As The Commercial Real Estate Sector's Woes Deepen, This New York Fund Plans To Lend $2 Billion To Troubled Property Owners

There will always be a group of investors who buy into industries during down cycles because they feel that's when the potential upside is the highest. That's why Ran Eliasaf, who heads The Northwind Group private equity and fund, is planning to make up to $ 2 billion in short-term loans to the struggling commercial real estate sector this year — a capital injection that would be welcome.

According to the Mortgage Banker's Association, 20% of the $4.7 trillion in outstanding real estate mortgages in the country will mature in 2024. That's almost $1 trillion in loans that many commercial property owners took out when interest rates were much lower than they are today. When paired with sky-high vacancy rates that will keep many buildings from making money, it's easy to understand why many banks are reticent to lend more money.

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A Busy Start To The Year For The Northwind Group

Commercial real estate owners who want to refinance their debt suddenly find themselves in a more hostile and expensive lending environment than they did when they took out their mortgages. That's especially true for office and retail buildings that are struggling to stay afloat. This is where Eliasaf sees Northwind coming into the picture. In an interview with Marketwatch, Eliasaf estimates his firm loaned $300 million in January alone.

If The Northwind Group keeps that pace up through the end of the year, Eliasaf believes it could do between $1.5 billion and $2 billion in loans — a record for the 15-year-old fund he leads. The Northwind Group specializes in cash-in loans where investors borrow short-term capital to put into a property hoping that they can ride out the storm and refinance a few years down the road when lending conditions have improved.   

Eliasaf says cash-in loans are 90% of what The Northwind Group does. The money doesn't come cheap, which is where The Northwind Group makes its profits. As is the case with any bank that lends to borrowers in a fix for cash, The Northwind Group charges a premium. Commercial building owners who borrow from Eliasaf's firm can expect to pay 2% to 3% more in interest than they would on traditional bank loans.

With Banks Sitting Out, The Northwind Group Is Becoming A First Financing Option

Many of the regional banks that lent aggressively to commercial owners while interest rates were low are concerned about their potential exposure to losses. This is an instinct when you consider that nearly $1 trillion in loans are coming due before the end of the year. Banks are spooked and don't want to get in any deeper. However, Eliasaf sees things differently. He believes the pullback has been too drastic.

That's why his fund will make loans in the commercial and office sectors that traditional banks might not. Speaking on the state of the market, Eliasaf said, "The negativity in office went too extreme. Some deals make sense at the right basis." If he's right, The Northwind Group's investors stand to make a sizeable profit off its deals this year. Only time will tell whether Eliasaf's instincts are correct.

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