On Thursday, September 12, 2019, the Cornell Baker Program in Real Estate welcomed Cornell Alumnus Matt Mitchell (ILR ’97) back to campus as its featured speaker in the second Distinguished Speaker Series event of the Fall 2019 semester. Matt is the Co-Founder and Co-Managing Partner of SteepRock Capital, a real estate investment firm based in Greenwich, CT. Matt, and partner John Bucci, founded SteepRock Capital in 2010 to focus on both mezzanine debt and direct equity investments. Since inception, SteepRock has acquired over $890mm of debt positions and has owned several hundred million dollars of real estate. The company currently has approximately $454mm of real estate debt investments under management. Matt currently sits on the Cornell Baker Advisory Board, has contributed as a Shark in the Baker Program’s Real Estate Shark Tank, and has been a prior Distinguished Speaker Series guest.
Prior to founding SteepRock Capital, Matt was an Executive Vice President and Principal at Colonnade Properties, LLC, where he focused exclusively on debt lending and asset management in the office building space. Matt’s vision in founding SteepRock was to pursue debt and equity investments across all asset classes. His diversified vision has resulted in equity positions in 222,000 square feet of retail, 3.75 million square feet of industrial, 3,894 units of multifamily, 2,226 hotel keys, and 732,000 square feet of office space. While it does have a strong portfolio of direct equity investments, SteepRock’s focus remains mezzanine debt lending, and Matt presented some of their current loan positions and highlighted a $5 million mezzanine loan on an apartment complex in Austin, TX, where he is projecting a 6.3% debt yield. He also discussed a $6.02 million loan on an industrial complex in Sanford, FL where he is projecting an 8.53% debt yield. He is particularly focused on the industrial and multifamily spaces currently, and in the debt world, Matt believes that maintaining diversity in location and markets is critical.
Much like the rest of the commercial real estate industry, the mezzanine debt lending space relies on relationships when it comes to sourcing capital. SteepRock maintains accounts with two life insurance companies, Delaware Life and Guggenheim Life and Annuity. While most life insurance companies are conservative investors, SteepRock has enjoyed its experience with these two companies as they are a bit more aggressive. Additionally, SteepRock raises a fair amount of capital from private equity funds, real estate investment trusts, and other investors, including KKR, RockPoint, and Gramercy Property Trust, which was acquired by Blackstone in October of 2018. Currently, Matt prefers longer-term partners rather than PE funds, which generally have finite fund lives. The maturity of most of SteepRock’s construction and mezzanine loans range from two to ten years and are a mixture of floating and fixed loans. They range in amounts, from the $5 and $6 million loans mentioned previously, to the $15 million mezzanine loan SteepRock currently has on a hotel near AT&T Stadium in Plano, TX. With interest rates at historical lows, and with the prospect of further cuts at the next Fed meeting, Matt has seen a huge surge in debt issuance. He believes people are viewing this period as their last opportunity to re-lever in expectation of a recession on the horizon or rising interest rates.
After providing an in-depth look at SteepRock’s portfolio, Matt dove into the nuts and bolts of mezzanine debt, and why he prefers it to senior debt positions. In general, mezzanine debt is subordinate debt that closes the gap between equity and senior debt. SteepRock’s provides financing where the senior mortgage cuts off, usually around 65% of the total value of a project (LTV). These positions finance the project up to the point that borrower equity begins, usually around 85% LTV. As mezzanine loans, Matt described how SteepRock’s loans are secured by a pledge of the borrower’s ownership interests in the property, rather than a lien on the property itself as in a traditional mortgage. Therefore, in the event a borrower ceases to service the mezzanine debt, SteepRock can foreclose on the ownership entity itself through a Uniform Commercial Code auction. In UCC auctions the lender can advertise and auction the property itself, which is much quicker than a traditional judicial foreclosure, usually taking 30 to 45 days from notice to completion. Faced with such a quick foreclosure risk, borrowers are usually quick to service their mezzanine debt. Due to the fact that a property can land in SteepRock’s hands so quickly, it does not lend on properties that it would not want to own. Matt gave an example of this by recounting a mezzanine position SteepRock took in is the new private jet maintenance and sales center, a $100 million, 300,000 square foot building at the Miami-Opa Locka Executive Airport. Matt believes that, in the unfortunate event in which SteepRock was forced to takeover the property, it would nevertheless be successful with the increase of Amazon’s air traffic and the international growth of the City of Miami.
The Baker Program would like to thank Matt Mitchell for his continued investment in the betterment of the Program. We are already looking forward to his next visit and wish Matt and SteepRock Capital continued success.
