Armanino Blog
Private Lender Insights Into the Commercial Real Estate Industry
by Dean Quiambao
January 29, 2021

As the chief investment officer of RMWC, a nationwide commercial real estate lender with approximately $325 million in committed capital, Steven Fischler has visibility into a broad range of the industry’s sectors. Armanino’s Dean Quiambao and Geraci LLP’s Kevin Kim spoke with Fischler at the second installment of the Private Lenders Insight into the Marketplace webinar series in late 2020 about changes to RMWC’s investment strategies due to COVID-19 and his short- and long-term outlook for the industry.

KK: How did you end up joining RMWC in 2020?

SF: I worked at Lehman Brothers pre- and post-bankruptcy. In 2011 I broke out on my own and started working in consulting and private asset management, helping people source, manage and write deals. This started to morph as the market recovered and I recognized a void in the smaller space. In 2019 I was managing about $120 million in capital, with RMWC being an anchor investor. I started discussions with RMWC’s founder and my whole team moved over to RMWC in the third week of March 2020. The timing was both good and bad, all in one.

KK: What are the areas of focus for RMWC?

SF: We have a presence in 12 states and cover all property types (hospitality, retail, office space, self-storage and residential) at every stage, including pre-development, construction, traditional bridge and heavy value add, with our investments being mortgage mezzanine preferred.

DQ: Has this strategy shifted since COVID-19? Or has it remained consistent?

SF: Before COVID-19 hit, we were focused on both major (top 30 MSAs) and emerging markets. Now, we’ve become more selective geographically, though we haven't exited any markets. We are also more selective on property type – especially in retail, office and hospitality. We are looking to be more senior in the capital stack in most circumstances.

This past year, most — but not all — of what we’ve done has been in the residential world, particularly traditional multi-family homes, quick close bridge loans, condo inventory loans, cost overrun financing for multi-family projects, mezzanine financing on an office building, a traditional bridge loan on a multi-family in South Florida, a ground-up multi-family in New York and a ground-up condominium.

We’ve had a broad mix of investment types, but also in the markets we work in, which range from New York to Newport Beach. Now, geographically, we focus more on locations where migration is moving, such as right-to-work and pro-growth states. So, a Class B multi-family in somewhere like Tallahassee fits that ideal very well, even though it doesn’t fit the traditional mold of what a private lender would look for in an investment. At the same time, a condo development in Boca Raton gets all those same benefits and also Northeasterners and Canadians migrating south.

A key adjustment for us since COVID-19 hit is that we are looking for more structure to our loans and a lower leverage point.

DQ: What are the investment trends that you anticipate cropping up over the next few years?

SF: We think there will be a continued trend away from urban locations like New York or San Francisco. It’s not just because of the pandemic – there are also political shifts and quality-of-life factors like increased crime, which are pushing this change and scaring off young families. I don’t think it’s an issue where people get vaccinated and all come running back.

DQ: You're pivoting. Do you see this as a positive for other organizations that operate in this space?

SF: Absolutely. There are lots of opportunities and strategies available, especially in emerging markets and various property types. We’re keeping the same strategies we had before COVID, just with slightly different focuses now. But the types of transactions are still the same, they’re just structured differently to cover ourselves better due to the current environment.

DQ: Has there been a shift in concentration on different asset classes?

SF: There have been changes, and it may be easier to break it down by property types. For hospitality, there’s still a large demand for gateway and drive-to markets. Someone may not want to get on a plane to go to Hawaii for a week, but they’ll hop in their car to drive to Napa Valley or Lake Tahoe for a long weekend. We’re still looking into opportunities in those types of markets, but hotels like your generic chains just off the highway or in a major city are where we’re losing our appetite.

We’ve never been big retail players. It only accounted for approximately 5% of our business and those were triple net credit deals and were mostly transitional. We’ll still invest in retail deals, but now we look at credit as opposed to the market. We want to make sure there’s a bank that can take us out once the borrower is set up. Since COVID, we’re not doing strip malls, power centers or malls.

Office spaces also only made up 5-6% of our business. Now, if we see an intriguing development with secure credit, we’ll investigate. But for your traditional deals in major markets, there’s just no demand. And overall, the space isn’t a high priority.

One area that we’re putting more effort into and that seems to be growing is self-storage. We’re looking for experienced sponsors who have a long track record in developing in the space.

Residential developments make up a large part of our business. For-sale properties in places such as South Florida are growing. Rental markets are our bread and butter. And outside of New York, we’re not seeing any big vacancy hits or credit dips.

DQ: Is this driven by current customers or are you more actively searching for new clients?

SF: Since August, we’re 60% repeat borrowers. We’ve done 650 deals in the last four months. There’s a large demand, and it’s been more than we expected.

DQ: What do you envision for the future after these changes that started in August?

SF: The outlook remains the same. For example, short-term bridge deals need to be able to withstand a second wave of COVID-19. For construction projects, we look to see if they have a cushion to accommodate possible work stoppages. We also need to account for the fact that people are moving around less. We think this will all maintain throughout 2021.

KK: How's correspondence with your stakeholders?

SF: We communicate quarterly but will talk as needed. Through the pandemic, we’ve had a 98.5% collection rate.

DQ: How have you maintained such a high collection rate?

SF: A few things have worked. For instance, we focus on hotels in vacation destinations, which have a better chance to survive versus ones in major metro areas.

DQ: What potential areas for opportunity do you see for the long-term?

SF: When I step back and think about my Lehman Brothers experience, it was ever evolving. Areas would get over-saturated, and then we would need to pivot. The same will happen over the next few years in the commercial real estate industry. Right now, the residential space is filling up, then we'll see what's next. I see hospitality and office spaces coming up again, just not right now.

It’s hard to broadly assess the whole country. The U.S. is too diverse. But when looking at urban environments, you need to assess what people are looking for and what they need. That is more uncertain, and it creates unease for lenders and consumers. I don’t think anyone would’ve predicted five years ago what we all experienced in 2020. But now this hesitancy has a ripple effect throughout all industries.

If you want to learn more about the commercial real estate market or are unsure what the next step should be for your organization, our real estate industry experts are here to answer any questions you may have.

January 29, 2021

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