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Alternate View: The Podcast Guide for Alternative Investments
Why add alternative investments to your portfolio? How do private equity or private debt risks compare to stocks? "Alternate View" answers your key questions about alternative investing. Host Matt Andrulot and experienced fund managers break down alts, covering real estate, infrastructure, hedge funds, and more private investing categories. Gain clarity on this often misunderstood asset class, learn how they differ from public markets, explore the functions and risks of alternative assets, and explore their power for diversification. This is your essential resource for understanding alts.
Alternate View: The Podcast Guide for Alternative Investments
Rethinking Structured Real Estate with Vik Uppal from Mavik Capital | Episode 004 | 01-15-25
Unlock the secrets of structured real estate investments with insights from Vik Uppal, founder, CIO, and CEO of Mavik Capital. Get an experienced perspective on navigating the complex world of middle-market real estate credit. Vik shares his journey with host Matt Andrulot, of being a real estate operator and leading a cutting-edge investment firm, emphasizing the importance of risk management and aligning interests with limited partners in today's dynamic market.
How has the withdrawal of traditional lenders opened up unique opportunities for capital investment? Listen in on the strategies behind uncovering assets with robust credit profiles, focusing on risk mitigation and capital preservation. Understand macroeconomic factors like interest rates and political risks, and learn why flexibility and agility are crucial in seizing investment opportunities during uncertain times. Vik also sheds light on the growing demand for restructuring capital, revealing how Mavik Capital steps in with creative solutions.
Mavik Capital's adaptive approach to complex investments is something you'll want to hear. From targeting transactions in the $25 million range to maintaining a proactive business strategy, Vik explains how his firm achieves impressive returns by staying under the radar. With a focus on relationship-driven sourcing, this episode is packed with valuable insights.
Welcome to the Alternative View Today. We have a great guest here. Vik Uppal is going to, from Mavik Capital will be here with us today. Really super excited about discussing his environment in the structured finance space around real estate. So I'll jump right into Vik; thank, Vik you for spending some time with us today. Hopefully our listeners and viewers will get an understanding of kind of what you guys do and the asset class itself, which is kind of under the radar, as we were talking about. So, thank you. Why don't you take a couple minutes and give us a little background about yourself and your firm and then we'll jump into some questions?
Vik Uppal:Yeah, sure, well, it's great to be with you. My name is Vik Uppal. I'm the founder, CEO, and CIO of Mavik Capital Management. We're an
Vik Uppal:opportunistic investment firm really focused in middle market real estate credit. Our investment strategy is a very kind of flexible, nimble look for the best relative value. So Sits we're investing across property types, markets, securities.
Vik Uppal:Our business today is, you know, we manage about a billion and a half dollars of capital. You know it's a very active strategy where we're, you know, out there finding you know kind of unique opportunities, things that are highly, highly structured. You know we've been investing since, you know, kind of 2009. So I've invested throughout, you know, kind of different periods of time, different climates, high interest rates, low interest rates, high inflation, low inflation. And I think, when you look at our strategy, there's a level of consistency to what we do, regardless of whatever the environment is. And a little bit about my background so I started my career as a real estate operator, developer, so I actually have, you know, a lot of experience building, managing real estate, really on, you know, kind of the front lines, which I think really helped me tremendously because I understand, you know how things are actually put together and are built and are leased, and so you know a lot of our business while we're, you know, financial investors. But I think also understanding how something works operationally is, you know, kind of incredibly important.
Vik Uppal:You know, from there I moved to the institutional side of the business. I worked at a firm called Mount Kellett which was a spinoff of Goldman Special Sets. Yeah, at peak it was an $8 billion business investing in kind of all asset classes throughout the world. I co-headed US real estate there and early last cycle it was a lot of distress, bankruptcies, restructurings, which a lot of the kind of core competency. And then, you know, as the cycle evolved, it was, you know, buying more mismanaged, miscapitalized assets.
Vik Uppal:And then from there I was a managing director at Fortress and their you know their real estate and their credit funds, and that really shaped a lot of my thinking in terms of you know how you manage risk, how you look for opportunities that might be more differentiated. They have a lot of downside risk mitigation and margin of safety. But what was interesting to me when you're at some of these larger firms which is what made them really great in the early days of their life cycle, which was prioritizing performance the team had the right type of incentives you had, these great dealmakers that were on the front lines. As those businesses now have become much more mature, their focus and their priorities have changed.
Matt Andrulot:Yep.
