Real Talk with Brian Tortorella of Smith Graham

Jul 21 2017 | 11:16am ET

This morning, we sit down with Brian Tortorella of Smith Graham to discuss the state of the alternatives industry.

Brian is the Head of Mortgage & Real Estate Debt Alternatives (MRE) and has over 20 years of experience in the investment industry. In his role, Brian is responsible for the management and oversight of the New York Mortgage & Real Estate investment team as well as the strategic vision of the business. Prior to joining Smith Graham, Brian started and ran the Residential Mortgage group at Five Mile Capital Partners where he spent more than nine years responsible for raising, investing and managing over $800 million of equity through funds and separate accounts with residential mortgage exclusive strategies.

FINalternatives: What is your feeling on the state of the alternatives industry, right now?

Brian Tortorella: Given a low interest rate environment, investors are looking to alternatives as a solution. However, alternatives can take many forms and offer yields that vary on a risk-return basis.  Our bridge loan product is an alternative investment that offers attractive risk-adjusted yields for investors. It focuses on short term loans which finance investors of single family homes and provides investors with: current income, short duration, low volatility,  a high degree of control, and accretive optionality.  These attributes, coupled with the fact that the MRE team has significant years of experience (17 years plus on average for senior members) make bridge loans an attractive opportunity where Smith Graham is well positioned.

What have your returns been compared to your benchmarks?  

Our space does not necessarily have standard benchmarks, per say. However, the MRE team has an exemplary $900 million track record that has been built over the past 9 years in both the residential whole loan and bridge loan sectors. Our team has been first movers in both spaces and thus has been able to produce yields that have consistently met or exceeded investor’s expectations.

Your site states “The goal of our Liquidity Products is to obtain a high level of current income consistent with capital preservation and liquidity over the short term.” How does this strategy work?

On the site, this is referencing Smith Graham’s liquidity products, and not solely our Bridge Loan product. With regard to bridge loans Smith Graham partners with local originators who finance investors requiring financing alternatives for single family residential housing and smaller multi-family transactions.

The loans purchased are each vetted through a very detailed process which targets cash flows, short duration loans with a significant amount of equity protection. The assets are self-amortizing in nature and thus provide good short-term liquidity in addition to the monthly cash flow received.

What are the barriers to entry in your market?

Our market is not a “plug and play” market. Dealing with local lenders and smaller sized assets takes a sophisticated investment team with deep experience rooted in whole loans.

Housing the assets, holding lenders and servicers accountable, managing collateral, and asset managing the loans are all key drivers to the strategy which cannot be developed overnight.

What makes your opportunity unique?

In the fixed income alternatives space, Smith Graham focuses on markets that are fragmented in nature whereby we can add value to businesses and industries that are not the standard prototypes for fixed income institutions.

In this way, through a very granular approach, we can put the time into becoming true partners with our lenders and growing the business together in a methodical nature. As such, Smith Graham has created a platform that is looked upon as the “best in class” secondary market player when it comes to partnering with local SFR lenders in the bridge loan space.

This has created a unique opportunity to partake in homogeneous assets that have created steady supply for the foreseeable future.


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Garrett Baldwin is the voice of The Daily Alpha, the features editor for Modern Trader magazine, and the author of The Man with The Big Red Balloon.

 


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