What Do Bonaventure & the Nursery Rhyme “Jack Be Nimble” Have in Common?

Overview

Remember the nursery rhyme “Jack Be Nimble?” It’s about jumping over a candlestick to generate good luck for the coming year. At Bonaventure, we like to be nimble but we don’t rely on luck when we make investments.

Bonaventure is a risk-adjusted return investor. In certain financial climates, we’re willing to take a lower return if the investment has a significantly lower risk. Then, potentially, we can invest for a significantly higher return if we see something that’s mispriced. We’re willing to invest anywhere in the capital stack if we can find the relative value.

The important thing is that we’re flexible enough to see that there’s more than one way to invest. If today investing in the mezzanine or preferred equity position offers a better relative risk–reward tradeoff than simply owning the entire equity of an apartment building, we’re willing to do that.

We’re not just nimble. We’re also looking at the landscape. There’s a lot of great real estate we’d like to invest in. Some of them have bad capital structures because they took out a large loan with floating rate debt when interest rates were cheap. The sponsors expected values to grow to the point that when interest rates normalized, they could refinance or sell their property and make a profit. Well, interest rates didn’t stay low as long as these investors needed them to and their balance sheet is off because their NOI didn’t grow fast enough. Their runway was shorter than they anticipated when they created their business plan.

These investors face two problems. First, they’re spending more on debt service because of higher interest rates. Second, if they try to sell now, they could take a loss. That creates a reputational problem for them as a sponsor. It’s a black mark against them.

The solution to all this is to stabilize the capital structure, especially for a great building in a great location. We know NOI can grow them out of this problem if they can get some additional capital.

That’s where Bonaventure comes in. We’re in a position to provide mezzanine or preferred equity investments to help those sponsors who have great buildings and great fundamentals but a bad capital structure. Several years down the road, they can get to the point where they can sell or refinance, return the capital to investors and pay us off.

What uniquely qualifies Bonaventure is that we’re not just offering capital. We’re practitioners ourselves. We know our business and we know what will have a good outcome. We also recognize the benefit of taking on significantly less risk in exchange for a lower rate of return – and so do our investors.