Vik Uppal:And really so much of the focus for those type of organization is unlimited AUM growth. So it's just, you know, how do we keep getting bigger and bigger and bigger and how do we try to get to you know kind of AUM Hall of Fame, and so if you see for most of these large firms, like that's what their priorities are. So I really wanted to create a next generation, you know, investment firm where you know the team had the right type of incentives, you had investment strategies really be able to be built to outperform, and the sole mission of the organization was outperformance and so everything that we do it's really with that in mind.
Matt Andrulot:Yeah, we love the alignment of interest with your LPs as well, as it relates to that, but you know that's fantastic.
Matt Andrulot:We could have a whole other conversation about size and funds and things like that, but let's focus on today in terms of real estate. Let's start there on the macro side a little bit, because I would say 10 years ago, the real estate environment looks very different than what it looks like today, right, I mean, we've had a lot of changes over the last number of years. Real estate, I would say in general, on the commercial side especially, is somewhat stressed to an extent, and I'll let you dive into that in terms of where that is. But talk a little bit about, kind of maybe, where the real estate market is today and how you guys necessarily fit into that, and maybe what are some of the factors associated to that, where we maybe 10 years ago where we were, versus kind of where we are in today's environment. Right, I think there's a lot, a lot of different opportunities presenting itself today in the real estate environment relative to what it was probably 10 years ago.
Vik Uppal:Yeah, we're in a world today that things are changing very quickly, regardless of you know kind of whatever industry you're in. And I think commercial real estate, you estate that is kind of a perfect example of, as you said, kind of 10 years ago, if you looked at the way real estate was kind of transacted, if you look at kind of who the capital players kind of were in an environment like that, versus today it's kind of shifted kind of so much. And I'd describe the environment I would say over the last five years as one where there's been just a tremendous amount of uncertainty. And so if you think about you know kind of going into COVID, you know the way that real estate was the environment where you had you know kind of a lot of capital. That was you know kind of chasing, you know real estate, both. You know kind of debt equity, covid obviously very much disrupted you know a lot of different industries, asset classes, and you see a perfect example that is with office in terms of how space is used and you know how buildings are being leased.
Vik Uppal:And then you've really seen kind of post-COVID you had obviously kind of the environment change in 2021, where you know capital was a commodity.
Vik Uppal:You saw you know kind of a lot of deal flow and things you know kind of moved in a different direction and then all of a sudden things kind of turned around very quickly as rates started to go up and the environment shifted to one where you had just a tremendous amount of uncertainty. And so I'd say that's an environment where our strategy is really going to thrive. When you have periods of dislocation, capital is not a commodity. Credit availability is low and what you're seeing, and why we're so focused in the you know kind of that middle market space, is that you know, for small to medium-sized businesses, like they're the ones that are the, you know they're extremely active in terms of kind of demand for capital. But the supply of capital and you know kind of the pockets of opportunity there are just you know kind of very, very, very, very high. And so again, I think an environment like now, where you know there is a lot of uncertainty, capital is not a commodity, that's where our strategy really thrives.
Matt Andrulot:Yeah, speaking about that, I mean we're in an environment where there's a capital need necessarily right, liquidity and access to capital, and especially in the middle market space that you're describing. How do you think we got to this point? Necessarily right, we're. We're some of these funds or developers or, uh, investors, just over leverage in this situation. Were they buying at too high of prices, like we're? Everything seems to be re-rating at the moment in terms of price valuation. We have, obviously, you mentioned, rate movements have been up and now down to an extent, so we're in this kind of weird environment. I'm just curious, like, from your perspective, what do you think is drawing this component of stress in this particular space?
Vik Uppal:Well, I think it's all of the above. I think what you saw happen is that you know there was so much capital that flowed into commercial real estate and you know when that happens. That's when you know valuations go up. It leads to, you know, periods of oversupply, it leads to the way that you described as people getting kind of you know over their skis.
Vik Uppal:And I think that's where you know you saw that environment kind of over the last you know kind of four or five years, and a lot of those things are now reversing and so somewhat is reversing kind of to the mean, but I think things, you things kind of overshot so much that now they're going kind of in the other direction. And so one of the reasons why we've always subscribed to this very kind of flexible, nimble type of model is that we never want to have any forced investing. And I think the issue that you saw for a lot of real estate operators, developers, funds that they raise capital in a very kind of narrow box where they define we want to go in this specific market, this specific property type, but that's what leads to that kind of oversupply, it leads to the valuation issues, and you know that's what you saw happen, and so a lot of those trends now you know are reversing.
