This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.
When the Federal Reserve’s interest rate hikes threw commercial real estate into a tailspin, lending plummeted. Multifamily mortgage borrowing was forecast to drop to $442B in 2023 — a 46% decline from 2022’s total of $816B.
In a market colored by lenders’ hesitancy to deploy capital in a shaky multifamily industry, Marcia Kaufman took the opposite strategy when she took over as CEO of Bayport Funding in January 2023. It’s the advice she gives to other lenders struggling with sector headwinds.
“Don’t be delusional, right?” Kaufman said. At the same time, “Don’t be afraid to lend.”
Bayport Funding is a New York-based boutique lender and investor that specializes in the fix-and-flip model in the multifamily space. It has funded more than $1B in loans since its inception in 2012.
Bisnow spoke to Kaufman about where Bayport is pointing its ship as a multifamily lender at a time when the hurricanes keep coming.
This interview has been edited for length and clarity.
Bisnow: How has Bayport shifted strategy from the past two years to now?
Kaufman: During the boom time, everybody’s a hero. What really defines a strong company is how you perform during tenuous times.
So, when Covid happened, we pivoted to asset management and our portfolio performed great. As the Fed started the campaign for interest rate hikes, there was a lot of change in banking.
Over the past few years, we’ve been adhering to our existing guidelines and fundamentals. Our proof of concept is reflected in our strong performance and portfolio. We’ve also expanded our box to include multifamily mid-construction refinances for loans that are reaching maturity from other lenders and need additional time to complete their project.
We just tightened up underwriting accordingly. We really rely on the sponsor experience. We’ve always relied on it. And we’re looking to the sponsor’s liquidity for debt service more so now than before.
Bisnow: What advice would you give to other lenders who might be struggling with the current market headwinds?
Kaufman: Stay in touch with all their customers, not just the customers who are having a difficult time.
Sometimes bad things happen to good people. It doesn’t mean that they won’t work through it. You have to see if you can work through them. If it’s somebody who’s just so far under they’ve given up, then the best thing to do is take that asset back and try to churn on their own. Don’t be delusional, right?
And for new business, don’t be afraid to lend if you’ve done your due diligence properly, if you believe in the sponsor, you believe in their business plan.
For example, don’t be a fix-and-flip lender for someone who’s going out and fixing, flipping properties, and then decide, “Oh, I’m going to be a big multifamily lender.” They’re completely different loans and underwriting. So stay in your lane, definitely.
Bisnow: There is an affordable housing crisis sweeping the nation right now. I wanted to know, where do you see lenders’ roles and responsibilities as it pertains to the housing shortage?
Kaufman: New York taking away 421a really hurt affordable housing because if you do 421a, the developer has to have a certain percentage of those buildings to be affordable to have that abatement.
New York state did away with it, so where’s the sponsor incentive to go and build affordable [housing] now? They have none. So we hope it comes back. And we really support those projects big-time. We do lend a lot to sponsors who are building affordable, multifamily housing, but there is a shortage.
I hope that New York state brings back their conversation about it, some type of program that mimics the support [of] 421a.
If the local governments don’t come in and put some incentive programs out there then you’re not going to have the developers come in to build to that, and therefore the lenders have nobody to lend to.
Bisnow: What do you look for in a favorable project? What must stick out to you besides demand?
Kaufman: Is it customary to that geographic location?
For example, we recently had a project come across our desk, and they were building on the west coast of Florida. And the sponsor wanted to build seven attached townhouses, and it was within a geographic area where the only type of properties were single-family detached homes.
And that’s one of the things that we look for as a customer. We don’t want to have a white elephant. We want something that they can either rent out or something that will easily sell.
Otherwise, they’re never going to take their money off the table or get out their debt or pay us off. So that’s something that really sticks out to us.
Bisnow: So is there a certain sector that you think lenders should be focusing on?
Kaufman: Student housing and affordable housing are very strong. Workforce housing is a very strong sector. People are really putting something into workforce housing.
We’re seeing a lot of trends toward multifamily housing around major transportation hubs like Florida. Millennials moved down there and they want to live in an urban area, and they’re accustomed to taking public transportation. You’re seeing a lot more multifamily developments go up around the Brightline.
Bisnow: I was reading about what’s going on with Atlanta’s BeltLine, and how many multifamily units and projects are popping up around there. And it’s so interesting to see how Atlanta’s in the middle of this huge transformation around the BeltLine.
Kaufman: Exactly. It’s exactly the same thing. And I’m familiar with that, and we’re seeing a very big draw.
We saw that, by the way, in Journal Square in Jersey City, right? Access to the path. And look at all the big developments that went up over there. Take a look at Kushner. They moved there, and they actually built out a bar and other areas right around those major transportation hubs.
Bisnow: From New York to Jersey City to SEPTA development. And Mayor Wu in Boston is also advocating for affordable housing development near the commuter rails.
Kaufman: It seems you and I travel in the same place, because I was also just up in Boston looking at multifamily in the area around the commuter rail. So it’s very funny. So, where else are we going next?
Bisnow: Well, I’ve gotta make it to Philly and check out Wawa.
Kaufman: If you were on my partner call yesterday, you heard me saying that we’re doing more and more and more business in Philly.
Some of them are multifamily, a couple of single-family, but our concentration of our book is really in Philly.
Bisnow: As a woman, how have you seen the environment in your industry change over the years?
Kaufman: Around 2011, I started buying one- to four-family properties in Brooklyn, Bronx and Queens, basically [fixing] and flipping it. And honestly, there were no women doing it at that time.
I opened up and got licensed as a real estate broker because I wanted to be able to sell my own properties after I renovated them.
Nobody understood, you know, who Marcia Kaufman was. Today, they will know who Marcia Kaufman is. I competed with the best of them. My office was the biggest. I owned a lot of properties. I sold a lot of properties. You have to earn people’s respect. And the best way to do it is to work long hours, digging deep.
Bisnow: Was there ever a time that you were treated differently because you are a woman?
Kaufman: In the private lending business, interestingly enough, there weren’t a lot of women-run businesses. And I never thought throughout my career I couldn’t do something differently because I was a woman. I just went ahead and did it.
There are good old boys clubs. They do exist. The best way around that is success. Work hard. Focus on your job, what you want to accomplish on your task. Focus on your business and don’t focus on what you can’t change.
You can bring to the table that you’re knowledgeable, and you can help somebody else be successful. All of a sudden, it doesn’t matter if you’re a man or a woman. Somebody will do business with you.
Bisnow: What would you say is your biggest career accomplishment so far?
Kaufman: I think obtaining my own mortgage banking license individually. I didn’t realize that it was such a difficult license to obtain, and I just took it for granted that I could qualify from a professional requirement qualifying perspective, an economic qualifying perspective and [an] underwriting qualifying perspective.
When I was going through the process, I just thought it was a normal process. I didn’t realize what a high bar it was to accomplish that task.
Bisnow: Give us a bold prediction for the year.
Kaufman: My prediction is one day, [interest rates] will come down.
Bisnow: So because this is the weekend interview, I would love to know, what’s your favorite weekend routine or activity?
Kaufman: My favorite routine is the gym. Gym, gym, gym. Because I can do it with extra time on my hands. And that’s really for my mental health, you know. The treadmill, lifting weights, just being in the gym.
I moved from the suburbs of Long Island to Manhattan. And so my favorite thing to do on the weekends now is I try to hit a museum every weekend, depending on what is at each location. It’s so convenient, I can walk everywhere. I very rarely have to get in the car. And so that’s part of my routine.
