AVANA Companies is eyeing 150 of the biggest metropolitan statistical areas after forming a joint venture with Oaktree Private Credit to provide $250 million in loans
The idea of the partnership is for the Arizona-based company to use the funds to provide debt financing across the nation in the next three years.
AVANA CEO and co-founder Sundip Patel told GlobeSt. that while it is targeting 150 of the largest MSAs over the next few years, there aren’t any particular regions of focus. The real estate lender will follow its clients.
THE FUNDAMENTALS MATTER
“There is still that big bulk of business that we bring in because of our clients, referrals from our clients,” Patel said.
But he did add that fundamentals matter.
“We’re looking at major metropolitan areas and they’re well-defined. We’re looking for demographics that are growing. We’re looking for trends, macro trends, or [a] particular state that’s driving that. Perhaps there’s a technology warehouse center being built, or some sort of chip manufacturing going on.”
Patel also said he hopes the capital deployed in the JV partnership will go up from the announced $250 million to $500 million. And the MSA focus could increase to 200 from 150, he added.
AVANA manages roughly $600 million in assets, which includes a wide range of CRE sectors from retail to office.
EMPHASIS ON HOSPITALITY
Patel said he has been noticing declines in office and single-tenant assets, while the industrial space is stable. But right now, the company has its eyes on the hospitality asset class, a key reason why it formed the JV with Oaktree, which it also teamed up with over eight years ago as well.
“I would say the hospitality asset class is still buoyant and working. There’s a pent-up demand for brand expansion across America,” Patel said.
“We love hospitality, and that’s part of the reason this [joint venture] came together. Our interests are aligned. The thinking behind credit risk is common and shared.”
The hospitality brands that AVANA will remain focused on are Marriott, Hilton, IHG Hotels & Resorts, and Choice Hotels. Patel noted that it could look at other brands as well – but those few are where it’s primarily engaged with, as of now.
The funding through the JV will provide capital via construction and bridge loans across all CRE products, specifically for small and medium-sized enterprises. According to AVANA, the partnership aims to create employment opportunities and boost local economies.
RATE CUTS WON’T CHANGE AVANA
Of course, CRE as a whole in the past couple of years, has gone through some pain. With high interest rates, the appetite to make deals hasn’t always been there. That forced AVANA to change its strategy.
“We [didn't] stop lending when rates went up,” Patel said.
“It just meant we had to get very creative and also be more picky on the type of borrowers we wanted in our portfolio because you still have to stress test their ability to meet cash flow and debt service requirements on a particular project.”
Now, the Federal Reserve is set to start cutting rates, which is anticipated in September. While Patel thinks action from the central bank will provide a boost to lending activity it won’t shift the company’s focus going forward.