The Exchanges

Q How do you think about in your holding when it comes time to potentially have to take back the keys and own the properties?

A So we don't actively seek to own the properties. If we end up owning the properties, there's really significant friction cost on the transaction due to transfer taxes at broker fees and carrying costs. And so we've found historically that you're better off settling with the borrower before it comes to that. We are willing to take back the keys, and we've done so about 10% of the time that we've made investments in non-performing loans, and so we've taken back the keys about 20 buildings. We presently own about four properties, and we seek to sell them immediately through a broadly marketed process. Occasionally, there are small things to do to those properties to clean them up to maximize price, but we're generally not seeking to take on Ownership or development risk. We don't find that that is the risk that our limited partners are looking for, and we don't think it's risk that's appropriate for us to take on. There's somebody out there that's better at doing that than us. What we're great at is finding complex situations where loans are in default and realizing the value from the loan side.

AI assessment note: “we don't actively seek to own the properties... seek to sell them immediately”

Q What was it like for you guys taking that leap?

A It's a little bit scary. You're giving up good jobs. You're giving up certainty of income. It's also extremely exciting. I was working for a real estate developer. There was no capital available in the market to build anything, and so I wasn't really working on anything meaningful at the time, and that bothered me more than anything. My wife and I were expecting our first child, and I asked her, what do you think? And she said, well, if you don't do this now, it's going to be a lot harder down the road once we have our first son. And so I told Dave I was expecting a child with my wife. He said, let's do it. I said, I don't know where this road's going to lead, but we've got to make some money, and we've got to do it quickly.

AI assessment note: “It's a little bit scary. You're giving up good jobs.”

Q What was the first break you had in terms of either an opportunity on the investment side or capital to fund it that made it begin to work?

A Our first break was a call to a banker who invited us into his office, and he saw us as industrious, entrepreneurial guys, and as we were leaving the meeting, we had a nice discussion with him for about an hour, he threw an appraisal at us, literally threw it to me, and I caught it, and said, tell me what you think about this, and we went back to our office fast and furiously trying to figure out what the situation was, and it was a loan secured by almost a full city block of land in a good area of Williamsburg, Brooklyn. The default rate of interest on the loan was 24%. It had been in default for two years, and we perceived the loan to value on the property to be about 40%. So very well secured loan with lots of accrued default interest, and we immediately called some of the private equity managers that we had been talking to and said, hey, we've got this situation. We want to take a look at it. What do you guys think? And we got to work at underwriting it and putting an investment memo together for it.

AI assessment note: “Our first break was a call to a banker who invited us into his office”

Q How competitive is it once you've determined there's a loan that you want to put an offer onto and going from that to acquiring the loan?

A I would say it depends. There are many transactions that we do directly with banks and private lenders where there is no broker or middleman marketing the loan. So those I would say are not competitive. I would say that's the majority of the transactions we've closed where we have identified the distress We've contacted the banker, and we've bought the loan. That is more typical in a healthy market, where it's a good loan gone bad, meaning LTV is good, and you can pay up to the principal balance of the loan. Today, we're in a very distressed market. We have rising interest rates, inflationary pressures on expenses, decreasing cap rates, general uncertainty around valuation in certain asset classes, demand questions, and Loans and their values are far more uncertain, and so what we've been experiencing in the market for the past 12 months, and really even further than that, going back to the beginning of interest rate hikes, is a bid-ass gap in the market, and so we've never been busy or underwriting or looking at opportunities, but we are not closing a lot of transactions.

AI assessment note: “There are many transactions that we do directly... So those I would say are not competitive.”

Q Have you thought about the whole world of gen AI in looking at your data?

A So we've had some recent evolutions in how we're working using some of the gen AI and chat GPT or large language model type software. We're looking at a very large portfolio of loans, and we are able to build a large language model that actually ingests the loan documents and pulls terms From those loan documents, inputs them into a spreadsheet. It's able to do that at a rate that is superior to what a human can do, and at a scale that no human could do. And so, we see that as having tremendous opportunity for us as we go forward. Our data includes lots of documents that we've ingested from the city, from the state. These are documents that are publicly available, and there is information inside them The ability to analyze them on a broad basis for terms, for information, I think will generate substantial information edge for us.

