Lending and the New Normal
Robert Barthelmess, managing partner at BGI Capital, weighs in on alternative lending, the state of commercial real estate, how the pandemic is affecting foreign investors, and much more
As one of the region’s leading, full-service alternative lenders and commercial real estate debt providers, BGI Capital is on the front lines of financing during a time when questions abound. That’s why SFBW reached out to one of the firm’s managing partners, Robert Barthelmess, for insights into a variety of issues surrounding private lending and specialty financing.
Barthelmess, who co-founded BGI Capital along with managing partner Kenneth Baboun in 2017, brings nearly three decades of experience in corporate, banking and commercial real estate finance to a firm that recently debuted its third location (in Boca Raton, to go with offices in Miami and New York). Before launching BGI, Barthelmess was founder and president of Oakland Private Lending, which delivered alternative real estate financing solutions to builders, developers and real estate professionals in South Florida.
Are there some good opportunities in distressed assets that have become too undervalued? Or even second-tiered retail?
I think it’s still too early to tell. I believe we are going to get some interesting opportunities coming down the pike. For the time being, the market is still digesting how deep and extended this COVID recession is going to be. I don’t think there’s enough clarity yet. But in the next six months, we’ll start to have that clarity and we’ll see how the market responds.
There are some asset classes that will be impacted, just from what we are seeing. Investors that are in investing in the hospitality industry, there’s definitely going to be opportunities. The office building product is another segment where we’ll have to see how it’s going to respond. If you turn on the business news in the morning, everyone has a position regarding how the office building is going to change, and if it’s going to be changed for the good.
Student housing is another asset class that’s going to be affected, especially if schools and colleges remain closed—and we see distance learning during the fall semester. That’s going to have an impact on valuation of student housing. So, yes, there are asset classes that are sure to be affected. But we still have to wait and see how we come out of the other side of this.
How is COVID affecting foreign nationals when it comes to financing?
We work a lot with foreign nationals. We help foreign investors when it comes time to finance their acquisition of condos or if they invest in commercial real estate. We help them secure their finance. Our clients are dealing with their own COVID-19-related problems in their own country; it’s affected more than 180 countries around the world. So, everyone is waiting to see how their own economies are going to respond as well.
We’re getting two very interesting requests from our foreign national clients right now. One comes from clients for whom we provided financing in the past, that already have real estate in the U.S. In some cases, they’re asking to refinance and cash out, because they need the money to invest in their businesses back home. The other thing we’re doing with foreign national clients is getting financing for acquisition of preconstruction projects. For example, clients that bought condominiums in [Brickell] Flatiron: Those condos are now complete and being delivered. If you bought a unit years ago, you have to come in with 50 percent of the purchase price at closing—and we’re helping with financing for that. We’re not seeing much movement in terms of new acquisitions, and that obviously has to do with restricted travel and people working through their own COVID experiences in their country.
Are you seeing any pickup in business as other lenders pull back?
We’re private lenders, so we don’t deal with conventional loans or occupied mortgages. We finance investment properties. In our playground, there is a lot of competition. There’s been a large movement over the last five to 10 years toward the alternative lending industry. We’re noticing that some lenders that don’t have the discretionary capital are having to pump the brakes on their operations. It’s not a simple proposition to go out into the market and raise capital. That’s why I think we have a nice advantage over a lot of our competitors.
Can you talk more about the migration of borrowers that will look to alternative lenders versus traditional, large banks?
There are a lot of reasons why borrowers have been choosing to go to the alternative lenders. Those reasons are primarily speed and flexibility in underwriting deals. Some borrowers have personal reasons that do not allow them to qualify for bank financing, such has bad credit or bankruptcies in their history.
I think this will persist, if not become more prevalent. Banks have been putting a lot of resources into helping clients with the PPP program. A lot of banks are very focused on that; and we have extensive relationships with a lot of local banks. So, clients with opportunities in real estate are looking for alternatives. If you find an opportunity, you need to be able to close it quickly.
What size deals is BGI looking for on the high end and the low end?
We cap out at around $20 million. Our sweet spot is in the $5 million range. We like to say nothing under $1 million, but we’ve done $500,000 deals with our longstanding clients.
Can you provide some insight on what top local banks are saying in terms of commercial real estate loans?
We have two business lines. One of our lines is direct lenders; we put out our own capital. Our second line, which is just as important, is that we’re commercial mortgage brokers. We have transactions we structure for larger developers and investors, and we place them with banks. That gives us constant contact with banks to which we refer business. On a daily basis, we’re talking to a couple of our bankers.
What they are telling us is that banks have been overwhelmed with the application process of the PPP program. It’s been all hands on deck in processing and putting out this money that is very much needed by small businesses.
However, when we call and talk about commercial real estate loans, they’re still out there. They are looking at them more conservatively; the underwriting guidelines are taking into consideration what a post-COVID environment may look like. Earlier, we were talking about how certain asset classes will be more impacted than others. When we talk to banks, they’re taking those factors into consideration. For instance, trying to get a loan for a hotel development is very difficult in this environment. These are the types of things we will be dealing with heading into the summer.
Overall, they’ve reacted very positively. We’ve been able to close a couple of deals in the middle of the crisis with our local banks, and they’ve been able to perform very well for us.
Is there a renewed interest in demographics that are looking to move here from Latin America and Northeast?
I think all of the factors were already in place for Florida to be an attractive destination—especially if you were coming from Northeast, where the revamp of the tax structure had such a huge impact. Before COVID, we were looking at different groups already looking to move their operations to South Florida. All those factors [our weather, no state tax, our health care system, etc.] are still there. Post-COVID, I think there will be additional incentives for companies and people to move to South Florida—and I believe the number of people who are going to look at our state as [a place to move or to do business] is definitely going to increase. I’m very bullish on South Florida. ♦
About BGI Capital
BGI Capital is a leading, full-service alternative lender and commercial real estate debt provider bringing its diverse portfolio of lending solutions to burgeoning communities throughout Florida and New York with locations in Miami-Dade County, Palm Beach County and Manhattan. With a broad network of lenders, BGI Capital is able to structure loans that benefit unique client situations, enabling them to surpass traditional lending firms and provide access to financing for a wide range of clients.
Led by managing partners Kenneth A. Baboun and Robert M. Barthelmess, the firm provides direct lending, traditional and specialty financing, and a diverse selection of customized loan products including construction financing, a foreign national program, and bridge loan program. As formidable leaders in finance with over 40 years of combined experience in banking, commercial real estate, and residential development, Baboun and Barthelmess fuse their respective expertise and experience to offer relationship-focused, specialized lending solutions and personalized service.
Visit bgicg.com to learn more about BGI Capital and its funding programs.