When the fate of the former Lehman Brothers Bank was finally sealed last year with separate sales of the deposit institution (then known as Aurora Bank) and its sizable loan servicing group, a couple of senior real estate lending executives realized it was time to explore new opportunities. And as MarketBeat readers may be interested to know, Aurora's former commercial services group EVP Steve Skolnik and credit chief Kelly Huddleston are putting together a team that's aiming to become a formidable player in the fragmented small-balance lending arena.
Their growing roster of colleagues and teammates are nothing if not ambitious. Working with proven professionals and implementing cutting-edge processing practices, Skolnik and Huddleston expect to lend against the spectrum of small-cap collateral at breakneck speed - and even securitize pools of its loans in the capital markets.
Their Irvine, Cal.-based ReadyCap Commercial LLC non-bank direct lender operation - which has been officially open for business for three months - plans to have 20-some productive originators making deals in the $500,000-to-$10 million range from offices in major markets by the end of the year. They're already half-way there, as four more veterans came on board in April, joining the handful in place at ReadyCap's official launch in early-February.
The team is thinking big - and wide. Looking to avoid heavy reliance on any particular small-balance lending niche, management is purposefully diversifying its lending and collateral-category programs - a prudent approach given how securities backed by non-conforming residential mortgages helped bring down the house of Lehman
ReadyCap offers fully amortizing mortgages secured by apartments and other income-property categories (office, retail, industrial, self storage and mixed-use), along with programs specializing in short-term bridge loans, and owner-occupied facilities. Management likewise expects to develop a strong practice lending to owner-users tapping Small Business Administration loan guarantee programs.
The team customizes the most appropriate solution for the specific borrower and collateral under consideration - whether it's bridge or fully amortizing; fixed or floating rate (or combinations); recourse or non-recourse; cash-out or straight refi. The income-property programs offer loans up to $10 million, with 80 percent maximum leverage. The maximum amount for owner-occupied properties is $5 million, with leverage topping out at 90 percent depending on the loan program.
"Our intention is to build a firm that isn't unduly exposed to the risks of cyclical ebbs and flows in the marketplace - such as if bridge lending falls out of favor, or SBA rates rise," explains Skolnik, ReadyCap's CEO.
Another key cog in the ReadyCap strategic wheel entails fulfilling the small-balance space's need for speed. Not only can ReadyCap call on highly experienced internal personnel (former colleagues in many cases) to hasten underwriting and processing. The fast-growing team also boasts strong relationships with appraisers and other third-party reporting specialists - and keeps close tabs on how they deliver with respect to speed and quality, stresses Huddleston, ReadyCap's chief credit officer.
The end result can in many cases be a 30-day close - the same amount of time it takes many banks just to commit, Skolnik relates. "And we just do commercial real estate lending; we won't require a banking relationship."
When truly quick closes are critical, ReadyCap says it can start streamlined processing before issuing a commitment letter, with a two-week closing target. Such "express" processing costs a $5,000 fee and requires full recourse, with leverage limited to 10 percent below the corresponding program's general maximum.
Perhaps even more ambitiously, the ReadyCap brain trust is intent on securitizing pools of the diverse array of small-balance loans it originates, in partnership with its "parent" entity - an investment fund managed by New York City specialty credit manager Waterfall Asset Management. Waterfall affiliates are positioning to underwrite securitizations of pooled ReadyCap loans - more likely through private placements than public offerings.
The Waterfall and ReadyCap team foresee solid opportunities to securitize pools aggregating pretty much all of ReadyCap's loan structures including SBA, bridge and fully amortizing - and both recourse and non-recourse, as well as both fixed and floating rates (and hybrids), Skolnik adds.
With fixed-income yields at frustrating historic lows - and commercial mortgage-backed securities attracting more and more investment capital - the teams anticipate solid interest in bonds backed by pools of small-balance mortgages, due in great part to their consistently higher coupons relative to larger CRE loans.
While many banks are in better position to originate new loans than they were a year or two back, a hefty maturity pipeline stretching years into the future should present plenty of refinance and purchase-mortgage origination and securitization opportunities for the ReadyCap team, Skolnik and Huddleston suggest.
Waterfall, with about $2 billion in assets under management, has a substantial background in small-balance debt investments and loan servicing, as well as asset-backed securitizations. One of the funds it manages invested into ReadyCap both as an equity owner, and a financial backer of the warehouse credit line ReadyCap taps to fund loans.
Waterfall also has representatives joining ReadyCap officials on the committee that approves loans of $5 million or more. ReadyCap's team is well-equipped to service SBA loans. And KeyBank, which has a huge loan servicing operation that Waterfall utilizes, will handle such responsibilities for the bulk of the ReadyCap-originated conventional mortgages.
And while it's no great surprise that some other new private non-bank outfits have begun targeting the small-balance space, ReadyCap doesn't seem to be having trouble sourcing and closing deals. Through April the team had funded nine loans totaling about $14 million - and had another $53 million well into underwriting including $9 million slated to close in May.