Matt Andrulot:Yeah, and so with that necessarily, do you find that there's any specific asset classes but inside of the commercial real estate space or geographies necessarily, that are more stressed than others?
Vik Uppal:You know our business is kind of bottoms up, where we look at everything on kind of an individual merit basis, so it's less about you know kind of taking a top down view on one specific market or property type. But I would say is you know real estate is a you know capital intensive, you know kind of debt dependent asset class, and so one of the things people always you know ask us about is you know interest rates and how does that really impact? You know kind of real estate valuations. That's one variable. But if you actually you know, the other variable to look at is you know just credit availability. And so that's where you see credit availability today is, you know, much, much lower, and that's where a lot of the stress is really brewing, because for small to medium-sized businesses that cannot access capital it's creating a lot of liquidity issues.
Matt Andrulot:Yep. So banks right, we have to talk about banks, especially big money, center banks, regional banks, I mean, that had been the primary supplier of capital into these markets. Obviously, we've seen some banks default to some extent right with SBV and First Republic, which is, I'm assuming, putting a constraint and then we have some regulatory issues with regards to the government and what they're putting onto banks and obviously the lack of liquidity or ability to provide to these borrowers necessarily opens up a pretty significant market. Has that helped you guys?
Vik Uppal:Yeah, I think it's.
Vik Uppal:And as you kind was describing earlier, is that you have an environment where you have a huge imbalance between kind of supply of capital and demand for capital.
Vik Uppal:And so if you look at kind of on the supply side, that for especially for kind of small to medium-sized businesses right, so not kind of these larger businesses that have access to capital markets, like they're the ones that are seeing the most stress where you have environment, credit availability is low. Traditional lenders have pulled back in a really meaningful way, so capital is not available to them in the same way that it was you know, kind of historically. And so from an opportunity set perspective, like I would say it's probably one of the best opportunity set that we've seen in over kind of 10 plus years, because you have, you know, very limited competition, yet the demand or the need for capital is just so high. And so in environments like that, where you have, you know, a lot of capital that's on the sidelines, you know there's tremendous amount of uncertainty. When you have kind of flexibility in terms of how you invest, like that's where you tend to find the best opportunities.
Matt Andrulot:Yeah, and I want to be clear too, like you're finding opportunities regarding credit right, some really good assets with some really good credit profiles. I'm assuming it's not just what people consider. I would say our audience would consider high yield or risky type of borrowers necessarily trying to like survive in this type of environment.
Vik Uppal:You know, a lot of times when people look at our returns, they think that we're you know, kind of a high octane, or we're doing things that we're moving kind of up the risk curve so much of our business is actually spent on. How do we avoid risk? Right, how are we investing in places that either could be misunderstood? There's, you know, some type of unique angle that people may discard for superficial reasons, and that's where, if you actually were in our kind of IC or in our pipeline, like, so much of what we're talking about is, how do we mitigate risk, how do we create structures that give us, you know, the right type of downside risk mitigation margin of safety and provide us, you know kind of very clear path in terms of, you know, return of capital and return on capital.
Vik Uppal:Now, everything that we do are, you know, first, priority is capital preservation, and so we're always going into situations saying, look, is there a kind of clear line of sight to how we're getting our money back?
Vik Uppal:And that's by investing in situations where you have a significant amount of asset coverage and we typically like to see kind of multiples in terms of what our loan amount is.
Vik Uppal:And the second is that we want to see a majority of our portfolio return coming from current income, and we think that's a very predictable way to invest, and it's less correlated to the macro environment, to commercial real estate markets and even to credit markets, Because when your economics are tied up, all on the back end, you're just so much more susceptible to things changing. And so the thing that we focus on is how do we have a level of predictability in the things that we invest? Now, a lot of the situations that we're investing in there's some level of kind of complication or something that you know may be misunderstood, but we're trying to kind of uncomplicate those situations by creating structures that give us a lot of predictability, and so it's not about kind of high octane or things that you know may feel like they actually have a lot of risk. It's much more about investing in situations that provide you a lot of certainty.
Matt Andrulot:Yeah, I'll ask you some questions about structure in a minute. But one thing you know, obviously. There's two more I want to ask you about regarding, you know, does the environment necessarily change as interest rates get lower or potentially get lower or stay the same? I mean, are we in this? Are we going back to a lower interest rate environment which people can kind of kick the can down the road a little bit, and then with that I'm going to, you know, fold in the political component of it? We're not political here, we're not making any decisions, but just from the regime component does it add. You know, you said there's a lot of moving parts. Well, there are right Rates and you have the political landscape, and then you have a variety of other things going on. But just curious from like, as you look at the space and you comfortable around that.
