Kevin O’Grady, the longtime Miami-based real estate dealmaker and investment banker, is dismissive of all the doomsayers who say the real estate industry is headed for a dark period. The co-founder and principal managing director of Concord Summit Capital expects a relatively quick recovery for even some of the hardest-hit asset classes.
“I think offices will go back to normal within 18 months,” O’Grady said last week as he discussed where he believes the market is going. “I think workers will return to their urban cores in the major cities. I think offices will continue to be strong.”
Lots of people say they know how the coronavirus will affect real estate. Few of them, though, have navigated as many seismic market shifts as O’Grady. During his 40 years in the business, he has arranged the debt and equity for scores of mega building projects nationwide, from Hollywood high-rises to Las Vegas hotels to Miami condos. Over his career, O’Grady has been responsible for $20 billion in structured finance.
O’Grady’s extensive experience is partly why he’s skeptical of the gloomiest projections. Laid-off workers becoming independent contractors and never returning to the office? He’s heard it before. According to O’Grady, during the Great Recession in 2008, pundits predicted the same thing. He says office buildings didn’t disappear then, and they won’t disappear now.
O’Grady isn’t just making prophetic statements. He’s laying down big bets on the industry. Last year, O’Grady teamed up with Summit Investment Management and Concord Wilshire to form a unique hybrid company headquartered in Miami.
Concord Summit Capital has three divisions. One arranges financing for commercial real estate projects, primarily for value-add operators and developers; the second, headed up by Summit Investment, focuses on purchasing nonperforming debt and distressed assets; and the third is a fund unit overseen by Concord professionals that invests in commercial real estate debt and equity structures.
O’Grady said the company was designed for versatility, generating income in volatile markets as well in upward-trending market conditions and serving a wide range of sponsors and investors. He said that for years he often felt constrained within the culture and business model of large brokerage companies whose equity or debt funds were allocated only to specific product types and designed for upwardly trending market conditions. Prior to the pandemic, he began noticing “fractures and stress points” in various asset classes largely due to the takeover of the debt markets by the debt funds and structures with very aggressive loans and debt points.
“I think a lot of people were predicting we were going to be moving into a down cycle, pre-Covid,” O’Grady said. “If that were the case, I wanted to be represented in both sides in earnest this time. If you have debt going bad in the marketplace then I also wanted to have a vehicle for purchasing that debt, and a lot of that debt has real estate workout capabilities in addition to the upside from financial engineering.”
Concord Summit is operational just in time to participate in the feeding frenzy for the glut of distressed properties that nearly everyone expects to hit the market in 2021. But O’Grady is quick to note that the market isn’t exclusively about distressed assets.
His message to investors and developers is this: Opportunities exist for the people who adapt quickly and don’t panic.
He expects the new or exiting administration and Congress to issue another stimulus package. He also anticipates a Covid-19 vaccine arriving in the not-so-distant future, along with programs that will move efficiently to foster a quick recovery. In the meantime, plenty of developers and landlords will require access to capital. O’Grady and Concord Summit plan to help.
O’Grady said Concord Summit is closing many bridge-to-perm financings through debt funds for various product types, but particularly multifamily assets. The company has produced fully committed financing for multifamily projects in Jacksonville and Tampa, he said. Another in Orlando is 90% committed.
Concord Summit has also ventured into single-family housing rentals, which he says have become “the darling of the investment community.” Everyone in the market expects that in addition to social shifts leaning to rental, millions may lose their homes and move into rentals, similar to what happened in 2008. In addition, he said that the Covid situation has pushed a lot of people to be more concerned about self-determination and control over ones’ environment, and a single-family rental still allows that versus being in a multi-tenant building.
In addition to residential properties, many hotel segments are hurting. O’Grady and his colleagues have addressed this by creating ground-lease packages that value many properties at pre-Covid levels. The loans are designed to help struggling hotels pay down their notes and remain financially viable in order to weather the pandemic.
O’Grady said too many people fear travel, and that trepidation won’t disappear overnight. He expects hospitality to require a slightly longer recovery period.
For limited-service hotels, O’Grady said that Concord Summit has a program to help convert them to affordable housing. He added that because many of these hotels come equipped with kitchenettes, conversion costs are lower. And since they enable people to cook on-site, they often qualify for government-sponsored financing.
“These converted hotels make for a nice package,” O’Grady said. “You can put them together and move them from beginning to end on some type of an exit on a sale.”
O’Grady looks forward to the chance to compete in a post-pandemic world with the company he helped create.
“We feel we’re ideally suited for any type of market condition,” O’Grady said. “We can make money, rather than being just a brokerage and wearing 30- or 40-degree blinders. That’s why I formed the company. Given where I’m at, and at my age, this is really kind of where I’ve always wanted to go.”
Click here to see how Concord Summit is bringing capital to the community.