Archway Fund Completes Recapitalization

Bridge lender Archway Fund has completed a recapitalization with the principals of Oakhurst Advisors. The firm will now provide short-term commercial debt to the middle markets under the name Archway Capital. The first fund will provide loans $2 million to $20 million for both the acquisition and recapitalization of commercial assets across property types.

"We recognized about a year ago that we were close to a credit cycle," Bobby Khorshidi of Archway Capital tells GlobeSt.com. "Prices were at record highs and the recovery was lasting longer than a typical cycle. The market sentiment was not a matter of if, but when we knew the economy would cool off."

In anticipation of a market shift, Archway adjusted its business model to place loans within the firm's managed funds. "If history repeats itself, when a recession hits, the secondary markets for loans tend to struggle," says Khorshidi. "To ensure the continuity of our business we morphed our business model from selling loans to placing them into funds that we manage."

Of course, this market shift was beyond anticipation, but ultimately benefitted Archway. "The launch of our fund just happened to coincide with the COVID-19 pandemic. The shift to placing loans on balance sheet was meant to position Archway to continue to provide the same level of service that we have been known to provide regardless the direction of the market," says Khorshidi. "We are also fortunate to be able to add to our organization a team of money managers who manage in excess of $6 billion in assets."

The firm's focus on short-term loans is a strategic move to hedge against the downside during a market correction. "By launching a new fund, we can focus on properties that we think will fare better in today's market," says Khorshidi. "Funds created prior to this pandemic never anticipated the rapid changes that have recently occurred in the markets, and likely have not balanced their portfolio to manage this risk."

Khorshidi expects retail and office assets will be the most exposed to the pandemic, and the firm will only consider best-in-class assets in quality markets. "This recapitalization enables us to bring liquidity at a time where there is little. As a company we have always focused on bringing as much value as we can to our borrowers and the launch is just another step towards achieving that goal," he adds.

The strategy is already proving effective. Archway has seen an uptick in lending demand for its products compared to the pre-pandemic environment. "I attribute that in part to the fact that we are a known reliable brand," says Khorshidi. "We are seeing more requests from borrowers left at the altar by their lenders or others whose lenders have halted their construction draws." Despite the demand, the firm is staying grounded and cautious. "We are being more selective with the deals we want to pursue, taking into consideration, among other things, the impact of the pandemic has on the income stream," says Khorshidi. "We are also focusing more now on the strength and character of the sponsor, rather than just our loan position relative to the value of the collateral."

The fund is open-ended and plans to place $250 million in the next 12 months. "We realize that this is an ambitious goal," says Khorshidi. "However after analyzing our deal flow, seeing the illiquidity in the secondary market, and watching several portfolio lenders scale back due to uncertainties over their portfolio, we think the goal is achievable."