavior is evolving, and we remain disciplined as we evaluate that cycle. There are invariably asset classes that emerge as winners and our focus since the beginning of the pandemic has been within the multifamily and industrial asset types.

In which markets do you see value?

We continue to see value in the small- and mid-market transactions. Our sweet spot for value-add bridge lending is in the $5 million to $75 million range with an average loan size around $20 million, placing us squarely in the small end of the mid-market space, by design. We remain primarily a small- and mid-market lender and our goal continues to be to own this space and operate in the areas large-market lenders often ignore. It’s the hallmark of what we do.

Within the small- and mid-market range, we uncover opportunities across many geographic markets and asset classes which can be financed with a solution from our lineup of lending programs. Adding our due diligence process and our ability to provide prompt certainty of execution for sponsors, we have a formula that helps us and our clients find value.

Where are borrowers most active?

Multifamily and industrial have been the most productive asset types for us and those remain the two areas where we are extremely active, particularly in our Bridge loan business. Driven by our approach to analyzing each financing opportunity and offering individualized structuring of transactions, we embrace the opportunity to identify and execute on solutions with our clients. At the end of the day, matching a winning business strategy to a financing program benefits everyone: sponsor, broker and lender.

Sponsors continue to purchase multifamily properties that need capital improvements. Plus, current multifamily origination volume is being driven by demand growth largely attributable to the ongoing pandemic dynamics. There are larger numbers of tenants seeking suitable housing, particularly in the affordable category and for sponsors, the challenge often becomes stabilizing a property with increased rents through renovations before pursuing long-term financing.

Regarding industrial assets, large distribution facilities or smaller localized warehouses with flexible office space also favor our approach. Among the many changes attributable to the continuing pandemic, the increased adoption of e-commerce has had a dramatic effect on the industrial asset class, as many types of facilities have been built or repurposed to accommodate changing needs.

Would you like to highlight a particular loan or transaction?

We had many memorable deals in 2021, but the Multifamily Bridge portfolio we closed in November in the Dallas-Fort Worth MSA stands out. That transaction was one of our largest Bridge loans in 2021 and the closing included the acquisition, renovation, and stabilization of a five-property, 1,070-unit portfolio.

The sponsor is implementing a capital improvement plan to renovate unit interiors, upgrade property exteriors and common areas and address deferred maintenance. Once again, we credit the success of this transaction to the emphasis we place on creativity and structuring as well as the relationships we foster across sponsor, broker, and stakeholder channels throughout our process. 

What is your outlook for 2022?

With 70% of our loans floating rate and 70% of our remaining fixed-rate product match-funded, we are extremely well positioned in a rising interest rate environment. The question now is what kind of “soft landing” the Fed may engineer, especially given the Russia-Ukraine conflict and whether the prior consensus of four or five hikes will come to pass this year.

As a result, we remain overweight shorter duration loans, especially in our bridge lending business and maintain a cautious stance given many evolving and unknown situations.

That said, our diversified real estate finance portfolio is built to weather storms and has performed exceptionally well during lingering pandemic environment. As mentioned, we remain bullish on multifamily housing and select industrial sectors but we are cautious on certain office properties, particularly in CBDs, and on specific areas within the hospitality sector.

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