Sourcing True Success in Housing

Today’s first order of business for Stephen Rosenberg, CEO of commercial real estate lending, investment, and advisory firm Greystone & Co., is simple, but it may catch the uninitiated by surprise. It is not, for example, allocating the approximately $30 billion in assets that his company manages, nor is it coordinating a high-profile meeting between the executives who lead his 34-odd company offices and some 8,000 employees. It is not even (although this is a close second on the list) a close review of the due diligence on history-making loans to help create affordable multifamily housing in some of the most astronomically unaffordable markets in the country. This morning, as soon as we’re done with our interview, Stephen Rosenberg is off to provide some personal assistance to an employee in need before getting on with his to-do list and his day.

“This firm runs on logic, except when it comes to the way we care for people in distress,” Rosenberg said. “When people are not treated fairly, when someone’s ‘rainy day,’ so to speak, is today, then that becomes my priority.” That “someone” can be a client, an employee, or anyone in need. “I was brought up to understand the only things that really belong to us are the deeds we do, good or bad,” he added. “Those seeds were planted early by my parents, and I’ve spent my life living that my purpose is to love and do for others.”

Rosenberg’s values have been proving themselves for more than 30 years on an increasingly large scale. Greystone & Co.’s foundation was, literally, two filing cabinets and a spare door: the desk at which Rosenberg sat to make calls to the owners and managers of HUD-insured multifamily properties in default.

“We had to call them. Nobody else would call us back!” he recalled ruefully. “I had to develop an expertise that was better than their other options, and that became our specialty: working out defaults of apartment buildings.” Greystone has been in the business of problem-solving ever since.

One of Rosenberg’s stated goals is to make Greystone & Co. one of the best places to work in the industry. Here, he confers with Serafino Tobia, Greystone’s head of CMBS trading.

The Growth Factor: Giving

From the very first loan workout, Rosenberg’s philosophy was enacted in full force. “Every year, no matter how well (or not) we did, at least 50 percent of our profits went to charitable causes, helping others and enhancing lives.” The company has never raised any outside equity, unusual in this sector.

“We’re a principal lender with a loan servicing portfolio of about $26 billion and we have never gone outside to raise equity. We always invest whatever profits we make, however meager or substantial, back into the company and into the lives of others,” Rosenberg said.

Over time, Rosenberg was able to expand and contextualize Greystone’s philanthropic vision in several sustainable and profitable ways. Perhaps most notable in this regard is the nonprofit Harmony Housing, a 501(c)3 focused exclusively on the acquisition of affordable housing assets nearing the end of their initial tax credit compliance periods, meaning the cost of living in those developments could rise, sometimes astronomically, in the near future and dramatically alter the lives of many residents.

For example, in mid-2017, Harmony Housing acquired three multifamily properties in Texas with a total of 862 units. The acquisition was funded largely through the entity’s own revenue, and Rosenberg and his colleagues expect the investment to not just increase the number of affordable housing units in the Harmony Housing portfolio by 20 percent but also to yield strong returns on its own after renovations and repositioning.

“This type of acquisition both furthers our goals for providing a good, affordable lifestyle to residents who need it – often the elderly and disabled – and to create a sustainable model for enhancing the property without taking it out of the range of affordability for residents,” said Rosenberg. “Many buyers look for properties that can be taken out of the affordability criteria and into market rates. That is not what we do with Harmony Housing.”

Stephen Rosenberg sees opportunities to help investors and improve access to housing everywhere, even in the most expensive markets in the country.
(View: Central Park from Greystone & Co. headquarters)

An Eye for Opportunity and an Ear for Solutions

Harmony Housing may be a nonprofit but make no mistake: Greystone & Co. itself is dedicated to the growth side of the equation as well as the giving side. The company provides financing for deals as small as $900,000 (for example, a mom-and-pop real estate company buying a six-unit brownstone) to hundreds of millions that might be used to help a real estate investment trust (REIT) refinance a national portfolio or a developer create an entirely new and desperately needed multifamily community in an attractive area.

This eye for opportunity translates to an ability to create new developments and resolve problems in existing ones. That ability directly correlates to the firm’s ongoing growth and portfolio expansion.

