DH: Modern Bank started in December 2005, today, the main pillars are your commercial lending platform – C & I and commercial real estate. Has your original lending platform evolved since its creation?

MT: The Bank was originally established to primarily provide private banking services. Following the Great Recession, we invested heavily in the commercial lending platform to build earnings and franchise value in the market. Modern’s platform investment started with hiring the right talent to develop a sourcing, underwriting, and portfolio review platform for success not only with commercial borrowers, but also with our regulators. The commercial lending platform has developed in both size and sophistication during the last five years and has resulted in our brand/reputation being stronger than ever.

DH: Your clients are middle market businesses, private equity firms and real estate owners. Let’s start with real estate. What is a typical Modern Bank commercial real estate borrower? How many properties? What type of assets?

JP: To understand our typical borrower it is important to understand the segment of the commercial real estate market we serve. We play in the lower middle market CRE loan space ($1.5-$7.5MM loan sizes) with a geographic focus on the New York City metropolitan area. Due to our loan size and geographic parameters, we primarily finance multifamily, mixed use, and retail assets (including retail condo). Because we focus on the NYC real estate market our borrowers include experienced real estate entrepreneurs who have successfully executed about ½ dozen deals and are looking to expand their portfolio. Clients also consist of larger family offices with sizable real estate portfolios, funds, and sophisticated institutional investors who are looking to finance deals they may consider small, but require a lender with the capabilities of a large bank to fit their needs without the red tape and the bureaucratic process found at other institutions.

DH: You have an incredible ability to execute on transitional assets. Can you tell us more about that?

JP: Given that we are a small, nimble, and a relatively flat organization with senior management continuously updated about the pipeline, we have the ability to make decisions and obtain approvals quickly for both transitional loans and permanent fixed-rate commercial real estate products. The same bankers and analysts that review loan proposals are also involved in the underwriting and closing process, and are often the same individuals that work with our clients post-closing. In addition, we do a lot of our due diligence upfront, and have often identified key issues and have questions answered even before a term sheet is issued. By doing the extra work upfront we are able to identify deal pitfalls early, develop solutions to meet the client’s needs, and ensure timely closings.

As for transitional assets, we offer a bridge to permanent loan structure with up to 70% loan to cost financing for commercial real estate properties that are going through a repositioning which may be a simple lease-up play or a plan that includes a renovation component. Many CRE borrowers looking for a bridge loan choose the private lending market given that many traditional banks may not provide the timely and certainty of execution that some borrowers are looking for on transitional asset acquisitions. Many of these borrowers then look to refinance with a traditional bank once they execute their plan and the asset is stabilized. Our platform offers a one-stop-shop to investors as our bridge or renovation loans are often structured with a permanent loan conversion option and loan upsizing component that offers our borrowers the flexibility and options they desire, while saving them the time, resources, and the cost typically associated with two loan closings.

DH: What differentiates your underwriting from other lenders? Tell us more about how your Wall Street background plays into your ability to structure difficult deals.

JP: On the commercial real estate side, we work with our clients, particularly on value add and transitional deals, to develop structures that are appropriate for the transaction and are tailored to fit the client’s objectives. Most of our bankers and underwriters have an institutional lending background where this type of tailored underwriting for value add deals is more commonplace and we have applied this knowledge to the lower middle CRE loan market.

CL: From a C&I perspective, every team member has leveraged finance experience that allows us to respond quickly to clients, even if the borrowers don’t have hard collateral to support a loan, which is the case in nearly all of our transactions.

DH: You have an amazing product – the capital call line of credit – tell our readers more about this product.

CL: The Capital Call Line of Credit is a great product for our investors with a limited partner base. The line allows General Partners to draw down capital to make an investment, while they wait for capital calls to come in. So not only is it a bridging product, but it enhances IRR’s by shortening the time that equity capital is truly deployed. I believe one of our mutual clients, Paul Salib of Castellan Real Estate Partners, said, “Modern’s Capital Call Line provided us with the flexibility to fund deals quickly, [they] worked with us to customize the product.”

DH: That’s a great reputation to have in the industry. Let’s turn to C & I and the “unitranche,” a product that you’ve provided to clients since 2012. You were one of the first commercial banks to create a synthetic senior credit facility.

CL: Yes, the unitranche product has been a key differentiator for us. In simple terms, we’re just synthetically recreating a traditional senior/mezz structure but via one set of legal documents, one set of terms and one legal counsel, as opposed to two sets of each with the more traditional approach. Borrower and owners love the product because it’s cleaner, more simple and cheaper. Our junior debt providers like it too because they’re able to provide a one-stop shop solution to their clients by bringing us into their deal, and the same can be said for us of our junior debt providers when we source a deal and bring them in as well. Together, we can speak for larger and less expensive financing solutions for our clients, with highly competitive terms all around (e.g. amortization, covenants, tenors, etc.).

DH: Can you tell us a little more regarding the junior debt lenders that you partner up with via your C&I business?

CL: Sure, we work with a wide group of junior debt lenders/investors that are traditional mezzanine funds, but we also work closely with Business Development Companies (BDC’s), Small Business Investment Companies (SBIC’s) and asset managers, some of which are small and just starting out but many of which have been around for quite a while and have significant capital to help us support our clients as they execute on their growth plans.

DH: Your C & I platform lends nationally, please tell us more about some recent deals.

CL: One of the things that our clients appreciate is our ability to roll up our sleeves and look at pretty much any type of company. We’re industry agnostic and lend to companies across the U.S.Our current portfolio spans across many industries including healthcare, technology, manufacturing, service, media, fitness, and many more.

DH: What is your prognosis for 2020 and where do you see the bank in 5 years?

MT: The current interest rate environment resulting in a flat and sometimes inverted US Treasury curve combined with the economic uncertainty about a looming recession presents challenges for banks. However, our business model will not change and we will continue to work towards establishing Modern as the premier commercial lender for small to middle market companies throughout the U.S. and real estate sponsors in NYC and the surrounding markets. Our commitment to existing and new clients is always a quick response and readiness to move forward, as evidenced by our timely execution to provide the capital, or a quick decline to not waste any time. Modern will continue this commitment over the next 5-years, which requires a steady and constant presence in the market, while ensuring that we have the right internal resources matched with our partners and clients.

DH: Michael, Curtis, and Joe, thank you for your time. We look forward to working on more deals with Modern Bank.