btw to summarise, from the point of view of bridge lenders that issue "capital call" to multifamily it seems they are very well positioned financially to handle this multifamily downfall, this is not unpredictable but rather already assume by the fund manager , so, through active management the (institutional) investors into CLO seems would NOT see losses. The CLO manager could just buy the property out from their reserves ; and/or resell to different GP group and/or keep modifying the loan and transfer the CLO into future CLO package (move current debt into future debt) and/or they could refinance the entire loan with agency loan.
Most of these individuals asset are IO only anyway, with range of LTV between 65-75% from as-is DSCR of 0.25 to 1.50x so the risk is well known. Most of GP also has interest rate cap. That itself is already interest income to the lender.
There's extremely sophisticated bond agency review that review everything to the point that the risk rating for every apartment is known before the CLO is being sold.
my opinion: The more I researched about this the more I understand this is like tug of war between debt equity orchestrated and financed by wall street banks vs common people LP equity in the middle. The winner is obviously Wall Street. They want to be paid only by rate of 7%.
I would say in multifamily area the biggest winner in term or risk/reward profile is the lender ; then the CLO buyer that receive 7% ; then the GP's that has equity and then the LP.
The lender is in good position because the spread between CLO buyer and Fed note is only 2% !
And Think the LP that need to generate business and make profit of 5-7%.
What's being funny is actually from the lender side of business they calculate the MF in historical basis -- when rate is not changing, the minimum IRR is at 7.1%. So between dividend of 7% and IRR of 7% that's historically not significant difference. I have been thinking about these over the years how come those financial institution could still alive with all the financial trouble.
.......
As side note, I am able to find out whacca really going on with Ashcroft like in this thread, the problem in this GP is there're too much over-leverage with not too much equity where their stabilized DSCR is 0.80x ; at the same time, bond agency rated their NOI target is off as wide as 30%. But this kind of risk profile has been addressed prior to the sale of its CLO issuance so nothing is unknown (
here's their analysis:
The sponsor for this transaction is LP serving as the guarantors. As of July 2022, the guarantors reported a combined net worth and liquidity of $169.3 million and $24.5 million, respectively, resulting in low respective loan multiples of 0.46x and 0.07x. Additionally, the borrowing entity consists of 10 TICs with syndicated equity, with key principals accounting for 7.5% of the total equity. As such, it applied as Weak sponsor strength in its analysis.
The as-is and as-stabilized appraised values of $457.8 million and $575.0 million yield as-is
and as stabilized fully funded LTVs of 73.6% and 63.6%, respectively, indicating relatively high initial leverage.
Based on elevated leverage, the portfolio’s suburban locations, Weak sponsorship, and other credit
metrics, the loan has an elevated loss that is higher than the pool average.
