Investment Sponsor Spotlight: Bluestone Commercial Capital
Written By: Daniel Gleich
Key Points
- Bluestone provides private loans to smaller businesses that larger financial institutions tend to ignore. In return, this can help stimulate the economy, generating cash flow for the local community.
- As a balance sheet lender, Bluestone is the manager of the discretionary capital fund, allowing them to make investments on behalf of their pool of investors without bringing in outside participants or selling them off to third parties.
- Their investing philosophy prioritizes mitigating risk, which they achieve by maintaining a low leverage and conservative loan to value.
Bluestone’s overall objective is to devise financing solutions for small businesses who can pledge real estate assets to secure the loan. As a real estate lender, their realty asset types are abundant. Ranging from 1-4 and multi-family residential, to commercial, industrial, mobile-home parks, raw land, and OOC, Bluestone can deliver essential diversification to investors’ portfolios.
Having achieved their fifth-year anniversary in March 2024, Bluestone has paved a road for many that may have formerly seemed unfeasible. Let’s embark on an in-depth exploration of the inner workings of Bluestone:
At Their Core
Madison Trust had the pleasure of speaking with Founder/President Matthew Zonies and Executive Vice President, Russell Walters.
Zonies originally started as a practicing attorney with a background in commercial finance and real estate. While working in a private practice alongside a larger client, he became responsible for performing legal work with a private lender. This eventually led to him becoming a key contributor in their day-to-day operations. It was this exposure to private lending that invigorated a lightbulb moment; he saw that the need for private lending was booming, but banks were tending to retreat from participating in smaller-sized loans.
Since the unfortunate economic period of 2008, bank regulations have increased exponentially. Smaller banks – which were typically seen as the places to visit for these types of loans – could generally no longer afford the requisites of these newfound regulations. This started a trend of consolidation, with regional banks sweeping up community banks. As larger banks don’t typically reap the same benefits with smaller loans, a gap began developing, leaving small-loan seekers in the dust. Hence, the birth of Bluestone.
Walters soon joined forces with Bluestone, behaving as the champion for investors. He guides them through their questions and concerns and ensures that everything is in alignment between the company and the investors. Prior to this, Walters oversaw multiple profit centers affiliated with a fire protection and construction company and has over 25 years of experience in small business management.
Bluestone Products and What They Propose
To get granular, private credit indicates that the lending will stem from an institution that is not a bank. Bluestone specifically offers small balance private real estate credit. They primarily lend through two distinctive products: bridge loans and intermediate commercial real estate (CRE) loans.
Bridge loans are intended to be temporary financing, designed for situations where the borrower is either unable to obtain permanent, long-term financing, or they have a minimal timeframe that doesn’t allow them to secure said financing. Their main concerns are speed and convenience. For instance, this type of borrower could be in dire need of working capital for their business, buying out a partner, or acquiring a new property. These issues are time sensitive, and their incoming funds need to appear rapidly to not miss the opportunity. The underwriting focuses on borrower integrity, strength of collateral, and a well-constructed exit strategy. These borrowers will most likely refinance and venture into more permanent financing or will opt to sell a piece of their property investment to close the loan.
CRE loans homes in on small-balance commercial real estate for income-generating properties. These loans have terms of five to ten years and tend to be less expensive than bridge loans. This is geared towards bank-like borrowers that don’t qualify for a bank loan. The factors resulting in an unqualified stamp usually are circumstances such as their credit score being a couple points below the bank minimum, or they’re still waiting for their tax returns to be filed. These borrowers generally have a reliable borrowing history and solid collateral but are narrowly missing the requirements to achieve bank financing.
Since Bluestone is a balance sheet lender, they serve as the manager of the fund. Therefore, they’re in control of underwriting, origination, and servicing of the loan. They invest on behalf of their pool of investors, without selling the loans to third parties. This allows for fast-action and flexibility, since in conjunction, Bluestone is also making decisions for their own portfolio.
Determining Eligibility and Curtailing Risk
Zonies and Walters use three factors to evaluate someone’s eligibility for a loan:
- Possession of Collateral – Do aspiring borrowers hold marketable real estate?
- Debt Servicing – Is there enough evidence that they’ll be able to afford monthly payments?
- Exit Strategy Viability – When the loan matures, will the borrower be able to refinance through permanent capital or by distributing a piece of their real estate, in-kind?
As they pride themselves on working beside their borrowers, they are open to loan extensions if a developed plan is communicated, and the borrower is current on their loan.
Typically, when Bluestone secures a loan, they secure it with a first lien on a piece of commercial real estate. If the borrower defaults on their loan and doesn’t make payments, Bluestone can foreclose on the property and gain possession of it through a sheriff sale. This suggests that their pool of investors is secured by the first lien positions on real estate. To further minimize risk, they never let the borrower take 100% of the appraised value of the respective property; they stand at 65% across the portfolio.
In a default scenario, this provides an equity cushion. Additionally, Bluestone sticks to regional properties they hold familiarity with, and remain knowledgeable about their asset class. Their decision making is educated and thoroughly investigated.
Bluestone’s Philosophy: Love Thy Neighbor
What they feel is most rewarding about their offerings is the ability to give someone a chance to fulfill something they otherwise wouldn’t be able to accomplish. Whether it’s growing their business, hiring new employees, saving their business from going under, or nearly losing their property, offering some sort of financial reprieve can be a satisfying endeavor. As they mainly work in the tristate, they enjoy helping businesses put food on the table for local families. Serving the community is Bluestone’s goal.
Moreover, their mission statement also coincides with giving down-on-their-luck clients a second chance at success. Some businesses make for spectacular borrowers, but their business is on the verge of collapse due to an oversight or error done by an accountant or partner unbeknownst to the owner. This is especially the case when businesses have a lot of recurring revenue contracts that Bluestone can evaluate.
A Bright Future Ahead
Private lending space continues to bloom at a high annualized, compounded growth rate. Because of this, Bluestone predicts continued advancement by adding new clients, new product lines, and expanding their geographical footprint. They intend on adding properties in Charlotte, NC, Colombus, OH and Washington D.C. onto their roadmap.
Most recently, Bluestone implemented an enterprise-wide software platform called, “Mortgage Automator.” This software helps with organization and communication, allowing for a significant reduction in underwriting time. By utilizing this tool, Walters foresees an even greater increase in transaction speed.
Bluestone has experience in all four phases of the investing cycle, and rests in first position of the capital stack. They’re also first in line to collect proceeds in the event of a sale. The risks they’re taking usually result in outsized returns, and they’re confident in their risk adjusted returns. All in all, Bluestone is eager and excited for everything that lies ahead.
Looking to Learn How You Can Potentially Prosper off Properties
To learn more about investing in alternative assets for retirement, Madison Trust’s Real Estate IRA Specialists are here to help! Schedule a call today to learn how you can get involved in real estate through self-directed investing.
This content is for educational purposes only and is not an endorsement.