Vik Uppal:Well, I think, as a kind of opportunistic investor, and while we look at everything on a bottoms-up basis, I think you also do have to have some view in terms of macro and understanding kind of where trends are and all the variables that you have to manage, and the political risk is kind of one of those. I think what you've seen now happen is that a lot of the overhang that was kind of in existence this year now that feels like there's a lot of the overhang that was, you know, kind of in existence you know this year now that feels like there's, you know, just much more certainty and you know kind of path in terms of you know kind of the next, you know two to four years that I think for a lot of investors removes that. You know kind of one variable that you know was obviously highly kind of uncertain. But, that being said, is that you know, while one variable has been removed, I think you're still in a time where, especially in commercial real estate, where there's just a lot of things that are uncertain.
Vik Uppal:Right, you said rates you've had. You know there's such so much anticipation that you know rates were going to come down this year and then they started to move kind of the other direction and now they realize nobody knows, right, I mean, what's going to happen over the next six to 12 months. And you know our business, which is a very active business. You have to keep your eye on the ball all the time and you have to be able to be flexible and nimble and agile as some of the variables change. And that's why we've always believed so strongly in having the flexibility to invest, because if one variable changes, then you can pivot and you can focus on the best opportunities.
Vik Uppal:Yeah, I mean we've seen the banks kicking the can down the road a little bit no-transcript like the need for more restructuring capital, restructuring capital structures, and so I think the need for that is really really high. Now, typically, those situations and environment, like we've seen over the last few years, are very friendly. Where you're coming in and you're providing kind of very tactical capital that's needed for both operators, for banks, for you know kind of debt funds that may be dealing with you know kind of liquidity issues, and so these are, you know, kind of negotiated transactions that you're providing more kind of capital solutions. And you know, the thing that we really like about that and this goes back to my earlier comments is that there's a level of predictability in terms of the things that you're investing in. So, even if they may feel that they're complicated, you're actually kind of uncomplicating them and they're actually just very simple to be able to understand how you make money, how do you get your money back, like. And that's why we think the environment for what we do is so interesting.
Matt Andrulot:Yeah. So let's talk about structured finance just in general and I'm going to have you step back because I know you're very smart around structured finance. But just explain structured finance just for the folks that don't necessarily understand. I know you were trying to pull in some examples today and talk a little bit about the opportunistic nature that you're delivering relative to those groups that stay in one single lane, right? I think that's important, along with that in terms of what you guys do.
Vik Uppal:Yeah. So if you look at like what most funds operators, like what they typically do, is they define you know kind of a very narrow box of what they invest in. So we invest in this industry, this property type, this market. So it's easy to raise capital because you can say I can understand exactly what you do. But the issue with that model it goes back to the earlier comments is that it leads to excess, it leads to people getting over their skis and it really leads to a lot of forced investing. And so our view is that we don't want to have those type of constraints where we ever have to force anything.
Vik Uppal:And so one of the things that by design, is that we have a very flexible investment strategy, and so what that means is we invest kind of across the capital structure but we're looking for the best relative value that kind of meets our standards.
Vik Uppal:So that's investing in situations that you know kind of a huge amount of downside risk mitigation, there's clear line of sight to how we're getting our money back. We're investing in situations that have you know kind of multiples in terms of you know kind of asset coverage, and then you know again that you know there's a level of you know kind of current yield that's driving a majority of our you know kind of return, and so you know we think that that type of philosophy, you know obviously it works and really thrives in periods of dislocation. But that's a big part of you know kind of how you outperform. Now. The other point is like all of our transactions are highly, highly structured and so like we're going into situations and you know we are kind of a very patient, disciplined wait for the right pitch and a lot of that is, you know we're looking for situations that we can create the right type of structure that gives us the downside risk mitigation that we're looking for.
Matt Andrulot:Yeah, so your risk-adjusted returns, or you're looking at whatever the situation is in general and where you necessarily need and what you need to get for a return relative to that, whether it's on the top of the stack in the senior secured position or down into the equity, which that varies in terms of, and then how much you have the ability to do a little bit more than what traditional says. I only do senior secured security, or I only do MES, or I only do you know, pref or whatever it is.
