PALM SPRINGS, CA—Panelists at NMHC's Apartment Strategies Outlook Conference here last week said the economy encouraged them to become “bank alternatives” at a time when traditional lenders were pulling out. Participants in the panel “The View From Investors” spoke about getting into debt funds when many banks were bearish on the commercial real estate market.

Katie Bloom, VP of Goldman Sachs, which became a bank in recent years and is considering investing in multifamily properties, said “knowing how people underwrite will help us as we get more into the cycle. We'll have to do less of that work ourselves.”

Jeff Friedman, co-CEO of Mesa West Capital, which recently got into debt funds, when banks, CMBS and insurance companies are not interested in lending, one option for his firm is to do non-recourse lending and hold it on the balance sheet. “Our plan was to be a good bank alternative. There are a bunch of funds like us out there. We're not financing development, so we appreciate that we're back in that value-add space.”

Friedman added that for institutional lenders, “cash flow is king.” He said in the last quarter, his firm has closed loans with security properties. Generally, Mesa West is lending at 75% of the purchase price at Libor plus 325 or 425. “The spreads have come in.”

Greg Kraus, managing director and head of acquisitions for INVESCO Real Estate, said, “We need you guys more than you need us. We are in an interesting spot with multifamily.” He added that there's a significant amount of new product in the slow leasing months, and his firm is “waiting to see where the fundamentals are as we head into spring. For us, our clients have asset-allocation models, but if the performance isn't there, we all suffer.” He said the smart thing is to deploy capital intelligently and hope the performance is there.

Moderator Jim Bachner, EVP of Heitman, asked the panelists if “discretionary is king of the hill” or if it should be pitched that way. Kraus said, “Discretionary or not, a client is a client. There are times where we would like to have discretionary capital and we don't. Being transparent is the right approach.”

Part of being successful investing in this space is “trying to be in the right place at the right time, and part of it is getting yourself to the right place at the right time.” He half-joked, “We're lazy and we'd rather do a $100-million loan than a $20-million loan. It's relationships and being able to do things others don't do.”

Judging whether return requirements are rising or falling is also important, said Bloom, while Kraus definitively stated, “Returns are shrinking since 2010. So you play around with exit-cap rates, and you can assume a rising-rate environment.”