Arbor and Multifamily Bridge Lending
Interested if people have views on Arbor as a bridge loan underwriter? We have been looking into the multifamily bridge loan space across some of the public companies involved and it's hard for us to see how Arbor doesn't have pretty meaningful problems. The company says otherwise but they really don't release sufficient data to tell what the heck is going on. Any views from the field on this topic?
I don't know the details but I do know they lend on some shitty ass assets.
Thanks MegaChad. Are you referring to any particular assets/markets/structures?
Arbor is bottom of the barrel as far as agency lenders go. I know their bridge holds a TON of loans that aren't doing so hot. Fannie/Freddie themselves don't like Arbor. I have friends that worked there and ended up leaving rather quickly (they were at their previous shops for a long time).
Very interesting because if Arbor loses its preferred status with Fannie I think they are in big trouble.
I'm active in the acquisitions space. Recently reviewed a ton of deals where operators where unsophisticated and is in deep pain (Debt Service > NOI) even with the rate caps. Assets were also old and crappy. Some are even older than 1960.
Arbor specific assets Megachad?
I'm trying to do a realm of reality re-underwriting on their portfolio. They claim LTVs around 75% but securitization documents indicate more like 85% at origination and I don't think you have much in the way of rental increases from assets purchased mid 2021-mid 2022.
1. From a 30k foot view what kind of cap rate do you think would be appropriate for valuing these assets in today's environment? Doesn't seem like there is any shortage of distressed CRE assets for buyers to bid on including multifamily properties.
2. Tied to the question above - what are realistic loss rates on these types of loans. Assuming 85% initial LTVs are 15% losses on loan principal realistic in this market fully loaded for transaction costs, etc...
Most Sunbelt Value add multifamily deals purchased before q3 2022 have seen rent growth ranging from 10-30%.
And cap rates ranging from 4.5% for new construction in Nashville to 7% for a 70's build with no meat on the bones.
Imo
Cap rates 7 - 10%
Bad deals on the horizon with potential losses above 20% - 70%+ of their portfolio
Arbor borrowers are exposed without rate caps and are bleeding out first. If they could have refinanced out of an arbor loan, they would have done it already.
And yet the stock trades well above book value prior to taking any write downs. Pretty crazy.
I also work in the multi acquisitions space and lots of lots of arbor deals have come across my desk recently that are in big trouble. I've been wanting to find an entry to shorting the stock so this recent runup is a blessing. Planning to wait through this earnings before really adding to the position as I think they can ignore the inevitable for at least a little longer.
85% LTV at acquisition is correct when you factor in the draws for VA programs.
Used to work there in their bridge group.
It seems there is a lot of people in the market looking for data on Arbor and their various platforms. I’ve been reached out to on LinkedIn by Hedgefunds and “Market Research” firms for paid surveys.
I’m assuming you, along with others, are trying to take a short position against the stock. There’s already a few hit pieces out there but overall I agreed with your sentiment on valuations/asset quality.
Well I'm looking at the stock as potentially mis-valued. I wouldn't say I'm looking too short as much as I'm looking to figure out if the stock is illogically overvalued. If you go looking for an outcome you are almost sure to find supporting data whether it's really there or not!
I saw the Ningi short report you mention but I didn't find it compelling. They make vague allegations but I couldn't really follow the thread. I suspect if Arbor equity is a short it is because the stock is simply too high relative to emerging signs of credit stress which the market is ignoring. I don't think you need the corporate malfeasance Ningi alleges for this to be a dangerous long investment at current stock prices (over $16). If anyone has thoughts on the Ningi allegations I'd be interested to hear otherwise but I think their report is more distraction than core thesis.
As someone who used to work in their bridge group, would you say losses of 15-20% is a realistic scenario given market conditions, underwriting quality, etc..? Because that would pretty much wipe out their equity.
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