R3 Taps Lender Relationships for Main Street Borrowers

NEW YORK CITY—A combination of extensive experience in arranging financing and an extensive array of relationships with lenders of all stripes has been both the basis for forming R3 Funding and the key to its success. Since its founding a year ago, R3 has arranged more than $150 million in originations and provided $450 million in workout advisory services across 22 separate deals.

The New York City-based national lender correspondent and advisory firm has provided service to customers in secondary and tertiary markets nationwide, giving them access to CMBS lenders, the GSEs and other lenders. The deals have spanned product types from student housing to multifamily and hotels.

“For years, I was with CMBS and the commercial banking shops prior to the crash in 2008, and was doing a lot of restructuring work as the market began recovering, especially for CMBS,” Ray Potter, founder and managing partner at R3, tells GlobeSt.com. “The reason I didn't go back to a shop to pitch just one debt product was that a couple of issues were occurring. For one thing, different debt products were getting aggressive at different times of the calendar year.”

The type of deal that he had in mind when he launched R3 occurred “almost to a T” earlier this year.  It was in Gates, NY, a suburb of Rochester, and was a $5.8 million fixed rate CMBS loan on a “fairly typical class B apartment product" built in the early 1970s.

“In the beginning of the year, the CMBS shops were the most aggressive shops,” says Potter. “So you got a 75 LTV loan, 10 year-term, 30-year amortization, with a very competitive spread. We went to our clients, whom we've dealt with a lot in the past, and told them, 'I'll take it out to CMBS, Fannie Mae and Freddie Mac, and you can get three series of quotes and decide which one fits best.' In that case, it was CMBS; they were the most aggressive in the first quarter. “

Fast forward to third quarter, and you have “the same borrowers, same type of properties—a  portfolio of six this time,” Potter says. “We took it out at the end of July to the same CMBS shops, the same Fannie and Freddie. And now, because the GSEs are underperforming their hurdles, they came out ahead and Freddie Mac blew everyone else away.” It was on terms that were “a total win for the borrower,” and by extension for the lender that got the business. “But if I were working at a major bank on CMBS, I would have lost that deal.”

Further, his experience with restructuring enables R3 to function as a one-stop shop throughout the process of doing a loan modification or discounted payoff. “I felt that I had just nine months of work on this transaction; rather than hand it off to a broker, I should complete the whole process,” Potter says.

Although headquartered in New York City, R3 looks to arrange deals in secondary and tertiary markets, where borrowers' needs are often “more complex,” rather than in its own backyard. “Anybody can do a deal on a Manhattan office building,” Potter explains.

Before founding R3, Potter was a principal at Hodes Weill & Associates, where he focused on equity raising for fund managers and individual properties. Previously, he was a managing director in Credit Suisse's real estate finance group, where he led a CMBS origination team located in New York, Chicago, Philadelphia and Tampa.