Q&A: Inside Angel Oak’s Small-Balance Strategy
- Jun 20, 2018
Angel Oak Commercial Lending (AOCL) recently purchased national commercial mortgage lender Cherrywood Mortgage, which specializes in originating loans with balances of $5 million or less. The move came soon after Angel Oak Cos. launched AOCL, a financing group for commercial real estate owners, developers and investors. The expansion was based on the growing needs of borrowers that are currently challenged by increasing regulation.
Ben Easterlin, managing director of AOCL, discusses this new division’s mission and highlights the trends that are shaping the commercial real estate financing landscape.
What was the strategy behind the purchase of Cherrywood Mortgage and what are your plans regarding this new division of Angel Oak Commercial Lending?
Easterlin: Angel Oak Commercial Lending believes the Cherrywood Mortgage acquisition is a great opportunity to grow and access a market of borrowers that have had trouble getting funding due to the regulatory hurdles of the traditional banks. Cherrywood Mortgage’s team has decades of experience and are established leaders in their marketplace. We are looking to work with their expert team to continue to service more borrowers in capital constricted markets.
Why do you think there is a lending void in the under-$5 million segment of CRE?
Easterlin: The lending void is mainly brought on by the regulatory hurdles that banks had placed on them following the financial crisis. Typically, these under-$5-million loans are made by community banks, but even these banks are having a hard time meeting their depository client’s needs. With national banks sticking to originating anything over $5 million, there remains a void for the smaller-balance borrowers which we are working to fill.
What challenges do small and emerging real estate companies face when it comes to obtaining financing?
Easterlin: Two things—timing and regulation. For an emerging company or a start-up, it is hard to get commitment from a lender prior to actually having an asset to borrow against. And once that company has an asset, they need to move fast to secure financing. This is where non-bank lenders like ourselves come in.
How did the changes in legislation and interest rate hikes impact the financing sector?
Easterlin: The changes brought in a larger regulatory burden and limited the flexibility of banks even more. Interest rate hikes impact the financing sector by reducing the cash flow on projects. However, with proper planning, rate hikes can be mitigated through caps and other resources to the borrower.
What can you tell us about the impact of technology on the lending environment?
Easterlin: Technology has had a huge impact on the lending sector. Today we can use technology to quickly analyze everything from the potential environmental impact to forecasting financial returns on a project. We see technology continuing to help us over the long run. We are looking to take full advantage of this by using technology to cut down on the overhead and close loans faster.
Which would you say are real estate’s hottest sectors, judging by loan volumes?
Easterlin: Currently, the real estate’s hottest sector is multifamily. While the other sectors are fundamentally healthy, they are lagging compared to multifamily properties from a volume perspective.
What are your predictions on the future of the real estate financing business?
Easterlin: We don’t like to predict the future. However, we do feel confident that the economy is on solid footing. The jobs reports and salary growth are a positive driving force for the real estate sector. Today, we are underwriting on better assets with better credit. There are still plenty of good borrowers out there looking for financing on strong projects and we don’t see that trend slowing down anytime soon.
Image courtesy of Angel Oak Commercial Lending