Newport Beach-based Sabal Financial Group LP is targeting the homebuilding industry with its latest growth plan, which will focus on infill developments and other smaller projects on the West Coast for now.
Privately held Sabal is a financial-services firm specializing in distressed debt. It started in 2009, and has primarily been engaged in the acquisition of commercial real estate loans. It also provides consulting services, mortgages and other loans for acquisition, development and construction of commercial properties.
Sabal’s new Builder Lending program will tap into “increasing opportunities in financing for homebuilders” on for-sale projects, according to Chief Executive Pat Jackson.
The program will operate primarily in California, Oregon and Washington, and target privately held homebuilders.
Sabal currently has $3.5 billion in assets under management, mostly from 11 separate loan portfolios it has acquired from the Federal Deposit Insurance Corp. and other banks throughout the U.S.
The homebuilder lending program will amount to just a fraction of the company’s operations at first, but Jackson said it’s a strategic move based in part on indicators that the housing market is improving.
“I don’t see a slowing in buying distressed-debt any time soon,” Jackson said. “But what we’d like is to build platforms and have them in place. It’s a natural evolution for us to get into lending” for homebuilders.
Sabal hired Bank of America veteran Thomas Farrell in January to lead the homebuilders program.
“There is currently a gap in financing of for-sale housing,” said Farrell, who most recently headed BofA’s lending to private homebuilders from Irvine. “Some banks have left, and they’re not likely to step in until the industry gets healthy again. We’re filling that space.”
Spotty Recovery
Sabal’s introduction of the builder lending program comes amid overall declines in the sales of new homes, a trend that Orange County’s homebuilding industry has seen throughout a spotty recovery in the past few years.
Local homebuilders together saw an 11% decline in sales of new single-family homes and condominiums last year, according to data from the Costa Mesa office of Hanley Wood LLC, a Washington, D.C.-based real estate research firm. Last year was the fourth-straight year that OC saw fewer than 2,000 new homes sold, well off a peak of more than 4,700 in 2004.
Recent sales of existing homes indicate that the hangover of inventory left in the wake of the recession is clearing. Sales of existing homes in Orange County rose 12.3% in May compared with the prior month and 23.1% from a year earlier. The local market also saw its first year-to-year-increase for its median price—a 2.4% increase to $435,000—since November 2010.
Some other hard-hit markets are seeing similar trends, helped along by the combination of relatively low prices for existing houses and interest rates that has made buying property cheaper than renting in some markets that saw steep drop-offs during the recession.
Improvements in the market for existing homes would appear to bode well for the sort of infill and other smaller developments Sabal aims to finance.
“It’s better for us where banks have been hit the hardest,” Farrell said. “That’s our niche. Also, investors have been increasingly active in buying up foreclosed properties, cleaning out inventory.”
Jackson said the firm is looking to lend in the $3 million to $35 million range under the new program, providing up to 80% of project costs.
“There’s a lot of capital available,” Jackson said.
Sabal’s key investors include Oaktree Investment Holdings LP, an affiliate of Los Angeles-based investment management firm Oaktree Capital Management LP.
Sabal has grown to more than 80 employees in the past three years, with 50 added in the past year.
New Hires
The firm expects to hire about 20 additional employees in coming months.
Sabal recently moved into a new office in Newport Beach, with plans for further expansion. It also has offices in a number of other cities, including New York, Washington, D.C., and Miami.
