With property valuations hitting highs not seen since before the Great Recession, Brentwood real estate investment firm Partners Capital decided 18 months ago to do something a little different: bet on debt.
The firm began with one-off deals financed with single partners in the family office space, but announced last week that it is partnering with an undisclosed partner to launch Archway Fund. Archway will operate as a distinct entity and make $2 million to $15 million loans to borrowers struggling to find traditional bank project financing, according to Bobby Khorshidi, Partners founder and principal.
The fund has about $80 million at its disposal, but Khorshidi said Archway will continue to add about $10 million in contributions a month and look to put in about $100 million in additional funds over the next year. Both family offices and some brokerages with high-net-worth clients are the fund’s main backers, but Khorshidi declined to give any examples citing confidentiality agreements.
Partners’ stake in Archway is a minority one, meaning the silent partner technically controls capital decisions, something Khorshidi acknowledged but said was mitigated in his view by a close working relationship that had developed.
“As we got comfortable with each other and each other’s risk appetite, we figured out we could do something that was formal,” he said. “Although a lot of the discretion with capital on paper is with our partner, we really function as one company.”
Archway’s day-to-day operations will be run by Mark Reese, who comes from a position with Buchanan Street Partners in Newport Beach. Reese and Khorshidi said that the fund’s strategy is to fill holes in the capital stack that puts them in a preferred position with low risk exposure and allows them to provide service that traditional lenders can’t.
“I think we have a very refined goal,” Reese said. “We’re not trying to come up with a highly structured transaction. The goal is to find borrowers who need money quickly or can’t access funds from bank lenders and do relatively simple deals.”
Those borrowers aren’t only in Los Angeles and California and, according to the Archway team, some of their more lucrative investments come out of places such as Denver, Las Vegas, and Phoenix.
While Archway will be keeping a close eye out for deals locally, Khorshidi said, the competition in markets outside of SoCal is often less fierce.
“If I had to choose between a deal in Denver and a deal in L.A., I could probably move slightly quicker on the L.A. deal, but there’s no real preference,” he said.
Khorshidi said that because of the types of debt investments they are making – most have terms of just 24 months with preferred lender terms – they also have the ability to service borrowers at loan-to-value ratios as high as 75 percent of a property’s appraised worth. While most of the time those deals are ones that traditional financial institutions can’t make, in some cases borrowers would choose the slightly higher rates from Archway because the process is streamlined.
“One of the big misconceptions in our space is that people go to nonbank lenders like us because it’s a deal that banks won’t do, but that’s not the case,” he said. “We’re seeing borrowers come to us because it’s easier for them. They don’t want the hassle of going through the bank’s system.”
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