With Pool of Distressed Assets on the Rise, A10 Kicks Off $100M Lending Program
The number of distressed assets continues to grow and lenders across the country have been debuting new programs and establishing funds to provide loans for owners and buyers of these troubled assets in a climate where securing financing has become a monumental challenge. Now, Boise, Idaho-based A10 Capital has jumped on the bandwagon with $100 million in capital for the origination of first mortgage commercial real estate loans and the supplying of financing for commercial real estate-secured distressed debt acquisitions through its new Lending Group. According to A10, it’s all about foresight. Seeing the credit crunch on the horizon, A10 Capital raised the $100 million two years ago with the specific intent of positioning itself to make money available once lending options dried up. The moment is now here. “We see a real need in the marketplace to fill the void between conventional lending sources and hard money lenders,” Jerry Dunn, CEO of A10 Capital, told CPN. “Given the fact that CMBS markets have shut down and banks have made underwriting requirements much tighter, our program is a great opportunity for those who can’t qualify for traditional loans.” Unencumbered by legacy loans, A10 Capital, having kept nearly all of its capital “powder dry,” is now poised to make loans ranging from $2 million to $10 million through its new first mortgage loan program for the types of scenarios other financiers won’t touch, such as assets with comparatively low occupancy, as well as lease-up and turnaround situations. Property types considered include office, industrial, retail and multi-family. But considering that cap rates are still relatively high, is the timing of the firm’s launch of its capital market bridge program really right? “We still see a large gap between bid and ask price,” Dunn noted. “We don’t think we’ve hit bottom, but the market has become more clear than it was six months ago, so we’re cautiously making loans.” Apparently, borrowers feel the introduction of A10 Capital’s new alternative funding group is well timed, indeed. “We’ve gotten a lot of interest from property owners that have maturing CMBS loans, and for one reason or another are missing out on loans from banks and life insurance lenders,” Dunn said. “With our program, they can buy themselves time until the market settles down. And we’re also seeing commercial real estate owners who have the ability to get loans, but they’re recourse loans. With our program, they’re willing to take a little less leverage and pay a little more to get a non-recourse loan.” However, A10 does offer recourse loans for its clients, as well. A10 Capital is just one of a bevy of firms that have created new programs and divisions for making loans or direct investments in the mushrooming distressed asset market. As reported by CPN in April, Wrightwood Capital closed its High Yield Partners II Fund with $243 million in commitments for investing in recapitalizations, acquisitions and new development endeavors; capital will be provided as either mezzanine loan or a preferred equity investment. Also, aiming to capitalize on discounts, private real estate investment firm Rockwood Capital L.L.C. closed a $964 million investment fund. And Sycamore Urban Properties was formed for the express purpose of acquiring new and converted troubled condominium properties. While targeting the troubled asset market is becoming increasingly attractive, there is still substantial risk involved, and A10 Capital believes it is well prepared to take certain chances. “We do a number of things to mitigate risk, but the biggest thing is our team,” Dunn said. “Many of them went through the real estate downturn in the 1990s and have experience in appropriately assessing risk in this type of environment.” And with the flexibility to expand is program, A10 Capital may ultimately dole out funds exceeding its current $100 million purse.