Vik Uppal:Exactly. And you would be amazed at how many deals get discarded because they don't fit exactly inside those kind of perfect boxes. So it's that, well, look, you have this deal. It comes to you and says it's you know kind of, yeah, it's either too small or that the exact you know structure may not work, and then it gets discarded. And so for a lot of our larger peers that you know they invest across the capital structure but they have, you know, multiple funds. They have different teams that work on different funds, a lot of times you'll see things just get discarded because they don't fit within those boxes. And because the fact that we can look at a situation and say like, what's the best way to invest here? Right, is it a first mortgage? Is it sub-debt? What's the right way to structure something, and that gives us a lot of that flexibility that we can actually create the right type of structure, versus we have to force something and then we're kind of back-solving.
Matt Andrulot:Yeah, so you can solve the problem for the borrower. It's basically a one-stop shop right Exactly.
Vik Uppal:You could solve the problem from the borrower or you can look at a situation and figure out what's the actual best structure. And what's interesting about the environment today is when you see a lot of the traditional lenders banks, other groups that have pulled back. So much is that a lot of the deal flow that we're seeing is deals that would have traditionally went to banks and they would have went to more traditional lenders, but because they pulled back so tremendously in their commercial real estate lending that a lot of those deals now are going to groups like us that we're able to take almost bank-like risk but we're generating equity-like returns, and I think that equation is so interesting and compelling for what we do.
Matt Andrulot:Yep, and now obviously we talked stress, distress. Give me some example of that relative to what you're seeing, I guess, today, or what you have seen over the last year or so.
Vik Uppal:Well, there's a lot of reasons why situations can be stressed right. It could be a fund that's kind of at the end of its fund life. It could have liquidity issues. It could be a real estate-operated developer that's kind of asset-rich, cash-poor and is also having liquidity issues. It could be kind of the classic case of good asset, bad balance sheet.
Vik Uppal:And I'd say that's what we're seeing a lot today, which is the need for recapitalizations, restructurings, where you have deals that were done in a very different interest rate environment when valuations were also much higher, and a lot of those deals now they're either to your point about the wall of maturity is that, as those loans are getting pushed, the need for capital you know to your point about kind of the wall of maturity is that, as those are kind of getting, you know those loans are getting you know kind of pushed, the need for capital to be able to come in and provide you know kind of a solution to pay down senior lenders, replenish reserves, provide capital at you know kind of asset level.
Vik Uppal:That's where groups like us are, you know kind of really coming in, and you know I don't see that changing, you know kind of anytime soon. So I think if we look over, you know kind of the medium term, like unless you see more for selling capitulation. For you know a lot of the deals that were done over the last four or five years. Most real estate lenders like they're very full on their commercial real estate exposure and so until you see some of that, you know kind of push through the system. You're not going to see lending go back to the way that it was. You know kind of over the last 10 years.
Matt Andrulot:Yeah, can you give me an example of a deal? Like just like what, what you solved? So give me the problem right and then give me the solution that you guys kind of figured out relative to it.
Vik Uppal:Yeah, I would say no two deals are the same I mean every one of our deals is, you know, kind of unique.
Vik Uppal:And again, that you know is part of why our strategy really thrives, is the fact that we don't, you know, kind of subscribe to having everything be very uniform and commoditized, versus, you know, looking at you know situations that are typically mispriced or some kind of unique angle. There's some level of complication, but I'll give you an example of you know kind of a deal that we did, you know, recently. That, I think, highlights why Mavic and how the opportunity set came to us. So we had a real estate relationship with an existing partner that we've done five transactions with. Their business is they build class A multifamily. Once those buildings are built, then they finance long-term with agency debt, so kind of Freddy or Fanny.
Vik Uppal:Now their business is that they're long-term owners. They own, you know kind of 1600 multifamily units all throughout kind of Washington state, and so we were talking about, you know kind of, some of the pain points that they were having in their business. So one of the big challenges for them was, you know they had started, you know kind of, a number of construction projects that were, you know, started, you know kind of in a very different interest rate environment. Now those deals as they're getting either completed or now in lease up. They're refinancing those to long-term agency debt. Well, the issue for them is that, given where interest rates are, agency debt sizing is significantly lower than what it was when they actually did those deals, and so in order for them to refinance from their construction loan to permanent financing, there's effectively a gap in the capital stack of anywhere from kind of $2 to $4 million that's needed to make those refinancings possible. So what we did is provided them, you know, a $25 million credit facility.
Vik Uppal:That was a, you know, highly highly structured deal. The primary source of collateral was these, you know, four multifamily assets which, at the time that we closed, were at 90-plus percent occupancy. We were at 1.5 times DSCR. But the way that we structured it is, they also pledged to us the cash flows of the 1,600 multifamily units that they own, and so if you factor in the 1,600 multifamily units right over a 10 times DSCR, that's at 15%, three years of kind of call protection. Now why would kind of our counterparty choose to do that deal with us versus what their alternatives are?
