James Flynn Oversees Melding of Three Brands

CEO of Hunt Real Estate Capital is tasked with consolidating Lancaster Pollard, RED Capital Group and Hunt into a lending powerhouse.

By Matt Valley

It may not be a household name just yet, but ORIX USA is certainly making its mark in the world of commercial real estate finance. In January, the U.S. and Latin America business hub for Tokyo-based ORIX Corp. completed its acquisition of New York City-based Hunt Real Estate Capital LLC. 

Simultaneously, ORIX USA announced that it would combine Hunt with its two ORIX Real Estate Capital brands — Lancaster Pollard and RED Capital Group — to form a full-service entity with the goal of emerging as a top-tier national commercial real estate lender. The newly formed organization brings together about 600 employees.

Through its network of 25 offices, Hunt Real Estate Capital has earned a solid reputation for providing tailored financing solutions for multifamily and commercial real estate investors nationwide, including a full range of Fannie Mae, Freddie Mac, FHA and proprietary loan programs.

Lancaster Pollard is a provider of investment banking, mortgage banking, balance sheet lending and private equity services focused on the full continuum of senior living and healthcare clients. Additionally, Lancaster Pollard has long been a leading FHA/HUD Lean lender in the seniors housing space. Meanwhile, RED Capital’s strength as a brand is that it is a
Fannie Mae DUS lender, a MAP and Lean FHA lender and a Freddie Mac small balance lender. The home base for both Lancaster Pollard and RED remains Columbus, Ohio.

The newly created company, the name of which is yet to be determined, will be led by James Flynn, Hunt Real Estate Capital’s chief executive officer. Together, the annual transaction production for Hunt Real Estate Capital and ORIX Real Estate Capital exceeded $10 billion in 2019 with a combined servicing portfolio of more than $40 billion. Flynn will be based in New York City. The New York, Dallas and Columbus offices will serve as the “three power centers for the organization,” he says.

Seniors Housing Business spoke with Flynn about the company’s near-term opportunities and challenges and how seniors housing fits into ORIX’s strategic plans overall. 

SHB: Is there a message you want to drive home to the seniors housing community about this newly combined entity?

James Flynn: The primary message is that our goal is to continue to serve the same clients that we’ve served, but we also want to work with them to find new ways to provide capital solutions, to offer different ways for us to capitalize their products outside of just FHA or Fannie Mae and Freddie Mac. We want to use our balance sheet to provide third-party capital and to really help our clients grow as we grow that business. 

We certainly are very bullish on the seniors housing space. In terms of volume, 2019 was down a little bit. It wasn’t as good of a year as one would have hoped, but we also believe that will lead to a bigger 2020, 2021 and beyond as the absorption rate of seniors housing increases. [According to CoStar Group, sales volume of independent living, assisted living, continuing care retirement communities and skilled nursing facilities dropped from $9.1 billion in 2018 to $8.8 billion in 2019, a 3 percent decrease.]

In particular, we want to work with our clients on how to help them finance middle-
market and affordable product in the seniors housing space. We want to work with the agencies and other capital sources to help resolve what is a similar story in multifamily and housing in general, the affordability issue that we face across the board. 

Expanded solutions for clients

SHB: Is there an example of a capital solution that you couldn’t provide before but that you can execute now?

Flynn: It’s not that we weren’t able to provide some of these solutions before, it’s just that we’re better able to do so now. With the Hunt acquisition comes our growing investment management platform that currently manages a publicly traded commercial mortgage REIT. [Hunt Cos. Finance Trust Inc. trades on the New York Stock Exchange under the ticker HCFT.] The REIT allows us to  finance larger transactions because we have another source of capital. 

So, we have our own balance sheet, we also have private equity funds and we also have a public entity. We could diversify the risk into those different capital pockets, and that allows us to potentially do a larger transaction. That’s one thing that we think could be beneficial to clients.

On the investment management side, the seniors housing side in particular, we have our Propero Seniors Housing Equity Funds (used for development and acquisition). We expect to combine that with Hunt’s investment management business and work to come to the market with new funds in order to do more deals in that space as well. That would include anything from equity to other debt and mezzanine-type products.