AI assessment note: “we are able to build a large language model that actually ingests the loan documents”

Q What was that like growing up with two musicians?

A It was challenging. My parents were my music teachers. There was an expectation around practicing. They instilled in me the quality that you should practice daily, that you should perform repetitions. As I grew older, I was more interested in athletics than I was music, and I think that was difficult for them to understand. How could they possibly have An athlete as a child. I continued with music through high school and sports. I played soccer and lacrosse. I was the kid that went late to practice because I had orchestra rehearsal, and I was the kid that went late to jazz band because I had a game, and so I was constantly juggling these two disciplines, and while my parents saw them as extremely different, I saw them as extremely related, certainly in retrospect. Practicing or repetitions, just as important in sports as in music. Being part of a team and collaborating with people, just as important in sports and music. Making sure that you're aligned with each other. Sports and music, the same. And so, after high school, I went to Princeton University where I studied architecture. And architecture for me really touched on a lot of the things that That I had grown to love as a student, using my analytical and creative skills together to design solutions to problems, and then create visual representations of them, generally around the built environment. I was fortunate to also b…

AI assessment note: “It was challenging. My parents were my music teachers.”

Q What is the sweet spot of the non-performing loan you're looking to buy look like structurally?

A Our average loan size is seven million dollars. The majority of the loans that we're buying are two to twenty million dollars. That middle market space, there's a tremendous amount of opportunity for us to play in it because it's complicated, because the material is complex, and because there's not a lot of other capital pursuing those opportunities, not in a systematic way the way we are at Maverick. The loan we're looking to buy is that the underlying collateral has cash flow, that it's an extremely liquid property, meaning there's lots of demand for it, so It should be very financeable. I think those are primary on the collateral side. From the loan side, the lower the LTV, the better, because that encourages that fast payoff. If you think about the loans that we buy, a loan that is, say, 20% LTV has a lot more equity for a borrower to refinance the property and pay us off. Naturally, those aren't the ones that tend to be in default. It's the ones that are much closer towards that 70% edge, but those are the things we're looking for.

AI assessment note: “The loan we're looking to buy is that the underlying collateral has cash flow”

Q How do you think about bigger players competing with you? Think about large real estate players in the city coming into the space.

A So our average transaction size is seven million dollars. That keeps a lot of the larger players out of our space. It's too complicated and too much work for them to get involved. They do show up once the deals start getting larger. I think that they don't have The systems and resources that we do to analyze these things to the same level. I think we saw after the global financial crisis, the larger private equity fund managers who were investing in non-performing loans left because there wasn't enough opportunity there for them anymore. We stayed and got better at it. They're returning. We're hearing about them looking at opportunities. There's also tourists in the space, people that haven't been there before, that don't understand what they're doing. And I think There's plenty of opportunity in the market for us. I think we're one of the most credible players in the market. I think lenders have transacted with us for that reason. We've transacted with over a hundred different lenders since we've started the business. And so if they want to overpay to win opportunities, they will do so. And in some cases, maybe they get lucky and win, and in others, they won't. But we'll continue sticking to our standard of underwriting and analysis.

AI assessment note: “our average transaction size is seven million dollars. That keeps a lot of the larger players out”

Q Ted, I want to ask you a couple of closing questions before I let you go. What is your favorite hobby or activity outside of work and family?

