Adam Zausmer, chief credit officer at Ready Capital, answers SCI's questions

Q: Why do you feel the US CRE CLO sector is booming?
A: The bridge lending market is certainly red hot at the moment. We tend to focus on less volatile assets, like multifamily, and clear trends we see across the US are tired properties in need of capital expenditure as well as a shortage of quality affordable housing. Non-bank lenders are providing properties with larger amounts of leverage. 

Q: How did the Covid fallout affect the need for transitional property financing?
A: What we saw in the early days of the Covid-19 crisis is businesses shut down across the country. Obviously, this is still a concern and an uncertainty today.

However, we truly thought things would fare much worse than they did. Our portfolio held up extremely well, partly because we do not focus extensively on hospitality and big-box retail. 

The crisis brought many significant opportunities. Our original concern was to delay our substantial pipeline, which in retrospect was a good decision, as it allowed us to pause lending at the right time.

Having overcome this initial hurdle, we quickly got into asset management mode and then managed to grab market share when we restarted. From a buyer’s perspective, assets which were underperforming created an opportunity to purchase distressed assets at an attractive basis.

Q: Looking at the archetypal “victims” of the pandemic - retail, office and hospitality - is it still challenging to include these property types in multi-loan offerings?
A: Multifamily and industrial assets are clearly the ones we are most optimistic about - 90% plus of our current activity is in the multifamily space. Although government stimulus was helpful to tenants, the office sector was naturally impacted by the crisis.

What we are seeing now are lease expirations with tenants not renewing or downsizing, which will have a clear material impact. The outlook for office is generally concerning and you are seeing it in the numbers with higher delinquencies.

Retail was already struggling prior to the pandemic. However, as life is getting back to normal - particularly in the smaller-scale, local community centre space - it is actually holding up extremely well. 

Q: Are there any challenges that your firm or the broader market face?
A: Competition is certainly heating back up! Lenders that had shut down as the pandemic unfolded are steadily getting back in the game and with that comes elevated pricing competition. Lenders are generally also slightly more aggressive. 

Another trend is actually about retaining strong staff - but that comes across all sectors actually. It has become much tougher to fill niche positions as the pandemic instituted lifestyle changes. It is something companies will definitely have to take into account. 

Q: In terms of your outlook for the CRE CLO market, do you expect it to become a mainstream asset class?
A: For sure. Bridge financing is a product that we are very bullish about; one in which we built an extremely strong and specialised team, providing tailored loans.

What is interesting about this, and perhaps why I personally enjoy the bridge space, is that over 75% of what we are lending on is acquisition financing. It is fresh equity, committed to a project and what is interesting is that, depending on the property locations, you can clearly see the upside profile - compared to a stabilised CMBS transaction. From a credit risk perspective, it can be a product which makes a lot of sense.

Vincent Nadeau