Stronghill Capital on The Deal Junkies Podcast CREF19

Stronghill Capital was recently interviewed by The Deal Junkies hosts Beau Baker and Rusty Fleming during MBA’s CREF19 in San Diego this year. We discussed with Beau and Rusty his 25-year career in commercial real estate finance, the small balance CRE and Investment Residential programs recently launched by Stronghill, and more. Thank you to Rusty, Beau, and The Deal Junkies for having us on the show!

Take a listen to episode 18 of The Deal Junkies podcast below or read the key segments during his interview. The episode is also available on Spotify, iTunes, Google Play, and other popular podcast platforms. The interview starts around 4:00.

Key Segments:

Stronghill itself is a relatively new brand; last year was the first full year that we were in business and really spent a lot of time acquiring a team and kind of figuring out where we wanted to be on the market place. We knew we wanted to be in small balance because that’s the area we see the opportunity and figured out exactly how we’re going to position ourselves was what we spent a lot of last year doing. This year we’re here at the [CREF] conference kicking off kind of a launch if you will. We plan for this to be a break out year; hoping to do somewhere in the neighborhood of [$250 to $300] million this year on our way to a billion dollar a year annual platform.

We really understand the small balance space. It’s an underserved niche and very fragmented and inefficient, and we feel we serve it well. I always tell people that if you can kind of picture on one end of the spectrum conventional banking [type] financing and on the other the spectrum you’ve got hard money; we play in that fairway in between. We are definitely closer to the bank side of the spectrum but we’re in between so our rates are more than banks but well within three hundred basis points inside of what you would consider hard money to be. We typically put out commercial paper and the high sixes, multi family in the mid sixes, and for investment properties in the low sixes. As we continue to execute and enhance our financing facilities, balance sheet, warehouse lines, [and the] variety of different opportunities we have there we’re hoping to get those rates down even further and be in the fives coming around probably the second or third quarter of this year [with those] property types.

We are a really good fit [as a] portfolio aggregator because we look at the debt coverage ratio as opposed to individual income. A bank might cap somebody out after say three properties because that’s all their personal incomes can support but with us we look at the debt coverage ratio of the property itself so we have a lot of aggregators that might add fifty or a hundred of these units into their portfolio and we’re really good fit for them.

We’re small [and] were nimble. We have a variety of funding sources. Typically if you go to a bank they’ve got one box that you either fit or you don’t. Same thing with REITs, often the same with life companies… We’ve got a lot of different options to place and under different warehouse lines so if something doesn’t particularly fit one we generally have others [that will] fit well. If it’s a good one we can usually find a home for that in our suite.

In our world rates are important but it’s not the most important thing. The most important thing is certainty of execution. As I mentioned earlier it’s a very fragmented and inefficient space. If somebody can fit with a bank or a life company at high fours or low fives rates that’s where they should be. We don’t want to be the lender of last resort, we don’t want to be a place where people bring loans that can’t be done. We definitely have a high threshold for quality and we want quality projects but there is just such a shortage of people that can fill that space on a national basis between the hard money and the conventional that rates are not usually the most important thing in our world. It’s more about certainty of execution.

We’re very excited [and] fully committed to this. We’ve brought on an excellent staff… we’ve got great new members of the team, we’ve got a great legacy, and we see a great opportunity in the space and we think we can contribute. We’re just very excited to be in a space where [we can be] as bullish as we can be about it.