After years of being out of favor following the Great Recession, collateralized loan obligations (CLOs) — pools of below-investment grade loans sold in pieces to investors — are growing in popularity. Now, New York City-based real estate lender Greystone has closed on a $300 million CLO backed by bridge loans on senior housing and care assets.
It’s the first example of a CLO pool that is exclusively collateralized by senior living and skilled nursing loans, Greystone says.
The fund, Greystone’s second CLO, is a complement to the company’s lending activities and other financing platforms, Executive Managing Director Art Hatzopoulos told Senior Housing News.
Analysts have voiced concerns that today’s CLOs have parallels to the collateralized debt obligations (CDO) market in 2007, the collapse of which is regarded as one of the early signs of the Great Recession. However, there are more regulations governing today’s CLOs, and Greystone emphasizes that it is using the vehicles responsibly.
“Our purpose is not to collect a bunch of assets, securitize them and pull fees out,” Hatzopoulos said.
The senior housing CLO gives Greystone another tool to widen the firm’s capacity for bridge-to-agency loans, Corporate Executive Vice President Mark Jarrell told SHN. It is a managed CLO with a 36-month reinvestment term — as loans are paid off, they can be replaced with like-minded capital. It follows a multifamily CLO Greystone launched in March 2017, the first under the Dodd-Frank risk retention guidelines. In March, the U.S. Court of Appeals for the District of Columbia Circuit ruled that CLOs no longer have to comply with risk retention rules. Jarrell’s bridge lending business is laser focused to agency execution: it underwrites to Fannie Mae, Freddie Mac and FHA programs.
“Historically, we’ve used bank, warehouse and repo lines to lever the business,” Jarrell said. “The CLO gives us diversity of financing sources for the business.”
The success of the multifamily CLO led Greystone to move forward with the senior hosing CLO. The firm organized its research in a deck and took it to Moody’s (NYSE: MCO), to educate the investment analyst firm on the senior housing product type.
“We wanted to show them how we source the assets, underwrite them, make our credit decisions and manage the assets,” Hatzopoulos said.
The meeting showed Hatzopoulos that the thinking between Greystone and Moody’s was aligned enough to move forward with the CLO. The firm selected J.P. Morgan Securities as the placement agent, and the offering closed last month, and Greystone made the decision to retain a $90 million stake in the offering.
“We had institutional money investing in the asset class,” Hatzopoulos said. “We think it’s a big deal.”
Hatzopoulos believes Greystone was better suited to execute a CLO because of its robust loan originations business. Greystone is on track to exceed $11 billion in loan originations by the end of the year. Its bridge loan business is on target to place between $800 million and $1 billion in debt by year’s end, nearly half of that total in health care assets.
“Demand for health care bridge loans is growing at a faster rate than multifamily,” Jarrell said.
Written by Chuck Sudo