Private lenders see their moment in the banking crisis

Madison Realty and Fortress Investment Group say they’re ready to step in with regional banks in flux

TRD's SVP of content Hiten Samtani with (from left) Fortress Investment Group's Steven Stuart and Madison Realty Capital's Joshua Zegen

TRD’s SVP of content Hiten Samtani with (from left) Fortress Investment Group’s Steven Stuart and Madison Realty Capital’s Joshua Zegen
(Photo by Alexis Manrodt)

With regional bank stocks in freefall days after the collapse of First Republic, alternative lenders say their phones are ringing.

Madison Realty Capital’s Josh Zegen and Fortress Investment Group’s Steven Stuart say demand for their services has only grown as the crisis rages on. 

“Anytime you’ve got systemic problems in the banking sector it creates huge opportunities for guys like Josh and I,” Stuart, Fortress’ managing director, said Thursday at The Real Deal’s NYC Showcase + Forum.

But Zegen added that private lenders cannot entirely replace regional banks, despite the flood of money that’s flowed into private credit in the past decade. 

“There is going to be a huge void,” Zegen said. “There is huge bifurcation in the banking system between the real big [banks] and everyone else.”

Alternative lenders are known for charging higher rates — often with tougher terms — than traditional banks, but even these players are picking their spots in the current environment. Zegen said Madison has little office exposure and that he sees opportunities in branded residential projects. This week, Madison provided a $340 million construction loan for South Florida developer Dan Catalfumo’s Ritz-Carlton Residences in Palm Beach Gardens. 

Both Madison and Fortress state that they are not interested in extending loans just to take over assets. Their goal, they say, is to get paid back on their loans, despite the perception that alternative lenders tend to be aggressive. 

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“The last thing we want to do is take over the property,” said Stuart.

Earlier this year, Fortress did take over 125 Greenwich, a long-stalled supertall condo development in Lower Manhattan. Fortress acquired the debt on the unfinished project and converted its position to equity as part of a restructuring. 

“We became the accidental owner,” Stuart said at TRD’s forum Thursday. 

Both lenders are closely watching the regional banking crisis. Institutions such as PacWest and Western Alliance are rushing to assure investors that they are on solid footing. PacWest’s stock ended Thursday down 50 percent. 

“I don’t think this is going to be the end of it,” said Stuart. “There are all these fixed assets in the banking system that are now on the market basis underwater.”

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