CMBA Preview: Red Oak CEO Gary Bechtel Talks CRE Economics
From September 7th to September 9th, The California Mortgage Bankers Association (CMBA) will hold is 2022 Western States CREF Conference at the ARIA Resort & Casino in Las Vegas, covering the hottest financial topics in the commercial real estate industry.
The first afternoon of the conference will feature an opening session entitled, “Marketing Strategies in the Modern Era”, including a panel of loan originators that is sponsored by Red Oak Capital Holdings. The leader of that firm is Gary Bechtel, who is also the CMBA 2022 Western States Conference Chair.
Bechtel took over as CEO of Red Oak in 2020 to lead the investment management team with direct oversight of all portfolios. He has built an investment platform with $300 million in AUM and nearly $1 billion in funding capacity. He also recently launched Oak Institutional Credit Solutions, a $500 million private real estate financing investment fund created specifically to serve the foundation and endowment investor class. It’s the latest chapter of a distinguished career that includes President of Money360, Chief Lending/Originations Officer at CU Business Partners, LLC, management or production positions at Grubb & Ellis Company, Meridian Capital, Johnson Capital and more. Over his career, Bechtel has been involved in the origination, underwriting, structuring, placement and closing of over $10 billion in commercial debt transactions.
ConnectCRE recently chatted with Gary Bechtel about the upcoming CMBA conference and covered several other topics as well, including the recent economic volatility.
Q: In addition to serving as the conference chair, you also will moderate a panel discussion and interview Hessam Nadji. What are some of the key themes around this year’s conference compared to last year’s?
A: Last year, in addition to the traditional topics such as direction of the market, interest rates etc. there was still a lot of talk of COVID and its impact on the business. This year, while COVID and its long term effects will still be a topic, I think the bigger areas of discussion will be around the economy, the impact of a rising interest rate environment, how inflation is affecting real estate economics and project costs and investor demand in both acquiring properties and investing in debt vehicles. I’m sure a lot of people will also be talking about how all of this will affect the loans within our portfolios and the proactive steps that can be taken to maintaining high credit quality.
Q: The conversation you’ll be having with Hessam Nadji is titled “Recalibrating Capital in a Rapidly Changing Climate.” How would you characterize the challenges for borrowers and lenders in adjusting to these rapid changes?
A: It will of course be different for both. Borrowers will have to contend with a rising interest rate environment, with most lenders getting more conservative in their approach, which will generally produce lower loan proceeds, requiring more borrower equity. Lenders will take a more measured approach, having to be very cognizant of what the future holds regarding future interest rates and economic conditions to make sure that they can be taken out at loan maturity, especially for those lending on new construction and in the bridge space.
Q: In the current environment, do borrowers or lenders have more of an advantage–or do neither?
A: I’m not sure that I’d give either a huge advantage but clearly lenders have the edge as they are still going to be able to put out money, though now with a higher equity component than in recent memory. Borrowers are going to have to bring more equity to the table and can count on paying more for the money they borrow. Lenders have definitely gotten more conservative in the last 60-90 days as rates across the board have increased as the economy shows signs of slowing.
Q: With the current economic headwinds, which specific real estate sectors are more likely or less likely to receive loans?
A: Multifamily and Industrial continue to be the darlings of the industry but even they are cooling down. There are opportunities in other asset classes, with even Hospitality doing pretty well in some markets. Retail, especially Malls and “Big Box” continues to struggle though well located neighborhood and strip centers are still doing well in most markets. Urban Office is still facing challenges with Suburban Office generally outperforming Urban in a lot of areas, a trend that we saw during the height of COVID.
Q: Can you talk a little bit about Oak Real Estate Partners’ recently launched $500 million fund for institutional investors?
A: Oak Institutional is a continuation of our business expansion, focusing on high quality, lower leverage loans and raising capital solely from Institutional sources such as life insurance companies, pensions funds, endowments, family offices, etc. So far it has been very well received and we recently closed our first transaction for it. Institutions continue to look for higher risk adjusted returns in the alternative lending space and this vehicle provides them with an excellent opportunity to gain exposure in real estate and generate higher returns than some of their other investments.
Q: What do you see as the outlook for 2023?
A: I think generally it will be a slower year than is 2022, as this year started off well but has tapered in the last 60-90 days. I unfortunately don’t see anything on the horizon that will change the current trajectory, though the mid-term elections may have some effect. We are essentially at full employment so I’m not sure where growth will come from and if inflation persists, things could continue to slow down as we are already seeing large companies announce hiring freezes or layoffs. Lenders and Borrowers should prepare themselves accordingly!
Mark comes to ConnectCRE with an extensive background as a business and news reporter in San Francisco radio, as well as 35 years as a traffic reporter on several stations including KGO, KNBR, KCBS and KFRC. As a business reporter, Mark covered the tech world in Silicon Valley where he became familiar with real estate transactions in the hot Bay Area marketplace. He attended San Jose State University with a BA in Radio and TV Broadcasting and currently resides in the Lake Tahoe area where he gets to frequently enjoy all of his favorite activities: Golfing, Fishing, Hiking and Skiing.
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