A So I really love ambitious projects that solve problems and get my hands dirty. One example of what a project looks like to me is a few years ago, I bought a 1963 Vespa to ride on my commute to the train station, and it turned out to be a lemon. I don't know anything about small motor cycles. On top of being a lemon, it was really loud, and it exhausted a ton of smoke. That's not good for the environment. Noise isn't good for my neighbors early in the morning when I'm commuting to the train, and I needed a solution. So I got the idea to convert it to being an all-electric vehicle, and I Figured it out. It took me about four months. I spent a lot of time in blogs and chat rooms and ordering books. This was no small challenge. It really combined everything I love, which is solving problems, designing solutions, and then actually executing on those solutions.

AI assessment note: “I really love ambitious projects that solve problems and get my hands dirty.”

Q As David and you have grown this organization from just the two of you to what it is today, what is it about your partnership that's made that work?

A So when I think about partnership, I think about alignment. David and I are fifty-fifty partners. We're extremely aligned. We have equal decision-making. We have the same level of capital invested in all of our deals and vehicles, and I think that first five years in business, we learned a lot about what that really means. It was just Dave and I in a room trying to figure out what we're doing, trying to figure out how to do it better as we uncovered it, and it required a certain way of being, of being very transparent with each other, being very direct, Providing feedback as to how we are doing. We knew very early on that we were committing towards a long-term relationship, and we wanted our decisions to be aligned for the long term, and that's really how we thought about our partnership. But I think that partnership extends beyond just David and I to how we interact with our other partners, and by other partners, I mean our limited partners, I mean our employees, I mean our third-party service providers. In effect, we're all in this together, and I think you have to think about alignment when you're thinking about partnership goals. When you think about the LPs, you have to think about the vehicles and the term of those funds. They're long-term vehicles. They're long-term relationships. The LPs have long-term causes that they want to fund, and so we approach our LPs in very mu…

AI assessment note: “David and I are fifty-fifty partners. We're extremely aligned. We have equal decision-making.”

Q How did you find your way into development at a business school?

A So most people go to business school, in my mind, for one of three reasons. It's to learn something, to meet people, or to climb the corporate ladder. For me, I really wanted to go learn something. I've always been very driven by this curiosity and this desire to learn. I wanted to understand capital flows and real estate and buildings and how it all worked. Turned out that was also a great place to meet people. That's where I met David Aviram, who's my fifty-fifty partner in Maverick. We've been business partners since 2010. We started out as friends in business school, and at Happy Hours, we talk about our entrepreneurial ideas and how we wanted to run our own real estate business one day. We looked at opportunities together. But post-business school, we both took jobs at firms. We were building our lives. We got married. From time to time, we would look at opportunities together. But generally we had jobs. I was working in real estate development. Dave was working in real estate investment sales at Eastill Secured. And we continued down those paths, watch each other got married, went to each other's weddings, enjoyed New York City. And the global financial crisis hit in 2008. We knew that there had to be a tremendous amount of opportunity in the marketplace. And those entrepreneurial ideas or those seeds that we planted back in business school They started reappearing in our…

AI assessment note: “I wanted to understand capital flows and real estate and buildings and how it all worked.”

Q There's been this COVID dynamic of work from home and a little more flexibility than there used to be. How is that impacting the commercial operators in the city?

A Really that's affecting the office owners. We actually own no debt secured by office in New York City. We find valuing office to be extremely challenging today for the obvious demand reasons that you're asking me about. Anecdotally, what I can tell you is that every day I feel like more people are coming to the city. Dave and I ride the train in together from Connecticut every day, and every day it gets more and more difficult to find two seats next to each other. You feel it at lunchtime. You feel it continuously. It does feel like there is a rebound towards returning to office, returning to work. Friends of mine from where I live in the beginning said, never going back to work again. It's over. And then that shifted to one day a week. And now the conversations you hear is, I hope I can hold on to my Fridays. What we found is that we like being together. We like to collaborate. Those two years of COVID while extremely productive for Maverick were extraordinarily lonely. You spend more time with your work colleagues than you do even with your family. Hopefully you like them. Hopefully you enjoy what you do. And I think that's how people are. And I think that's how people are most productive.

AI assessment note: “We find valuing office to be extremely challenging today for the obvious demand reasons”