Norman Radow, CEO, The RADCO Companies
A Rolling Loan Gathers No Loss
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Guest: Norman Radow, CEO, The RADCO Companies
The Workout Mindset Returns
Norman Radow built RADCO by doing what most sponsors avoid: taking control in chaos, fixing broken assets, and exiting when others are still modeling miracles. His career was forged in complex restructurings, first as Lehman’s off-balance-sheet “workout company,” and then, after Lehman’s collapse in 2008, unwinding vast, litigation-heavy portfolios. That perspective colors his view of today’s market: price, not platitudes, is what matters – and business plans must adapt as conditions change.
2021’s Hangover Isn’t Done
Radow’s core diagnosis is blunt. Late-2021 buyers paid sub-3.5% caps for 1970s–80s assets, often on pro forma annualized 15% rent growth. Then two things hit at once: rent momentum stalled and rates surged. Add insurance spikes and heavier OpEx and they were wiped out. He’s seeing many of those deals not merely eviscerate equity but pierce into the risk tranches of debt. In his management book, roughly half of legacy assets are underwater at a magnitude that makes mark-to-market painful – hence lender reluctance to trigger a “transaction event” that would force write-downs.
Lenders: Avoiding Moss (and Marks)
Call it “extend and pretend,” or as Radow prefers, “a rolling loan gathers no loss.” The point: many credit teams are structuring time-buys, extensions, modifications, A/Bs – anything to avoid headline losses. In one case, RADCO bid roughly 25% below the outstanding loan on a failing 1980s property; the lender instead gave the (out-of-money) sponsor a free extension on similar terms RADCO had proposed for a recap, purely to dodge recognition. It isn’t a mark-to-market regime, and until price discovery clears that backlog, volume will dribble.
The Liquidity Illusion
Yes, liquidity is back but it’s behaving like early-cycle equity in public markets: it concentrates first in core, large-cap equivalents. In multifamily, that means stabilized, Class-A, institutionally managed properties, some trading at low-4 caps, financed with fixed-rate agency debt around the mid-5s. That’s negative arbitrage from day one. Buyers are underwriting “make-it-up-in-the-out-years”: below-replacement entry plus rent growth in 3–4 years as supply fades. Radow concedes the logic but treats it as a bet, not a base case. He’d rather start at neutral or positive carry and let upside be gravy.
Supply Clears, But Affordability Decides
The pipeline will thin dramatically. Radow cites research suggesting 2026 multifamily deliveries could look like those in 2012, the post-GFC trough, implying a multi-year window for rent growth as absorption catches up. Yet the constraint won’t only be supply; it will be paychecks. Affordability, after 2021’s spike, caps what tenants can absorb. That steers him toward older assets with room for operational upgrades and selective, ROI-tested renovations, product that can clear at rents middle-market tenants can pay.
What CRE Professionals Should Do Now
1) Stop fighting the last war – price today’s risk.
If you’re still “waiting on rates” to save the capital stack, you’re underwriting hope. Many lenders won’t transact because they fear marks; focus on situations where you can solve a problem (delinquency, deferred maintenance, mispriced renewals) and get paid for doing so. Expect bespoke structures – A/B notes, cash-flow mods, short-fuse covenants – to become the norm in the distressed CRE world.
2) Avoid the core crowd unless your capital is competitively priced.
Negative arbitration (buying at cap-rates below cost of capital) is a tax on patience and a subsidy to your pro forma. If you’re playing there, you must have a clear replacement-cost edge, real operating leverage, and confidence you can push loss-to-lease without breaking affordability. Otherwise, let institutions warehouse that duration risk.
3) Hunt “operational distress,” not just financial distress.
RADCO’s edge is systematic triage: cure delinquency, restore an efficient rhythm in how vacant units are turned over and re-leased, normalize renewals, and stage capex based on real leasing signals – not a one-size-fits-all “pallet.” Phasing matters: test, learn, scale. The 2000s thousand plus unit condo-conversion tale he recounts, emptying everything at once and standardizing finishes, was a masterclass in what not to do.
4) Underwrite fraud and insurance like first-order inputs.
Organized application fraud rose with pandemic-era churn; screening systems get gamed. Insurance, especially in coastal and storm-exposed metros, has jumped multiples and capitalizes straight into value. Treat these as base-case assumptions, not tail risks.
5) Syndicators: don’t compete head-on with Blackstone.
Radow’s guidance to accredited capital is consistent across cycles: swim where mega-private equity shops don’t. The crowd will migrate later if returns show up, just as they did when value-add B-class compressed from ~9 caps into the 3s over the last cycle. Your advantage is speed, focus, and a tighter feedback loop between leasing data and project scope.
The 2025–2027 Playbook
The near-term is a stalemate: lenders slow-walk, sellers seek yesterday’s price, and only hairier deals clear. That’s precisely where skilled operators can earn real equity. The medium-term is more attractive: as starts collapse and demand normalizes, the rent curve should steepen, especially for well-located, non-luxury stock improved with ROI-tested upgrades. If you can buy below replacement, stabilize operations, and finance without relying on heroics, you’ll be positioned to harvest when the market finally re-prices risk.
Radow’s parting counsel is deceptively simple: embrace the workout mindset. In a market built on 2021’s optimistic spreadsheets, the sponsor who solves prosaic problems – collections, maintenance, renewals – will out-earn the sponsor who waits for macro to bail them out.
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