One Lender Sees Opportunity in Hospitality and Retail

Unlike many lenders, ACRES Capital, which does new construction, renovations, adaptive reuse and lease-ups, is looking at about every real estate asset class. 

But ACRES CEO Mark Fogel, who also recently assumed the role of president, CEO and board member at Exantas Capital Corp., a bridge lender, is not necessarily migrating to apartments, which are usually one of the safer bets in a recession.

“We feel like the multifamily side is a little bit overplayed, but we’re lending in that arena,” Fogel says.

That doesn’t mean Fogel is leaving multifamily origination. But it will probably constitute a smaller percentage of his originations.

“We’re looking at all asset classes quite deeply,” Fogel says. “Quite frankly, I think less and less of it will be multifamily focused on the ACRES side as we go forward. On the Exantas side, we’ll continue to be focused on multifamily, but maybe it drops to 60 or 65 percent [of their loans]. It will always be heavily weighted to residential assets.”

Instead, Fogel sees a lot of opportunity in the hard-hit hospitality and retail sectors to support good sponsors who know their markets well and are buying properties at the right price. “That [having a good sponsor] allows us to come in and back somebody in a well-constructed loan,” Fogel says.

The hospitality and retail sectors were facing some challenges even before COVID hit, which was driving some lenders away. “People were focused on multifamily and office even before COVID,” Fogel says. “But the opportunity set has grown in all sectors outside of multifamily because most lenders are focused on apartments.”

Additionally, a lot of lenders have stopped originating new loans since March. As these firms pull back, Fogel sees an opportunity to take out lenders who desperately want to get out of hard-hit sectors like hospitality and retail. “As you might expect, a lot of the warehouse lenders that finance some of these companies, these debt funds and these REITs, don’t want hospitality and don’t want retail on their lines,” Fogel says. “So borrowers and lenders are looking for ways to refinance out of those assets so that they can clean up their legacy portfolio and go out and lend again.”

There should be plenty of opportunities to make loans to the many sponsors that have built war chests to accumulate distressed assets. “There is a lot of equity sitting on the sidelines waiting for opportunities,” he says. “We’re seeing opportunistic buyers who want to purchase buildings at the right price. Their business plans springboard off of that low basis to a value creation opportunity.” 

Overall, Fogel is optimistic that the commercial real estate sector will weather this storm, even if some assets need to be reimagined.

“I think there are really smart people in commercial real estate with a lot of equity behind them,” Fogel says.