Private Capital Conversation: A Q&A with ACRES Capital CEO Mark Fogel

Mark Fogel founded ACRES Capital in 2012 and leads the executive management team as President and CEO. He has more than 25 years of experience in commercial real estate finance, with a particular focus on providing developers and entrepreneurs with innovative debt and equity solutions. Most of his career has revolved around transitional, middle-market assets.

MBA NEWSLINK: Some lenders have left the construction loan market entirely due to COVID-19 volatility. Are you still doing construction loans? What does the bridge lending landscape look like?

Mark Fogel

MARK FOGEL: We see a great opportunity in midstream first mortgage construction loans with future funding obligations. We are identifying partially constructed properties nationwide where either promissory notes are being sold by the in-place lenders or the sponsors are in need of a new lender to refinance and/or recapitalize those properties.  Once acquired, ACRES’ goal is to work with existing sponsors and general contractors to complete and stabilize their properties with fresh capital.

The bridge lending landscape has changed rather dramatically over the past few months. New CLO issuance is non-existent and warehouse lenders have pulled back, which has had a direct impact on spreads and availability of debt capital. The most significant strain is on asset classes that are viewed as potential victims of this crisis or were in decline previous to the crisis, including hospitality, retail and office.

NEWSLINK: Are there certain sectors or geographies you’re avoiding under the current circumstances? Others you’re focusing on?

FOGEL: We are not necessarily avoiding any sectors or geographies. There are always opportunities outside of what is popular. However, we generally focus on the most liquid geographies and assets, meaning that a refinancing or a sale of a property will garner significant interest from other lenders and investors at exit. Our loans are structured as short-term and value-add projects, so we need to underwrite to a deep pool of exit strategies at loan maturity. Consequently, we tend to shy away from retail and class C assets, as well as markets outside of the top 25 MSAs.

NEWSLINK: Real Capital Analytics and the Pension Real Estate Association report numerous deals falling through due to current conditions. What are you seeing?

FOGEL: We are seeing the same. Loans that otherwise would have been closed via the CMBS or CLO channels are not getting done. In particular, the less favored asset classes are getting left at the altar. It is rare to see a new retail or hospitality loan origination these days. The multifamily sector felt some initial pain when spreads widened dramatically in March, but banks, insurance companies and the agencies have picked up the slack of late.

NEWSLINK: Are leverage levels dropping? 

FOGEL: Yes, there has certainly been a reduction in leverage levels post-COVID. This is mostly a function of investor and lender uncertainty around value. It is very difficult for anyone to state with confidence where property values will be in six months, two years or 10 years. The real estate landscape may have been altered permanently in many sectors, thus the conservative level of loan proceeds currently being offered by lenders.

NEWSLINK: What’s happening with capital-raising?

FOGEL: Capital raising is difficult in this type of environment. Investors are wary about business plans and strategies going forward as nothing has really settled post-COVID. It is very likely that the proven distressed investors will capture most of the available capital in the market and the newcomers to the space will not be very successful.

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