Q&A With Toorak Capital Partners
Updated: Mar 16, 2022
Toorak is building new spaces in the real estate lending sector.
Just a few years ago, there were very few options for real estate investors seeking to finance single-family rental properties, obtain single- family and multifamily bridge loans, or renovate single- or multifamily properties on an individual versus institutional scale.
But in 2016, John Beacham, CEO and founder of Toorak Capital Partners and founder and former president of B2R Finance (now Finance of America Commercial), decided the time had come to change that.
“Before Toorak arrived on the scene, there really was very little institutional participation in this space. Capital was limited. Interest rates were really high. Loan terms were not particularly good for borrowers,” Beacham recalled. “Just over three-and-a-half years ago, we saw a massive opportunity to institutionalize this space, and we took it.”
Led by Beacham and backed by capital from KKR, one of the biggest private equity funds in the country, Toorak has partnered with more than four dozen loan originators around the U.S. to date.
“As a result of our entry into the small-balance, business-purpose, residential, multifamily and mixed-use lending space and our active acquisition of loans, the market has changed radically and for the better,” Beacham said.
“Capital is available for deals. Lending capital is more plentiful now. Interest rates have come down by more than 200 basis points over the past three years, and the market has standardized and modernized. This has benefited borrowers and lenders dramatically, and we are proud to have been a driver in this process.”
REI INK sat down with Beacham to learn more about how Toorak first entered the real estate lending scene and what he envisions for the company in the coming year.
Q: Who has benefited most from Toorak’s presence in the marketplace?
A: Real estate investors borrowing money and doing deals have benefited the most from our presence, even though most of them may never have heard of our company. We do not make loans directly, but we provide the capital to the lenders who do. We have invested in more than 10,000 loans totaling more than $3 billion to date. If you work with an institutional lender or a local lender in your market who is making loans on your deals, many of those deals are likely to end up being funded by Toorak. We work with private lenders around the country, many of which are regionally focused. They are the lenders who provide loans to local real estate investors, and those deals are powered by capital from Toorak.
Q: From your position “behind the scenes,” what trends are you seeing in real estate that real estate investors should know about?
A: We are currently seeing a natural evolution among the borrower base. Many investors that were doing deals on single-family homes are now doing two- and four-unit properties and multifamily properties instead. We responded to that increased demand for this type of multifamily capital by dedicating $1 billion in capital in 2020 solely to multifamily loans.
Q: That’s exciting! Why did you decide to allocate that $1 billion?
A: Our customer base and our lenders have been asking for this, so we are allocating that capital to their needs along with a significant amount of staff and internal resources. This commitment will provide the level of service our lenders require so that they can make the loans investors need.
We kept hearing from our lending partners that they were getting massive amounts of demand for small- balance, multifamily bridge loans. There just is not a lot of high-quality capital with good terms and solid backing to finance those types of assets. We reverse engineer questions that we get from our lending partners about the types of capital available to figure out what is happening in the market. Then, we develop products to meet those demands.
For example, as a country we have massively underinvested in our housing stock for more than a decade. The amount of new housing being built in this country has not kept up with population growth over the past decade. With the rising difficulty of acquiring well-positioned land and more difficult permitting processes in many areas, new housing has become really hard to build. A lot of the deals we finance directly solve that problem by taking existing properties and adding units to those properties. For example, investors may take a single-family home and turn it into a three- or four-family property or tear down that single-family home and replace it with a multifamily building.
There is also a demand for smaller and denser housing units closer to where people live and work. We take information like this and look at what the borrowers are looking to accomplish on the deal to make sure a deal makes sense. If the core transaction works for both the borrower and the lender, then we (via our lending partners) are willing to support those deals financially.
Q: What is the best thing about working in the lending space that Toorak occupies?
A: We love the fact that we partner with lenders across the country to help them grow their businesses. What is really satisfying is seeing them start off doing $3 million or $5 million of volume each month, and then by working with Toorak and having access to regular, consistent capital, seeing them build up their business over a period of years. In many cases, they may grow to three or four times what the business was before. They are able to responsibly grow their business while maintaining high credit standards, low default rates and very low loss rates across their portfolios. That is what gives us the most satisfaction here at Toorak.
Toorak Capital Partners is an investment manager formed in 2016 and headquartered in Summit, New Jersey. Learn more about the company at ToorakCapital.com or reach John Beacham at firstname.lastname@example.org.