SHB: How much business overlap is there between former competitors Hunt, Lancaster Pollard and RED Capital Group, and what do you say to clients who may wonder who their point of contact is now? 

Flynn: One of the benefits this organization has had through this newly combined entity is that given the size of these three different platforms, there is a relatively limited amount of overlap. We’re fortunate, and it is one of the rationales for why this combination makes sense. But the very direct answer is that clients have different relationships, and ultimately the client is really the deciding factor as to who provides its service. 

Scale and breadth are key

SHB: What is your greatest opportunity and challenge for this new entity?

Flynn: I do believe we can really be the pre-eminent national provider of capital — particularly in the middle-market space in both seniors housing and multifamily and commercial real estate — that’s a nonbank entity. There are very few organizations in the country that have the scale that we have and the breadth of product. We have all the agency licenses along with many different proprietary and balance sheet products. We can really become a go-to capital provider for our clients and build long-term loyalty that will allow us to maneuver through challenging markets and maneuver toward whatever the appropriate capital need or service that they are looking for. 

The biggest challenge in the near term is making sure that we integrate the organization quickly and effectively, and that all of our processes and business services that we’re providing to our clients remain undisrupted through this transition period.

SHB: How committed to the seniors housing space is ORIX?

Flynn: Seniors housing will continue to be a very important part of our organization going forward, no question about it. We like some of the spaces that are a bit more complicated and come with some nuances. For example, we like affordable housing, manufactured housing and tax-credit syndication. There are a number of areas in which we’ve chosen to participate because we think we have an advantage due to our understanding of the market.

Affordability issues persist

SHB: What is your assessment of the health of the seniors housing industry today?

Flynn: Broadly speaking, we have a relatively healthy market. There have been years in the past where the timing of seniors moving from their homes, apartments or condos to seniors housing was probably more elongated in some cases than what was originally projected. Much of that drag has been removed, and we are getting to the point where we will see a fairly significant increase in the need for seniors housing. That’s obviously good for us. We continue to see attractive pricing. There is a lot of capital flowing into the space. People in the industry see all the things that we see in terms of the growth opportunities. 

The seniors housing space does face a shortage of affordable housing. On the one hand, that’s tended to drive up prices, but on the other hand it has brought forward a number of opportunities to be a leader in that space and create solutions to that crisis.

SHB: There is consensus that the affordability problem is at a crisis level in our country, but there are seemingly few answers. What solutions do you propose?

Flynn: At a high level, there are a number of ideas that I have. There is one that I do like very much, which holds true whether it involves seniors housing or affordable multifamily housing. And that idea is to bring all parties on the for-profit side of housing to the table. That includes investors, owners, operators, property managers, lenders and ultimately tenants. The primary issue with housing in general, whether it’s seniors or otherwise, is cost — the cost to acquire the land, the cost to build and develop. It’s very hard to develop a new project unsubsidized and still have it be affordable.

However, there are many for-profit institutions — whether they are money managers or large corporations in investment vehicles — that have a social investment thesis as part of their investment strategy. At one time it was very popular for that strategy to be environmentally focused, and it still is. There is a real opportunity to work with those types of institutions to lower the cost of capital on the investment side and then require that those savings be pushed through to the developer, which in turn pushes those savings through to the tenants.

A quiet giant

SHB: What would you like our readers to know about ORIX? Is ORIX a household name?

Flynn: No, I don’t think it is a household name. Something that we will really focus on through our branding efforts over the next couple of months, really the next year, is what we think the right messaging is and what the right brand is. People should know that ORIX has been around for decades and has been an extraordinarily successful investment company. 

While the company is based in Japan, much of its success has been here in the U.S. [ORIX USA and its family of companies have $70 billion of assets under management, administration and servicing, including $10 billion held by the company and its subsidiaries.] I don’t think people recognize how smart of an investment company that ORIX has been, how successful it has been and, frankly, how large it is. n