“A recurring theme for us in our own property development projects is that there are usually one or even several challenging issues that make others want to avoid the project,” Rosenberg observed. “We go in aware of those issues and undertake the projects with their resolution in mind.”

The Future: Leveraging Industry Upheaval and Filling a Desperate Need

These days, Rosenberg’s eye for opportunity rests squarely on skilled-nursing facilities. Greystone is already one of the nation’s largest providers of funding and financing to nursing homes and skilled nursing facilities, and the company owns and operates about 3,000 beds.

“That industry is going through a lot of upheaval right now,” Rosenberg observed. “We are launching an effort on behalf of some of our clients to acquire more of these properties over the next couple of years. We might acquire 100 or even more than 200, so it will be an area of great expansion.”

He explained where the opportunity comes into the sector: “A lot of the largest operators in the country are realizing they just can’t operate in every state anymore because hospitals only want to do business with skilled nursing facilities that provide a really high level of care. In today’s world, good care is not enough for state regulators, and standards still vary state to state. Every state has its own personality, and every regulator is different.”

As operators exit their facilities in some states, Rosenberg noted many buyers do not “have as much experience as they should have to run their new investments, and that creates trouble for them as well.” Greystone & Co. is poised, thanks to its history with nursing homes and skilled-nursing facilities, to leverage this industry-wide instability, acquire the distressed assets, and return those facilities to a level of high-quality care.

“Thankfully, we’re really better positioned than any company in the country to address this,” he said proudly. “There will always be incredible opportunity wherever there is industry instability, and real estate investors tend to be the best-prepared to identify it, leverage it, and remediate it.”

The Deals in the Details

Part of Stephen Rosenberg’s vision for Greystone & Co. has always been that the company would lead the way in bringing new investors into the real estate sector along with new concepts, strategies, and solutions. This has created a vast history of creative deals and innovative lending on a grand scale.

“Our goal, from the beginning, has been to take a product that seemed intimidating, those HUD loans and other large-scale lending programs, and really make them accessible to the mom-and-pop real estate owners,” explained Judah Rosenberg, Stephen Rosenberg’s son, a vice president at the company, and an experienced real estate analyst entrenched in HUD lending.

Greystone & Co. routinely brings underwriters to what Judah refers to as “the front lines” to meet with clients directly and best assess their needs, and the company’s focus on transparency throughout the entire application process has the pleasant side effect of creating some of the fastest closing times in a notoriously slow industry.

The company does more than just boast short timelines; a recent pilot program designed to expedite the loan process closed three deals in four months, whereas this type of lending often takes a year or more to close.

Below is a small cross-section of the types of deals Greystone & Co. facilitates on a regular basis.

“Greening Up” in Raleigh, North Carolina

This transaction involved a $29.2 million Freddie Mac Green Up loan, a 368-unit multifamily property in Raleigh, and residents and borrowers committed to energy and water savings. Greystone originated the loan on behalf of one of the largest publicly traded REITs in the country. The terms provide both attractive returns and an attractive philosophical angle for REIT investors, who value the energy savings for environmental reasons as well as how they translate in the bottom line.

Affordable Housing Rehab Hangs On in Newark, New Jersey

Greystone & Co. combined efforts with Hudson Housing Capital and Freddie Mac to finance a $160 million effort to upgrade 842 subsidized housing units in Newark, New Jersey. The development serves seniors and residents in deep poverty who may pay as little as $80 a month in rent because their incomes are so low. Financing this type of upgrade project is vitally important to communities with a scarcity of affordable housing because without financial wherewithal to upgrade the units, the inventory will either eventually be lost to neglect and disrepair or “gentrify” out of existence to make way for higher rents. Making upgrading these types of units both affordable and attractive from a returns standpoint is crucial to serving the housing needs of an increasingly large portion of the population.

Growing a Portfolio in Williamsburg, Brooklyn

On the “smaller” side of Greystone’s lending operations, the company recently provided $13.3 million in Freddie Mac financing for a 24-unit apartment building in Williamsburg, Brooklyn. The loan enabled the sponsor to permanently exit construction financing after building the competitive new rental property. Construction loans are short-term and intended to finance the building phase of a project. They tend to have higher interest rates and are perceived as higher risk. Entering permanent financing enables an investor or investment group to reduce carrying costs once the project is complete.