When the Bank Can Only Hold $12M of a $28M Loan

Market-rate multifamily is the most financed asset class in America. Every bank, debt fund, and agency lender will do the vanilla deal in a heartbeat, so why does C-PACE keep showing up in the cap stack? Because the problem changed. Five years ago, with debt at 3 percent, banks hit their LTC ceiling and PACE stacked on top to fill the gap. Today nearly every deal is coverage constrained instead, and the play looks completely different. In Episode 4 of The Chameleon of the Cap Stack, Matthew McCormack, SVP of Originations at PACE Loan Group and the firm's first-ever employee, sits down with PLG CEO Rafi Golberstein to walk through how C-PACE actually gets used in multifamily right now: paired with private credit instead of banks, writing a bigger check than the senior lender on a Saint Paul adaptive reuse, and pitched as opportunistic senior debt rather than cheap equity. Real deals, real cap stacks, real decisions. For more on C-PACE and PACE Loan Group, visit https://hubs.li/Q04wYzWp0 and subscribe wherever you listen. What we get into: ·       Employee number one: hired off a LinkedIn message in 2018, now one of over 30 FTEs ·       Why multifamily works for PACE ·       PACE 1.0 vs. today: the LTC problem when debt was 3% and the coverage problem now ·       Pairing C-PACE with debt funds at their last dollar to knock a couple hundred basis points off the blended rate ·       30 months vs. 30 years ·       The next generation of developers: strong experience, no track record, no deposits, and why banks pass ·       Non-recourse PACE as a way to manage contingent liabilities while growing ·       Fishtown, Philadelphia: 114 units with 15% equity and a senior lender at 85% of the stack ·       Sponsors who answer every question vs. sponsors who answer selectively ·       Saint Paul: adaptive reuse, historic tax credits, a foreclosed note, an opportunity zone, and rent control headlines, all on one deal ·       When the bank could only hold $12M of a $28M term sheet, PACE wrote nearly $16M ·       "Don't think of PACE as cheap equity": flexible, opportunistic senior debt and why the reframe converts ·       $10 to $30M deals and the $100 to $200M checks ·       Florida: a $200M deal with $100M of PACE and a $20M mortgage ·       California and Florida program nuance: resiliency measures that qualify ~65% of hard costs ·       Hotel-to-multifamily conversions and the workforce housing demand behind them   CHAPTERS ·       0:00 Cold open: employee number one, 32 FTEs later ·       0:36 Intro: The Chameleon of the Cap Stack ·       0:54 Today's guest: Matthew McCormack, SVP of Originations ·       1:14 Eight years in: PLG's first hire ·       1:41 Four months of not knowing what a special assessment was ·       2:25 2017: starting the company and realizing it needs staff ·       3:06 Recruited by LinkedIn message and a one-page WordPress site ·       4:19 A tree nut allergy and the first big developer meeting ·       4:34 PLG's top three asset classes: multifamily, senior living, hospitality ·       5:03 Why multifamily works for PACE: every deal has a story ·       6:43 Private-client developers, not institutions ·       7:26 Leverage problem vs. cost-of-capital problem ·       7:43 PACE 1.0: solving the bank's LTC problem when debt was 3% ·       8:39 Today: nearly every deal is coverage constrained ·       9:07 Pairing PACE with private credit to cut the blended rate ·       10:22 The sponsor with 20 to 25% equity and a tapped-out friends-and-family raise ·       11:00 A couple hundred basis points of rate compression ·       11:19 30 months vs. 30 years: the maturity argument ·       12:01 Why a strong refi market makes debt fund money tolerable ·       13:12 The next generation of developers ·       14:00 Non-recourse PACE and contingent liabilities ·       14:40 Fishtown, Philadelphia: 114 units with 15% equity ·       15:28 JLL brings a senior lender to 85% of the stack ·       16:56 The repeat deal: loan servicing sells the next one ·       17:48 Saint Paul: adaptive reuse with five strikes against it ·       19:18 A 1031 fund sponsor, a fee developer, three years to find debt ·       19:50 The bank holds $12M, PACE writes nearly $16M ·       21:04 The same playbook for office and senior housing ·       21:55 PACE 1.0 vs. today: filling the void the market created ·       22:26 Not cheap equity: flexible, opportunistic senior debt ·       24:12 Established sponsors: "we have the money, we just don't want to put it in" ·       25:04 Florida: $100M of PACE on a $20M mortgage ·       26:16 California and Florida program guidelines ·       27:36 ~65% of hard costs as PACE; 50% LTC at 34% LTV ·       28:12 Resiliency, embodied carbon, and PACE as acquisition financing ·       29:25 Past the education hurdle ·       30:06 Office-to-multi and hotel-to-multi conversions ·       31:17 New liquidity for dead motels ·       32:18 Outro