Cory Johnson is Co-founder and CEO of Pender Capital and sat down with us to discuss pandemic pivots, assessing risk, and "make sense" lending. The alternative income and capital management firm is Los Angeles-based, and looking ahead to the opportunities that the Covid environment has created.
Q: Tell us a bit about Pender and your role there.
A: Pender Capital is an alternative credit manager and industry leader, providing fixed income alternative solutions for Financial Advisors, University Endowments, Family Offices, and Pension Funds. Through Pender’s lending platform, focused on senior position Commercial Real Estate bridge loans within the lower mid-market and small balance sectors, Pender strategically plays in an underserved and highly fragmented market segment that allows us to capture attractive returns, and in many cases, what we perceive to be mispriced risk. We saw early on that the majority of lower market bridge lenders were geographically constrained and were able to capitalize on an opportunity to provide investors a more diversified portfolio of loans across the domestic United States, currently having loans in 24 states relatively evenly spread across the country.
Pender Capital has always prided itself on what we perceive as “Make Sense” lending, ensuring that our senior position loans, which are generally around 65%-70%, provide our investors downside protection with 30-35% of equity dollars before our first dollar of debt. In fact, our company mantra since inception has been principal preservation first, yield generation second. We have built a very sizable origination platform within the markets we lend in, and that has allowed us to be extremely selective of what loans we decide to ultimately fund.
Through several distressed Real Estate repositing funds, I had founded post-financial crisis, and prior to Pender, I realized that in many cases, the deals we thought were going to be “home runs” turned out to be “singles” and many deals we thought were singles ended up being home runs. I have kept that same level of thinking as our job as debt providers is always to provide risk-adjusted returns, no need to take excess risk on any asset, and ultimately fund deals that make sense in accordance with our fund principles. We had said many times pre-Covid that there is no sense taking an equity-type risk for a debt-type return, which ultimately massively benefited us compared to some of our peers that decided to take on additional risk to generate returns rather than have a tough conversation with LPs and inform them of what is happening within the market, even if it means resetting expectations. In short, tough news travels first to ensure we are on the same page with our LPs.
Q: 2020 changed nearly everything- what pivots did you need to make, and how have you approached things differently since the pandemic?
A: 2020 was a difficult year for many of us and especially those involved in the Commercial Real Estate sector. When the country went into various stages of lockdowns in March, we acted very quickly, reorganizing our staff, and being very transparent with our LPs. We believed 2020 was going to become challenging rather quickly. As we made the decision almost immediately that we weren’t going to be originating any new loans for an indefinite period, we moved our entire senior origination and operations teams into assisting our asset management team so that we had a firm grasp on what hardships our borrowers were facing at the asset level. I believe this approach gave us a strong understanding of the circumstances each individual loan was facing and allowed us to take quick, decisive action in the weeks and months that followed.
Fundamentally we have returned to an environment where there is a considerable opportunity for Commercial Real Estate bridge loans as many borrowers face more uncertainty from traditional capital sources.
Q: How do you see the industry changing as we move forward?
A: We have seen the lending world shift back to more lender favorable terms at reduced risk levels with loan covenants and structure resembling early post-crisis levels. We believe in the short run there will be a compelling opportunity for well-capitalized lenders to capture an increased demand for shorter duration loans with significantly fewer competitors across the board.
Q: How is the COVID environment affecting your investment strategy from an opportunity perspective?
A: We see tremendous opportunity in the CRE bridge lending sector in 2021. With increased borrower activity, uncertainty in traditional permanent debt financing, and decreased sector-specific options, we are very excited about the potential for significant growth for our vehicles over the next 24 months, which Pender is very well positioned to take advantage of. With senior bridge loans being originated at wider spreads with lower leverage points, we believe there is tremendous potential to capture this mispriced risk and generate attractive yields to LPs.
Q: Since everyone seems to embracing the “work from home” trend, if you could work from “home” anywhere in the world, where would you be?
A: Call me old-fashioned, but I genuinely prefer the office environment that promotes energy and immediate collaboration. I hope that collectively we can return to the office in some capacity sooner than later. That being said, I wouldn’t complain about working from a mountain ski town for a period of time!
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