Matt Andrulot:Yeah.
Vik Uppal:One it's kind of very tactical capital that's kind of needed, given kind of the environment.
Vik Uppal:If you look at what their options are, is that they could sell buildings today, but one that's not, you know, kind of needed, given, you know, kind of the environment.
Vik Uppal:If you look at what their options are, is that they could sell buildings, you know, today, but they you know that one that's not their business. Two, that they would, you know, be selling at a time where they think you know valuations are depressed. They could bring in a JV equity partner that could, you know, kind of help recapitalize those deals but that's going to be highly dilutive. That JV equity partner is going to want, obviously, a significant part of the upside or their. Third is that they do a highly structured deal with us, gives us a lot of the downside, risk mitigation and things that we look for, but allows them to maintain the upside kind of optionality. And so if you look at that, I'd say kind of a very typical transaction for us. That's highly structured, very tactical capital, relationship-driven sourcing, a counterparty that we have the confidence in their ability to execute and we know that it meets the characteristics of the things that we look for.
Matt Andrulot:Yeah, and then how do you get your capital back at that point? Right, they they're not really big sellers. Right, they're long-term holders. You're solving a complete problem for them and obviously they're willing to pay for that right, much more than what you would traditionally get. But what's the outcome like? What's the duration and maturity of that line of credit to some extent, or when do you guys get fully paid off?
Vik Uppal:Well, we like situations like that because you actually have a lot of optionality in terms of how you can ultimately get repaid.
Vik Uppal:One actually have a lot of optionality in terms of how you can, you know kind of ultimately get repaid.
Vik Uppal:One is just going to be through either you know long-term kind of the refinancing of kind of the real estate assets, and then you know we're able to exit that way. But also, when you look at kind of the durability of the cash flows and the high velocity of the cash flows, you know that's a situation that you can see kind of clear line of sight to how your interest gets paid. But also you have the ability to kind of self-amortize your principal down. And I think that optionality of you know kind of what happens if you know kind of path A doesn't work, is there a path B, like that's one of the ways that we're kind of always thinking about how do we make sure that we have you know kind of capital preservation? And so that's why we like to invest in situations where there's a lot of predictability in terms of the kind of cash flows. That gives us you know kind of the line of sight to how we get both return on capital, but also return of capital.
Matt Andrulot:And you think if the market environment necessarily changes, they would try to refinance you out with traditional means at some point in time, just to save on spread.
Vik Uppal:I think the answer to that is yes, but also, I mean because there's so much structuring that goes into our deals on the front end, like we want to make sure that we have you know kind of the appropriate runway, and so one of the things you'll find with kind of our strategy versus you know much more kind of traditional kind of private credit that you know is much more where you see from you know kind of traditional debt funds, mortgage rates, like those businesses are beta businesses where they're typically price takers or focus more on commoditized type of transactions. Our business is an alpha business where we're focused on outperformance, and so that's why, like, we're looking for those type of pockets of opportunities that give us, you know, the right duration, they give us the right yield, they're highly structured, but they're also, you know, kind of tactical capital.
Matt Andrulot:Yeah, now how do you find these borrowers right? I know you had a relationship with this particular example, but how do they find Mavik, or how does Mavik find them right? And that's probably like there's a lot of folks out there, maybe not doing exactly what you guys are doing, but there's a lot of people out there. How do you source those guys or how do they find you?
Vik Uppal:I would say there's a couple of things I mean. One is our business I just mentioned. You know it's an active business. We're out there, you know, constantly looking for you know kind of the opportunities, and it's a offensive approach where we're looking at, like, where capital flow is not going, where are things that we can offer that a lot of our counterparties or other groups cannot offer. And so our strategy, which is, you know where it's really going to thrive in periods of dislocation, things are uncertain, capital availability is low and you know the flexibility to how we invest is such a massive you know competitive advantage because very few groups actually do that, and so the ability for us to craft a custom solution versus, you know, having things that fit with inside a perfect box, like that, you know really thrives in kind of periods of dislocation. I think the other thing is, if you look at, you know, really thrives in kind of periods of dislocation. I think the other thing is, if you look at, you know the size of transactions that we focus on, which is that you know typically kind of $25 million like that size is going to be, you know, below the radar of a lot of our larger peers Now, you know, as a platform, we've transacted with over 150 different counterparties, and that's from real estate operators, banks, institutional partners, and so, while our strategies are very kind of flexible, nimble, go where the best opportunities are, there's also a level of you know kind of roll up your sleeves, like you said earlier, like we have to sift through a lot of stuff and that takes a lot of hard work, and so you know that's where you know kind of our platform, our team, like we're incentivized to really find those you know kind of diamonds in the rough that may get discarded for superficial reasons.
