Thomas Shapiro, President, Founder, and Chief Investment Officer of GTIS Partners, joined Keith Black, Managing Director of RIA Channel, to discuss investing in real estate equity and debt.
GTIS Partners was founded in 2005 with the goal of finding differentiated opportunities for investors. Over the last 19 years, the firm has made 211 investments totaling $13 billion in 45 major markets. GTIS Partners currently manages $4.5 billion in AUM, mostly in industrial and residential real estate.
GTIS acts as an investor, a lender, and/or a developer in the real estate markets. The firm has developed 10,000 units of multi-family housing and constructed 16,000 single-family homes in 110 projects. GTIS purchased 34,000 lots for single-family homes, many at a deep discount during the global financial crisis when many investors were unsure if and when new homes would be constructed in the US.
Building in the right location is important for GTIS, which performs a top-down analysis of locations with good schools and growth in population, income, and jobs. GTIS rotates across real estate strategies in search of the highest risk-adjusted returns. The firm was an early entrant into single-family rentals, liquidating those investments a couple of years ago.
Shapiro notes that it is better to be a lender in today’s market than an equity owner. The firm has committed over $250 million over the last year in senior loans backed by real estate. After the Fed tightened rates and banks pulled back from real estate lending, senior loans can now earn a 10% yield at the capital stack, with yields on mezzanine loans in the mid-teens.
GTIS seeks to solve capital solutions for borrowers while choosing to lend to strong operators with the best projects. With over $2 trillion in mortgages coming due in the next couple of years, providers of debt capital solutions should be in strong demand, as borrowers need to refinance at a time of higher interest rates and lower incomes.
A favorite sector today is homebuilders, which are generally an unbanked sector. Builders are manufacturers with a constant need for capital. A recent GTIS deal made a senior secured 70% loan-to-value (LTV) loan cross-collateralized across a homebuilder’s nine existing communities. The homebuilder is willing to pay 16.5% interest on this loan because they can earn a 30% margin on new homes. These loans would only be impaired if the price of homes declined by 23%, making this a high-yield investment but with substantial collateral value.
NOW ON DEMAND: WEBCAST – US Real Estate Debt Strategies
During this webcast we will discuss:
- GTIS Partners is targeting investor commitments to invest in the origination and acquisition of high-yield senior debt, mezzanine debt, and similar structured financings, capitalizing on the favorable market opportunity for real estate credit created by rising interest rates and bank liquidity crunch.
- Rising interest rates, falling asset values, multiple bank failures, and large impairments of traditional lender balance sheets are creating a significant pullback in real estate credit availability.
- Over $2T of commercial debt is coming due in the next three years that will need to be refinanced, with traditional lenders providing significantly lower LTV loans than required to replace the maturing debt, opening a large capital gap.
- This financing void and high interest rates are creating a scalable opportunity to generate equity-like returns by lending on high-quality real estate in good markets at the relatively safe position in the capital stack (<75% loan to value).
Accepted for 1 CFP® / IWI / CFA CE Credit