Fort Amsterdam Capital, a middle market commercial real estate debt specialist, is hoping to significantly expand its reach among borrowers...
Fort Amsterdam Capital, a middle market commercial real estate debt specialist, is hoping to significantly expand its reach among borrowers in New York City via its second fund. The firm recently raised about $50m for the offering, which it hopes will allow it to increase activity with borrowers seeking bridge loans of $2m to $20m, according to David Schwartz, Founder.
The firm targets multifamily, small office properties, conversion opportunities and mixed-use lending opportunities, with much of its activity in the $2m to $10m range. A lot of the demand Fort Amsterdam is seeing is coming from value-added investors who are doing a substantial amount of redevelopment or ground-up work. “We’ll typically provide leverage in the 67-73% range and, if it’s the right deal and the right borrower, we will go up to 75%,” said Uanderson Benedetti, Senior Originator.
Schwartz, who helped launch multifamily and mixed-use investment company Sugar Hill Partners nine years ago, rolled out Fort Amsterdam Capital in 2015. “We started with syndications and did a proof of concept fund before we raised our second fund,” he said. The firm’s investors include wealthy individuals and family offices, with several new investors signing up for its latest fund, he added.
The firm is in contract on four transactions on its second fund and, unlike its previous offerings, will consider transactions in markets adjacent to New York on a case-by-case basis. “We’re not actively looking outside of New York but if the right deal comes along, we’ll consider it,” he added.
A good portion of the firm’s deal flow comes from refinancings, with Schwartz noting that the original financing often has been originated with very aggressive assumptions. As a bridge lender, Fort Amsterdam often has to move quickly on financing transactions and provide flexibility in structuring loans. “People usually come to bridge lenders when there are issues with loans. Creativity is needed to structure a loan to achieve the borrower objectives and protect the investor,” Schwartz said.
One recent transaction included funding a loan to a 10-unit Harlem building that had six vacancies. “The borrower was looking to renovate the building but there wasn’t enough cash flow to support traditional financing. We provided $2 million for the acquisition and another $750,000 in renovation funds. The budget was agreed to up front and we made sure that the work was delivered on. In this case, the borrower did a $4.1m refinancing with a traditional bank loan,” Schwartz said.
New York Bridge Lender Closes First Fund
Fort Amsterdam Capital, a New York-based bridge lender, has raised $22m for its first investment fund. In addition to the Fund, Fort Amsterdam has a leverage facility and the ability to syndicate loans with their investors The firm, which is focused on mid-sized loans secured by multifamily and multi-use properties in the city, targets opportunities of roughly $2m to more than $10m for borrowers who have difficulty obtaining financing from more traditional sources.
“We’re more aggressive to help the borrower achieve their objective,” said David Schwartz, managing partner of Fort Amsterdam Capital. “We focus on distressed properties in improving neighborhoods where there are fewer capital providers. We do deals that require an understanding of the upside and cash flow opportunities.”
The firm raised capital from high-net-worth investors, family offices, and institutions that included one debt fund and one international player. “Launching a fund gave us the ability to execute transactions with more confidence, and to be more competitive,” said Schwartz.
Fort Amsterdam funds one to three loans each month, but Schwartz is hoping that number will grow to two to four per month. Each loan takes about two to three weeks to negotiate, perform due diligence, and close, he added.
Recent transactions include a $4m loan in Brooklyn for two multifamily complexes, the proceeds of which were used to refinance debt on one of the properties and renovate the other. The fund also originated a $2m loan in Washington Heights for the acquisition and renovation of a multifamily property. “This loan was not suited for traditional bank lending,” said Schwartz. “The client was a good young borrower, and the property was one that we ourselves would be comfortable owning or managing. We understand very well how to manage risk.”
Making a Splash
Anyone who has ever messed about on a riverbank knows that if you take a gnarled old log bristling with branches out of the mud the water will seep into the nooks and crannies left by the imprint.
In much the same way, real estate debt funds have thrived on both sides of the Atlantic in recent years. New rules on capital provision mean the banks can no longer be found in many of the medium-risk, let alone high risk, areas of commercial property lending.
“Traditional providers of capital are still highly constrained,” says Ryan Krauch, principal at Mesa West Capital, a commercial real estate lender headquartered in Los Angeles with a capital base of $3.5 billion. “The private markets are going to fill that space.”
Real estate debt funds have certainly proliferated since a surge in 2013. Between January 1 and mid June this year they raised $19 billion globally - more than in the whole of 2012, according to data from PDI Research & Analytics.
Firms like Mesa West cannot compete with the banks for the safest deals. “We don’t do 10-year fixed-rate loans on Manhattan high rises,” Krauch points out.
But Mesa West does compete on the next rung up. Krauch enthuses, for example, about its $210 million five-year loan to refinance the office and parking components of the John Hancock Center, a Chicago skyscraper. He explains that it was only 85 percent occupied – below the 90 percent which many banks require. However, “I’d take 85 percent for a building like that on any day of the week”.
Krauch claims that Mesa West is “probably the most conservative private lender you will find”. It does very little mezzanine and tends to charge 3 or 4 percent for deals of up to 75 percent loan to value. It squares the circle between relatively low loan rates and the need among institutional clients for 7 or 8 percent annual returns, net of fees, by taking on leverage.
Mesa West’s conservatism is understandable. In the US, and on a more local basis in Europe, insurers had made real estate loans for decades on their own account, jostling with a small number of third-party funds set up by UBS and others.
