Urban Standard Capital is a small real estate private equity firm focused on debt and equity investments in the New York City metropolitan area. The company also develops condos and invests in properties in both well-established and transitioning neighborhoods.
Multi-Housing News spoke to Seth Weissman, the company’s founder & managing partner, about how the company is navigating the New York City financing landscape as a small private lender and about the most sought-after financing products in the market.
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How have your lending practices changed since the onset of the pandemic as a small private lender?
Weissman: Our lending practices have not changed a lot. We continue to focus on long-term, programmatic relationships with our borrowers. More than 60 percent of our business is repeat borrowers or referrals. We lend when we believe in the project and the sponsorship, and there is mutual trust and credibility.
As a private equity fund, we have committed to discretionary balance sheet capital, so we are fortunate to be in a strong capital position and can continue to perform for our borrower partners. We are not dependent on syndication or leverage to perform for our clients. Many of our competitors who depend on deal-by-deal capital have lost significant market share and credibility.
What are some of the most in-demand financing products you’ve worked with recently?
Weissman: Construction completion and inventory financing are the most in demand. As the market recovers, many developers want to finish their projects and have the runway to achieve sales targets.
Tell us about a recent multifamily deal you closed in New York City. How does this deal represent the current financing landscape in the city?
Weissman: We did a $15 million construction completion loan on a multifamily rental. The existing lender didn’t want to extend the loan as the underlying project was not going to be profitable for the developer. The borrower’s objective was to finish the building and recover as much equity as possible. They understood it was likely not going to be a profitable project. This is basically a universal truth for developers who started projects in New York City after 2015. Very few, if any, developers are making money from that vintage.
Construction costs, both labor and materials, project delays, New York City bureaucracy, COVID-19 and so on, have crushed the bottom line for most developers. Therefore, the current focus for developers is to maximize equity recovery and move on to the next project.
Consequently, we are seeing the robust demand for condo inventory financing and construction completion loans. Vintage projects are just looking to get to the finish line. In contrast, our loans in Florida and Texas have a completely different profile as those markets have seen 25 percent to 50 percent value growth in just the last two years.
How has the deal volume shifted since the beginning of the pandemic compared to recent months?
Weissman: We will do four times the volume in 2021, compared to the volume we did in 2020.
How would you explain this significant growth?
Weissman: Our brand and reputation as the “certainty bid” in the middle market grows by the day. There are not a lot of lenders in the $50 million loan space with committed and discretionary capital.
Furthermore, there are even fewer who also have a development business and understand the perspective of borrowers and can provide loan structures that are creative, thoughtful and enable borrowers to achieve their business plans.
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That combination of capital and expertise enables us to provide speed and certainty of execution to our borrowers. Additionally, our borrower friendly approach differentiates us in a market where other lenders may have, politely speaking, misaligned incentives. Simply, we want our borrowers to be successful as we want to do many deals with them.
Earlier this year, Urban Standard launched a $100 million investment platform targeting condo projects. How does this strategy fit into the current capital markets landscape?
Weissman: Urban Standard is a capital solutions provider, so we designed this product to address a need in the market, which we saw consistently on the condo inventory side of our business. Considering that we have an equity business, where we are the owner/developer, we understand first-hand what financing products are needed in the market, and where conventional lenders and even private lenders may fall short.
How do you expect distressed condo and multifamily buildings to impact the capital markets landscape in NYC?
Weissman: The market will absorb them, and equity will be impaired. But it’s a cycle, and buildings and sites purchased post-2020 should flourish, as those acquisitions reflect post-pandemic pricing, labor and material prices.
What trends do you expect to shape the financing landscape in NYC for small private lenders?
Weissman: The space is institutionalizing, even in the middle market commercial real estate space. The lenders with strong reputations, deal flow and committed, discretionary capital will take over market share.