Vik Uppal:They may feel like they're a little complicated, they don't fit with inside kind of a perfect box, and we can look at them, you know, kind of unconstrained, and figure out like how do we create the right structure that meets our investment guidelines?
Matt Andrulot:Yeah, obviously underwriting is key to that right, For your perspective and your team's perspective, to value those particular assets and make sure that you're protecting your principal and generating a return for investors at that point. But when you look at those type of transactions, like, what types of returns are you, like what's your baseline type of return that you're trying to achieve? When you look at a particular transaction, meaning you know, is it worth our time and effort to go after this particular borrower and us lend to them, versus something just pretty standard?
Vik Uppal:Well, one of the reasons why we're so focused on kind of the relationship-driven sourcing one, it allows you to see differentiate opportunities are typically not going to be more auction style, so it allows you to obviously be investing in situations that are price sensitive, but also you're just seeing kind of consistency of deal flow and I think that actually really helps you to kind of invest throughout a cycle versus more moment in time. And so our business obviously we've invested in over 160 different transactions. We've had over 120 realizations. So we're not tourists to this business. Like we obviously understand what we're doing and have a lot of experience.
Vik Uppal:But, to your point, like you have to have you know kind of consistency in terms of how you invest, and so you know our investment standards are the same, regardless of it's January or March, or interest rates are low or interest rates are high. But what that means is that you know our deal flow is going to be more episodic and sizing our capital base, the opportunity set, is really important. And so you know we very strongly believe like you have to be able to size your capital base up and down based on the environment and you know the opportunities that are around you, and so we're typically targeting situations that are kind of net 15% to 25% kind of IRRs and have a little bit longer duration, that we're also balancing that with kind of total dollar profit, given how much structure and things are involved in the front end, that we want to make sure they also have the right amount of runway.
Matt Andrulot:Yeah, I always have to ask this question, like when you look at the public markets like this doesn't seem like you could actually function in the public markets. Is that accurate?
Vik Uppal:Well, we invest, you know, in public, private debt equity and so like.
Vik Uppal:In the way that we view it is that you know, we're effectively valuing the underlying assets and the collateral the same way, and I think one of the benefits of having that kind of vantage point is that there's moment in times that things get mispriced for, you know, completely superficial or not obvious reasons. And so the ability to actually have that flexibility and say you know public markets right now are, you know, kind of very undervalued because you know commercial real estate is out of favor, you have this specific asset class that may be more misunderstood. That allows us to again focus on the best opportunities and we never have any forced investing because we can be truly kind of patient, disciplined, and it gives us also a very large hunting ground. And so I think that ability of saying we can have a really large kind of funnel but then we can kind of narrow it down to the areas that we feel like are the highest conviction.
Matt Andrulot:Yep, I'm a I'm a glass half full guy. But where are the risks associated in in these structured finance transactions relative to real estate? Like, where would you say that people would make a mistake? Or where where do things go wrong as it relates to this? Like, and then what does that outcome look like? Right, that's, that's the kind of the question, right? Like I think you and I both agree that there's a great opportunity and structured right, great asset, great borrower, great credit, like a lot of things there. But where, where do things go wrong? Or or un, unevaluated properly? Like, what's the downside component to that? Like, we get a look at both sides of it for us as investors and everyone listening and watching us, you know they want to know. Okay, it sounds really really good, but where's the risk?
Vik Uppal:Yeah, I think there's a couple of things.
Vik Uppal:One is I think if you look at the you know kind of typical kind of real estate debt fund or more of the private credit model, like I think that model actually has a lot more risk than people think. And so when you look at it and say you know kind of lower returns means you know kind of lower risk. And you know you're typically focused more on kind of first lien Like that feels like it checks a lot of the boxes. Yeah, but if you look at the type of transactions that a lot of those groups are doing that are highly, highly commoditized, you're typically winning deals based on your kind of auction style and very much on price or on kind of looser covenants, and then you're financially engineering your way to get to these kind of low returns. I think that model actually has a lot more risk than it's on the surface. And so why we focus in areas that are less commoditized they're not as well as traffic, where capital flows are not necessarily going is it allows us to actually create the type of structures that we don't have to be so susceptible to.
