There is a new kid in town in the mortgage lending arena: Amherst Capital Management LLC.
(Bloomberg) — Bank of New York Mellon Corp. is teaming up with mortgage specialist Amherst Holdings LLC to form an investment firm that specializes in running real estate credit funds.
The new firm, Amherst Capital Management LLC, will invest in commercial and residential mortgage-backed securities and make direct real estate loans. Texas Treasury Safekeeping Trust Co., a $57 billion agency that invests the state’s surplus cash, has made “significant” capital commitments to the Amherst funds, Sean Dobson, chairman and chief executive officer of Austin, Texas-based Amherst Holdings, said in an interview.
The new venture brings together Amherst’s mortgage expertise with BNY Mellon’s access to client money. The demand for real estate financing has grown since the financial crisis, as increased capital requirements for banks have reduced their lending capacity. Firms such as Amherst Capital are seeking to bridge the gap with money raised from private investors, many of whom are clamoring for the additional income that real estate loans provide.
“There is an awful lot of liquidity out there seeking yield,” said William Schwartz, head of the U.S. financial institutions group in New York at DBRS Inc., which rates asset-backed and corporate debt. “In a very low interest rate environment, real estate is one of the places you can get some alpha,” Schwartz said, using a term that refers to above-market returns.
Amherst Holdings advised clients to bet against subprime loans before that market began to collapse in 2007. BNY Mellon is the world’s biggest custody bank and ranks among the 10 largest investment managers, overseeing about $1.7 trillion in assets.
Amherst Capital will originate both residential and commercial real estate loans, said Dobson, who will also serve as CEO at Amherst Capital. Curtis Arledge, the CEO of BNY Mellon Investment Management, said in an interview that the venture was formed so that private investors could fill the lending vacuum created by new regulatory requirements for banks.
“The historical real estate capital channels have less capacity and that capacity needs to be replaced,” Arledge said. “Going forward, we think the providers of capital will be very different.”
Standish Mellon Asset Management Co., a BNY Mellon subsidiary that runs fixed-income strategies, will hold a majority stake in Amherst Capital. Standish oversees about $167 billion mostly on behalf of institutional investors, including endowments and public and corporate pension plans.