However, Mesa West was one of the first firms to set up a third-party fund for the US market, back in 2004. Four years later the financial crisis hit. At one point about half of Mesa West’s portfolio was “in stress or a workout situation”. However, “the vast majority paid their money back”– allowing investors to make, in the end, a positive return. “It was painfully hard, but ultimately we were able to prove the model,” Krauch says.
The experience of the credit crunch helps explain why funds spend a lot of time managing their portfolios.
Anthony Shayle, London-based manager of the £241 million ($342 million; €305 million) UBS Participating Real Estate Mortgage Fund, a debut fund for the UK market launched in 2013, says that all debt funds are at least fairly active. This is the result of a “much lower tolerance towards default” than banks caused by the detrimental effect that just a small number of loans can have on a fund’s total return.
Europe was a little behind the US in setting up debt funds – but not far. AXA established a third-party fund in 2010 after entering the market on its own account five years earlier. The French insurer is even more conservative than Mesa West. It aims for spreads of 1.5-3.5 percentage points above prevailing interest rates, says Isabelle Scemama, head of real asset funds in Paris. AXA manages €20 billion for third-party clients.
Other lenders occupy much smaller markets. Fort Amsterdam Capital specialises in bridging loans of one-and-a-half to two years or so to developers in New York that need the money for multi-family and mixed-use properties.
“We are definitely a niche player – this isn’t meant to be a gargantuan fund,” says David Schwartz, managing partner. “We have access to about $100 million of equity to deploy to this over the next 12 months.”
The 10-12 percent rates which Fort Amsterdam Capital charges are many times what most bond investors could possibly enjoy, and even AXA’s more modest rates look attractive when compared with most of the corporate bond market.
However, prudent investors are likely to ask whether the increasing number of real estate loan funds on both sides of the Atlantic will erode rates to the point where the premium relative to interest rates in public markets starts to look small.
One response to this, made by several debt fund managers, is that they are only filling the gap left by the banks, leaving total loan supply static or possibly lower than before.
Debt fund managers also argue that, unlike public bonds or even some other loan markets, real estate lending does not have the characteristics of a commoditised market. Real estate debt remains more customised and opaque than the market for leveraged loans, for example.
“This is not pre-structured product for sale – the only way funds can access it is through primary origination,” says Andrew Radkiewicz, London-based cohead of Europe at PGIM, the investment management arm of US insurer Prudential Financial.
“Very rarely will someone come to us and say, ‘Price us this mezz tranche.’ They’ll say, ‘I want to buy this property.’”
Fort Amsterdam Names Management Team
Fort Amsterdam Capital, a bridge lending platform focusing on originating mid-sized loans on apartment and mixed-use properties in New York Cty, has announced its management team, according to a press release. The company is an independent lending platform that provides short-term financing of $2-10 million plus for cash-flow or time-constrained deals, acquisitions, and non-cash flowing properties. The firm is headed by David Schwartz, management team that includes Uanderson Benedetti as a senior loan originator responsible for sourcing and negotiating transactions. Other senior staff include Jake Sosne and Melissa Sierra.
Seasoned New York Property Pro Launches Bridge Lending Operation
David Schwartz, a seasoned New York real estate professional, has founded Fort Amsterdam Capital to provide short-term loans against small middle-market apartment and mixed-use properties in New York.
The bridge lender is looking to carve out a niche in a market that’s underserved by other lenders. It’s aiming to write loans with terms of roughly a year and with balances of between $2 million and $10 million, although its sweat spot is between $3 million and $5 million. It will provide funding up to 85 percent of a property’s value to facilitate its purchase or a rehabilitation plan.
Fort Amsterdam was a 1600s-era fort that until the late 1700s stood at the southern tip of Manhattan and whose construction marked the formal founding of New York City.
Schwartz, who seven years ago had co-founded apartment investor Sugar Hill Capital Partners, recently decided to launch a separate lending platform, providing a complement to Sugar Hill’s core business. He’s been involved in more than 120 apartment deals and some $600 million of financings. He previously was with RBS and Dresdner Bank, where he focused on structured credit products.
Fort Amsterdam so far has funded five transactions, funding them on a deal-by-deal basis with capital raised from its network of high net-worth investors and family offices. But it’s started turning the wheels on a fund, Fort Amsterdam Capital Fund I LP. The thinking is that it would raise perhaps $20 million to $25 million, which when added to a credit line it’s raised and to possible co-investment capital could be used to fund $75 million to $100 million of loans within the next eight months.
The potential for the lender is substantial. The city has an inventory of 186,369 apartment units, according to Reis Inc. And Ariel Property Advisors recently estimated that nearly $4 billion of properties changed hands during the first quarter. Those involved 272 buildings, placing an average value of $14.6 million on each property traded, putting most of those deals within Fort Amsterdam’s cross-hairs.
A typical transaction would involve a developer that buys a property that has some vacancies and plans on renovations, which would result in additional vacancies, stressing cash flows, but ultimately increasing the property’s value substantially. Most traditional banks would shy away from such a loan because of the cash-flow interruptions. Not Fort Amsterdam, which can get comfortable with such a business plan because of Schwartz’ background with Sugar Hill.
The company will pursue other similar types of deals, for instance, lending against a property that’s vacant, but undergoing a revamp, or it will provide financing to an investor that needs quick financing in order to close a purchase.
“We’re going into a market where property owners need help and don’t have access” to traditional financing, Schwartz explained. But, he said, his goal is “preservation of capital.” His shop is not a loan-to-own business. “We’re a high-yield bridge lender.”
Schwartz recently added to Fort Amsterdam’s staff. Uanderson Benedetti, who previously originated and underwrote bridge loans for JCL Capital Partners, has joined as senior loan originator. Benedetti also has been involved in the development or conversion of some 1 million square feet of space in New York.