A St. Petersburg company that buys distressed commercial real estate debt was already gearing up for a recession. Then Covid-19 hit.
By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: Jun 26, 2020

As the coronavirus pandemic ravages certain sectors of commercial real estate, there’s no shortage of cash sitting on the sidelines, ready to pounce on deals.

Chris Moench, CEO and founder of Directed Capital, is among those ready to buy — but he’s never been on the sidelines. His firm, based in downtown. St Petersburg, buys distressed commercial real estate debt.

“We’ve never been out of the market,” Moench told the Tampa Bay Business Journal. “We’ve constantly been engaged. It was our thesis that there would be a recession during this fund’s life cycle, certainly we didn’t understand there was going to be a global pandemic.”

The fund he’s currently raising — $100 million in investor capital — is his firm’s 10th. He started raising money in late 2019 and has closed more than $70 million in commitments to date. In March, Directed Capital secured two separate credit facilities from Goldman Sachs Bank USA ($40 million) and Valley Bank ($20 million). His investors are high net worth individuals, family offices and small institutional investors.

Moench has been in the distressed debt realm for 27 years; he founded Directed Capital in 2001. The firm buys distressed commercial real estate loans and works with the property owners to resolve their issues. Infrequently, it buys a note and forecloses on a property; at the depths of any recession, those sorts of deals make up 20 percent of their business. The majority of the time, the property owner resolves the issues, sells the property and pays off Directed Capital or refinances the loan.

The majority of Directed Capital’s assets range from $500,000 to $10 million; its average asset is around $3 million. The properties are nationwide and cross a wide variety of real estate sectors, from car dealerships to restaurants to strip centers. Occasionally, the firm takes on a grocery-anchored shopping center and other large properties when banks are selling pools of loans.

“We’re more of a bridge lender,” he said. “Our focus is to acquire the loan and work through the loan issues.”

In total, since 2001, Directed Capital has acquired around $1.6 billion in distressed loans.

“When it’s stabilized, typically, the borrower will have established a new relationship with a bank and they’ll refinance their loan through more conventional means,” Moench said.

The economic fallout from the pandemic, Moench predicts, will be less severe than the Great Recession of 2008.

“My thought process is — subject to us not seeing a dramatic second wave — that this recession will be less economically impactful than the 2008 recession cycle, and the recovery will be quicker.”