Private lender is bullish on central, southeast portions of the US
Mortgage lender KDM Financial has launched a $350 million fund largely aimed at providing financing for commercial real estate projects across the country at a time of diminished lending in the banking industry.
It’s the first fund vehicle for the Coral Gables, Fla.-based commercial mortgage lender, CEO Holly MacDonald Korth (pictured) told Mortgage Professional America during a telephone interview. The plan calls for investment in opportunistic and value-add CRE properties across the country, she said. The aim, she added, is largely to invest in multifamily properties – an asset class for which there has been an upsurge the last couple of years.
“Right now, we’re seeing a lot of value in doing multifamily bridge loans, so that is post construction lease-up or value add in the multifamily space,” she said. “There’s been a lot of multifamily construction in the last few years and, with interest rates being where they are, some of those are having trouble on their construction takeout loans that they used to get from their local or regional bank.”
Banks’ risk aversion opens up opportunities for private lenders
That risk aversion opens up an opportunity for private lenders to enter the fray, she suggested.
“Since bankers are pulling back from the market, there is a lot of opportunity for private capital,” she said. “We thought this was an exciting time to put together a fund primarily focused on multifamily bridge loans that will be about 75% of what we’re focused on and 20% to 25% for opportunistic CRE debt investment. That might be an opportunity to buy a defaulted note on a property or other potentially good CRE lending opportunities.”
The move is a sign of the times – a response to higher interest rates spurred by the Fed in its effort to tame inflation that has made borrowing costlier than in the past. The Fed has raised rates 11 times since March 2022 to moderate inflation. The resulting scenario has yielded opportunities for private lenders to step in and offer financing.
“Because the banks have largely pulled back out of the market, we’re seeing a ton of opportunity,” she said. “Also, right now where are rates potentially coming down, it’s a good time to be putting out money in the market at the moment.”
Multifamily properties have become hot commodities
Private investment in multifamily properties has emerged as something of a cottage industry against a backdrop of growing inaccessibility to single-family homes.
One recent entrant into the field is Arrived, a fledgling real estate firm backed by Amazon.com founder Jeff Bezos. Last month, company officials entered the rental fund space with a twist – a fractional real estate investing platform that has already lured nearly half-a-million retail investors, as Yahoo Finance reported. The platform enables investors to buy shares of single-family rental properties with as little as $100, the site reported.
In Seattle, Security Properties last April launched a $200 million fund investing in 11 markets from Austin, Texas, to Nashville and the West Coast, as Multifamily Biz reported. Last week, an investment firm named Declaration Partners, backed by Carlye Group Inc. co-founder David Rubenstein, began raising some $400 million toward investments primarily in multifamily, Fortune reported.
That’s just a handful of examples in a growing tide of investment. Aware of the growing competition in the investment space, KDM Financial has strategized accordingly. MacDonald-Korth said KDM’s fund will focus primarily in the secondary markets in the central and southeast portions of the US.
“Multifamily development and construction lending and take-out in major markets is definitely competitive,” she said. “We are looking to do both lease-up and value add lending, primarily in secondary markets. That’s where we find that there’s less competition and more value for us and our investors in those kinds of secondary markets.”
Any anxiety what with this being the lender’s first fund vehicle? Given the lender’s track record – with some $600 million in balance sheet commercial real estate financing since 2017 – that would be a resounding ‘no’.
“Our specialty has been high-quality CRE bridge loans, but we have funded those all independently through our mortgage-secured note program,” she said. “This is our first co-mingled vehicle. We’ve got a good track record under our belt, and so we feel that convergence of the market opportunity combined with our experience is a good time to be coming to market with the product.”
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