Vik Uppal:You know kind of more macro environment, commercial real estate markets, credit markets, and that's a big part of how we actually invest with such a big margin of safety is that we're not doing what everyone else is doing, and I think that's you know. There's a lot of risk. I think that's on the surface that you don't necessarily see until something goes wrong. And I think you know you saw a little bit that you know over the last you know kind of few years, which is in, you know, the banking system. You've seen it with a lot of alternative lenders and I think the longer this environment, you know kind of continues to go, people can, you know, only hang on for so long.
Matt Andrulot:Yeah. What about leverage? What do you think about that as it relates to your transactions or just in general?
Vik Uppal:I think it's very dangerous and I think you see that with again more of the kind of traditional private credit model and you think you see it a lot.
Vik Uppal:Leverage on leverage, leverage on leverage and that's one of those things that don't necessarily show up until something goes wrong. It's the classic Warren Buffett is you don't see who's swimming naked until the tide goes out. And I think leverage is one of those things that people feel like you know it's kind of it's there, but they don't, you know, pay as much attention to it, and so so much of our business is again like we're trying to focus on. You know, how do we have a level of predictability to things that we do and you have, you know, a lot of leverage or things that you know can obviously sink the ship, like that to me, you know can create a lot of business risk, and so we don't really kind of subscribe to that model. And one of the reasons why we're typically not using leverage in our deals we don't have any fund level leverage. That's not our business.
Matt Andrulot:Sounds like you don't need it either.
Vik Uppal:right, you generate a pretty solid return with a really good collateral backing of a hard piece of asset usually Hard assets, durable cash flows, a level of predictability to things that you're investing in, and so you know we're not swinging for the fences. Our you know our business is about, you know, kind of stability it's. You know kind of how do we make sure there's a level of predictability? And that's why you know we're so focused on situations that you know kind of meet those characteristics.
Matt Andrulot:And you're not loaning to owning right Like you're loaning to receive your principal back. For the most part, I'm assuming.
Vik Uppal:We definitely are. So like we want to see our borrowers succeed. So like we're investing with counterparties that we have, you know, high degree of confidence in their ability to execute. They have the right type of incentives. And I gave the example earlier like of you know kind of the group in Washington. That's a you know kind of regional. You know kind of the group in Washington. That's a kind of regional real estate operated developer with kind of a real balance sheet specialization and kind of a certain property type. That's very typically kind of who our counterparties are Now as a credit investor.
Vik Uppal:Like, while we're not kind of loan to own and we want to see our borrowers succeed, every situation that we're going into we're underwriting as if we're the owner. And so we want to see, like, do we feel confident in the business plan? Do we feel like we're at the right type of basis If something goes wrong? Does our team have, you know, the skills and the experience to be able to step in? And you know kind of correct course.
Vik Uppal:And you know we have a 34 person team. We have 12 people on our investment asset management team. We do everything in house and that gives you a lot of confidence. That like if we do everything in-house, and that gives you a lot of confidence that if something doesn't go as planned, that we can actually step in. And I was talking earlier about my experience where I started my career as a real estate operator developer, and so that also gives you the confidence that if something doesn't go as planned, I know what to do. And I think for a lot of investors over the last 10 plus years that may not have that type of operational experience, if something goes wrong, that obviously can create a lot of challenges for you.
Matt Andrulot:Yeah, and it seems like you guys sit in a pretty commanding position in these stress-to-stress environments that you don't have to cove light things and lighten up on certain things, like maybe other people who have to put money to work.
Vik Uppal:Well, I think part of that is understanding the model right in things like maybe other people who have to put money to work.
Vik Uppal:Well, I think so much. It's great to be here with you that is the understanding the model right. If you're focused on you know kind of volume and scale and you're going to really be more of a beta business, then you're going to have to do those things to get transactions done right To compete, right To compete. And so if you're trying to compete and you're focused on volume and scale, like you have to do that by necessity versus our business as an alpha business, like we want to stay away from those situations where we don't want to be focused as much on volume and scale, like we want to focus on the best opportunities. So there's obviously going to be times where the opportunity set is going to be much larger and there's going to be other times the opportunity set is going to be smaller and that's why, you know, kind of sizing your capital base to that is going to be really important.
Matt Andrulot:Yeah, that's fantastic. I mean, it seems like a great opportunity now and hopefully, as we continue to move forward. But I appreciate your time and thank you very much for spending a little time and talking about a structured credit and structured finance and real estate debt.
Vik Uppal:Absolutely. Thank you next time.
