The short dated residential bridge loan market is still nascent, and the market is fragmented with thousands of originators nationwide. As the sector moves towards a more consolidated future, players can differentiate themselves by employing innovative technology and data solutions.
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The short dated residential bridge loan market is still nascent, and the market is fragmented with thousands of originators nationwide. As the sector moves towards a more consolidated future, players can differentiate themselves by employing innovative technology and data solutions.
“Colchis has a dedicated team that has been investing in and developing our own proprietary technology to target and to pivot to the most attractive regions of investing as well as operationalizing our processes to gain an edge in generating a high-quality loan performing portfolio,” says Josh Tonderys, Co-President at Colchis Capital.
In the current volatile environment, investors are looking for more risk mitigating, diversifying strategies that can provide a good ballast in an uncertain market. Tonderys comments: “Our investors originally invested in us for that reason and in 2022 with performance up +7.2% net we continued to serve as a ballast while outperforming many other hedge funds and other income generating strategies.”
Tonderys also identifies the most significant risk the firm and its clients faces, which is a multi-year prolonged home price depreciation creating uncertainty and stagnancy in the market. However, despite this potential struggle, the Colchis Residential Bridge Loan strategy includes downside protection and resiliency due to the large margin of safety with the borrowers down payment for a short-term loan and due to the fact that these loans can be used by borrowers not only to renovate and sell homes but to rent homes.
“In an environment where there is generally not enough supply of housing in America and where affordability of homes is a larger issue, our borrowers who are fixing to rent create an opportunity to provide a solution to the housing crisis while protecting capital in holding inflation hedging assets. Since these are short-dated loans, the strategy also benefits by increasing borrower rates on new loans,”Tonderys explains.
Going forward, Tonderys expects clients to continue demanding a low volatility, diversified absolute return strategy which performs in all environments: “Our assets that are secured, first lien and offered in an open-ended evergreen structure generating +7 to 10% net consistently across various market environments will be appealing to most absolute return as well as fixed income alternative portfolios.”
Ultimately, investors’ need to diversify away from various betas will drive appetite for strategies with the potential to perform in an uncertain, volatile environment.
