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Arbor Realty Trust CEO on helping smaller landlords cope, offering rental assistance program

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Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Arbor Realty Trust CEO Ivan Kaufman about the company’s plan to provide some relief to those who can’t pay rent due to the coronavirus crisis.

Video Transcript

BRIAN SOZZI: Now multifamily lender Arbor Realty is looking to provide some relief to those who can't pay rent due to COVID-19. The company launched a plan it dubbed the Arbor Rental Assistance Program. And it will advance up to $1 million that needs to be matched by the landlords.

Joining us now to discuss is Ivan Kaufman, Arbor Realty CEO. Ivan, thanks for joining us this morning. I certainly want to touch on this, because I believe it's a very important initiative.

But can you give us a snapshot on the business? You have some pretty big exposure to New York and Texas. We've seen the New York economy really ground to a halt. We've seen oil prices plunge. What do your businesses look like in those areas?

IVAN KAUFMAN: So first of all, we're a leading provider of multifamily financing loans in the United States. And we mainly lend to workforce housing. For the month of April, astonishingly, we've had about 99% of our borrowers make their payments. And a majority of the tenants are trying really hard to make those payments, and collections were actually pretty good.

But we anticipate for May and June to be much tougher, as the effects of corona set in. We don't think it's going to be as terrible as people say now, mainly due to a lot of the programs the Secretary Mnuchin and the government have put into place extremely quickly. However, what we've thought about doing is how we launch private capital, how, with our expertise of being very specific, how do we really help those in need? And that's really how we came about launching our program.

BRIAN SOZZI: And take us through that program.

IVAN KAUFMAN: So the program works this way-- we had a couple of objectives. One is we all know that the government was in a rush to get a program out. And we have the approach that one-size-fits-all doesn't help everybody. In fact, we're seeing now that some people got money that didn't need it. And then we're seeing a lot of people can't get money.

It's almost impossible to reach out specifically to those who really need on a global basis. But we, as a company that has expertise and can get very granular, can target our dollars. So what we did is reach out to our ecosystem of borrowers, and say, how can we leverage our capital? How can we leverage your capital? How can we really get to those who need the money?

And what we're finding is there are a lot of people who haven't been able to get government assistance who really want to pay their rent. And we're here to target our dollars very specifically, leverage private capital, and help those. And we're seeing also tenants do want to pay their rent. Tenants do want to be current.

But they need help. And we're here to help them. And we're to help them in a way that when they do dig out, it won't be that painful.

ALEXIS CHRISTOFOROUS: Ivan, tell us how big the program is. I understand that you are matching what landlords can't come up with. I mean, is it-- is it a couple of million dollars? And how long before that runs out, frankly, Ivan?

IVAN KAUFMAN: So we just instituted a program about a week ago. We put up a million, and we're having our borrowers put up another million. And the response has been unbelievable.

It should run out fairly quickly, because it's for rent payments in May and June. And maybe we will refill it. I will say that we're a public company, and our shareholders have been ecstatic about the program.

But my goal is not just simply looking at Arbor, looking at our borrowers, but looking at the universe in total. If we can get 1,000 borrowers and 1,000 other lenders to do what we're doing, we're talking about billions and billions of dollars to reach those who are in need. And that's really the message.

How do we get to those who have really been impacted? And only lenders and borrow-- and borrowers can do that very specifically. And my goal is not just my universe, but to do it on a global basis, and get other partners in the program, and raise billions of dollars very quickly.

ALEXIS CHRISTOFOROUS: Now this is a great way that the private sector is sort of filling the gap of what the public sector is trying to do to help. But Ivan, how long do you think borrowers can sustain the loss of rent before this system begins to break down?

IVAN KAUFMAN: So you have to look at the programs that were put into place. A lot of the unemployment programs that were put into place, certainly borrowers making a certain dollar with unemployment insurance. They've gotten a good-- good amount of reimbursement from the government. It took a little bit of time.

So the question is, how effective are the government programs? Who are they reaching? And, of course, you're going to see people get back to work over a period of time.

Does 1/3 of the workforce get back in May? Does 50% get back in June? Does 75% get back in July? And so on, and so on, and so on. So a lot has to do with our recovery. And how people get back to work, and how long this dislocation lasts.

BRIAN SOZZI: Ivan, I just want to quickly jump back to some of those numbers you shared. So through April, you're not-- you're seeing 90 cent-- 99% collection rates? That's pretty good.

IVAN KAUFMAN: No, we're seeing 99% of our borrowers being able to meet their obligations. We saw a drop off of probably 3% to 5% in collection rates across the portfolio. That was for the April 1 payment.

We do think that there's going to be a significant drop for the next two months. We don't know what that it is yet. But we're thinking that can double or triple. But it still is sufficient for borrowers to meet their obligations, or a majority of them to meet their obligations.

BRIAN SOZZI: Got it. Could you-- more bigger picture here, I know you don't have a lot of exposure to malls. But you have Gap come out this morning saying we're deferring $115 million of monthly rent. And a lot of other retailers, too, are likely in that same situation. What does that mean to the overall commercial property market?

IVAN KAUFMAN: Well, that's a very, very difficult problem. Because as is the deferral, right, to the landlord, the landlord still has to make their payment, right? And if they don't make their payment, they're going to be in default. And even if they do get a deferral, sooner or later they have to catch up.

So the system really is at risk of breaking down. But it's more fundamental than that. Who's going to go retail today? Who's going to go to hospitality today?

That's not going to be a one, two, or three-month dislocation. That could be a 12-month dislocation. And it could be a material change in behavior.

So I do think the system is going to require a re-evaluation for those asset classes. And that's quite different than the multifamily sector.

ALEXIS CHRISTOFOROUS: Ivan, do you think anybody in the housing sector actually comes out of this pandemic stronger than when they went into it?

IVAN KAUFMAN: I think that you're going to have winners and losers. You're going to have companies that are well-capitalized that were very fundamental in their business practices and stayed healthy. And they'll have great lending platforms, such as Arbor.

And then you'll have other lending practices that were maybe a little aggressive, a little leveraged, that fundamentally didn't have good business practices. So like every recession or every adjustment, you do clean house a little bit. However, this is unnatural. You're going to see a lot of people affected who did have reasonable business practices. But this dislocation was unanticipated and deeper than most-- than a lot of people could handle.

BRIAN SOZZI: All right, Ivan Kaufman, Arbor Realty Trust CEO. We appreciate the transparency and what you're doing for people out there.

IVAN KAUFMAN: Thank you. Have a good day, everybody.