'A Deal in Every Market': Inside Thorofare Capital's Selective Approach

Written by:

Rudi Davis

Date:

27 Nov 2024

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In a commercial real estate market characterized by shifting dynamics and selective opportunities, David Perlman, Managing Director and head of Thorofare Capital‘s New York office, brings two decades of experience to navigate the complexities of today’s lending environment.

Perlman, who joined Thorofare Capital five years ago to grow its debt platform, has helped expand the firm’s assets under management to $1.4 billion, with loan sizes nearly doubling during his tenure. Over his 20-year career, he has originated approximately $10 billion in deals, ranging from $8 million to $2 billion in size.

“There’s probably a deal to do in every market. It’s just what property type to do in those markets,” Perlman explains, highlighting the firm’s nuanced approach to different asset classes. Currently, industrial properties remain attractive, while retail has emerged as one of the strongest performing sectors on the equity side.

The multifamily sector, however, faces headwinds. “Multi-family is under a lot of stress from taxes, insurance, and compressed cap rates,” Perlman notes, pointing to the challenges of properties purchased at historically low cap rates now facing market adjustments.

The office market continues to show a stark divide between Class A properties in strong markets and everything else, leading Thorofare to focus primarily on alternative sectors like self-storage, data centers, and industrial properties. The firm maintains a selective approach to multifamily and retail opportunities.

Geographically, Thorofare finds particular value in less competitive markets. “We like some of the Midwest markets just because they’re not oversupplied,” Perlman says, citing a recent industrial deal in Connecticut where vacancy rates sit at just 4%. While the firm remains active in major markets, Perlman suggests better opportunities often exist in less saturated regions.

Looking ahead, Perlman sees several factors influencing the market. The anticipated Federal Reserve rate cuts are already impacting the business, with SOFR floors being negotiated down and spreads tightening by 50 to 100 basis points. This compression affects return models, particularly on floating-rate deals, requiring careful balance in deal structuring.

However, Perlman’s concerns extend beyond interest rates to broader geopolitical risks and domestic policy changes. The upcoming U.S. presidential election could significantly impact the market, particularly if new policies affect inflation through measures like broad tariffs. He also notes that potential changes to SALT deductions could influence migration patterns between high and low-tax states.

Recent deals showcase Thorofare’s diverse approach. The firm recently closed a fixed-rate multifamily deal in Broken Arrow, Oklahoma, featuring a three-year term in the sixes. In Charlotte, they provided construction completion financing for a multifamily project, while in Texas, they structured a high-leverage deal for a 350,000-square-foot Class A industrial property that achieved 100% occupancy by closing.

Unlike some competitors who are seeing significant growth this year, Thorofare’s volume remains steady following strong growth in 2023 when others pulled back. “We’re not trying to crush every deal… we’re trying to find good deals,” Perlman emphasizes, highlighting the firm’s measured approach in an increasingly competitive market.