Where is Fairbridge lending – and why?Apr 5, 2023
Fairbridge Asset Management’s real estate lending portfolio now spans 15 states. However, this wasn’t the case just a few years ago. At the height of the COVID-19 pandemic, our team lent almost exclusively to clients within driving distance of our headquarters in Darien, CT.
The Fairbridge underwriting process includes personally visiting every property we lend to and meeting with the sponsorship group. During COVID, borrowers in the northeast of the United States accounted for 100 percent of loans. Most of these states also happen to be judicial foreclosure states. In a judicial state, foreclosures must go through the court system, which can often be a lengthy and expensive process.
For a bridge lender that issues real estate-backed loans, a potentially long and complicated foreclosure process needs to be part of the underwriting process when lending in judicial states. This is partly why our due diligence process is so exhaustive and in-depth. We want to have maximum confidence in both the project and the borrower, and will alter our loan-to-value in judicial states to account for the longer and more complicated foreclosure process. Our team has extensive experience with this process, as three of our four principals are also attorneys.
When the pandemic cooled and everyday air travel resumed, the Fairbridge team began actively pursuing clients in non-judicial states, such as Texas and Louisiana. In non-judicial states, foreclosures don’t have to go through the court system, which can speed up the process of foreclosing on the collateral for our loans. Whereas a judicial foreclosure can take anywhere from 18 months to more than 3 years, a non-judicial foreclosure can be executed in many cases in less than six months.
While non–judicial states are more attractive from an investment recovery and risk mitigation standpoint, this doesn’t mean we’ve stopped pursuing judicial state deals. At present, the NY/NJ/CT region still accounts for around 55% of our portfolio. At Fairbridge, real estate is a local business, and we will always be motivated by relationship-driven opportunities in proven markets that we know well.
Today, we maintain a more balanced, diversified portfolio in 15 states. This strategy proves we can work successfully in both judicial and non-judicial states. However, it should be noted, it rarely comes to this – another byproduct of our careful underwriting process.
In our experience, with 40-70% loan-to-value ratios, borrowers have a lot of equity in the property and do not want to lose it. Usually, they just need time to recover from unforeseen challenges, and with our low LTVs, accommodating repayment extensions or restructuring loans on a case-by-case basis will not threaten our core business and collateral protection. In fact, it can often be accretive to our LTV as we sometimes take additional collateral as part of the restructuring process.
Moving forward, while we will look to add a few more states to our lending portfolio, our goal is to further penetrate the existing states we are currently lending in to leverage our knowledge of the region and existing borrower base. No matter where we lend, Fairbridge Asset Management is in the market to pursue three goals: protect investor principal, maximize returns and help our borrowers succeed.