Brad Andrus, Principal, NorthBridge Commercial Real Estate
Community Banks, Conservative Debt, Real Returns
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Guest: Brad Andrus, Principal, NorthBridge Commercial Real Estate
A Banker’s Memory Is a Sponsor’s Edge
The episode with Brad Andrus, co-founder of Northbridge Commercial Real Estate, doubles as a primer on operating discipline when capital is cautious and debt is expensive. Andrus’ formative years as a community-bank lender during 2008 show up everywhere in his playbook today: keep leverage modest, size debt to conservative amortization, and ensure deals pencil on cash flow rather than wishful cap-rate exits. He’s carried that approach into a DFW-focused development and investment platform spanning self-storage, medical/garden office, and light industrial.
The Debt That Survives Market Cycles
Andrus’ central point is simple: structure loans you can live with if growth underwhelms. He prefers 70–75% leverage and underwrites to a 1.25x DSCR on shorter (15–20 year) amortization rather than relying on the longest possible schedule. The aim is resilience. That discipline narrows deal flow but raises survival odds when rent growth stalls or refinance markets tighten.
The secondary lesson from 2008: avoid non-cash-flowing exposure with debt attached. As he puts it bluntly: “I don’t… like leveraged land,” unless there’s another source of cash flow to service it. That’s a useful governor in a market where carry costs, taxes, and insurance rise faster than yields on “option-value” land.
Why Community Banks Still Matter
Northbridge funds roughly 90% of its loans with relationship-driven community banks. That isn’t nostalgia; it’s strategy. Local lenders know the submarket, know the sponsor, and underwrite cases on business character and track record, not solely on model outputs. In a tighter credit regime, those relationships can compress execution risk and timelines relative to volatile conduits or national lenders.
The trade-off is price: community bank rates float higher than pre-2022 norms, and underwriting screens are stricter. But for sponsors who under-ask on leverage and over-deliver on communication, the reliability premium is often worth it.
Equity: From FOMO to “Show Me”
If the debt story is about relationships, the equity story is about scars. Andrus notes that many accredited investors who diversified across sponsors in 2021–2023 have now lived through write-downs, extensions, and capital calls.
The result is a preference shift toward stabilized or near-stabilized assets with a modest value-add path and day-one cash flow. Development and heavy value-add still attract capital but require clearer risk-mitigation narratives and stronger sponsor co-investment. Northbridge has flexed by doing more “internal” deals—fewer outside voices to answer to, faster decisions, and tighter control of risk.
Self-Storage: Price the Cycle, Not the Dream
Northbridge’s largest exposure is self-storage. The macro headwind is surprisingly simple: storage churn depends on household mobility. With mortgage “lock-in” suppressing moves, lease-ups have slowed even in strong metros like DFW. The competitive response is textbook: temporary price concessions to build occupancy, then methodical yield management once the asset sits in the 85–90% range. Storage’s operational advantage, hundreds of short-term tenants instead of one long-term tenant, enables that pricing agility.
As Andrus puts it, the “sweet spot is about 85% occupancy,” where owners can nudge rents without cratering physical occupancy. The near-term plan: prioritize occupancy, even if it means “rent and repent” for a season, then harvest rate power as mobility normalizes.
Capital Preservation as a Credibility Test
For a sponsor cohort that marketed “promised lands” in the zero-rate era, 2024–2025 is a reckoning. Andrus frames the investor mindset crisply: preservation first, upside second.
What wins repeat checks now? Transparent communications through hiccups; measured use of leverage; sponsors feeding deals themselves rather than reflexively calling capital; and operational creativity in leasing. Investors who have seen a sponsor “fight for them” during a choppy period are more likely to re-up when the next opportunity appears.
Tactics Sponsors Can Use Now
- Underwrite the bank’s downside, not your upside. Size loans to shorter amortizations in your models so DSCR holds if growth underwhelms.
- Favor cash flow in the capital stack. For land or heavy value-add, either find interim income or lower/avoid leverage.
- Use relationship lenders as execution insurance. Price isn’t the only variable when market windows open and shut quickly.
- Own your occupancy narrative. In storage (and similar short-term tenancy assets), a deliberate path to 85–90% with flexible pricing can be more valuable than squeezing for rate on empty units.
- Communicate relentlessly. Investors now judge sponsors on how they behave in adversity as much as performance.
AI: Incremental, Practical, Here to Stay
Northbridge’s AI posture is pragmatic: record, summarize, and search conversations to accelerate decisions; experiment with triage tools that sift offering memoranda and auto-populate models; and keep testing without over-promising. This is not silver-bullet territory, but an edge that compounds through workflow capture and retrieval. It’s the same mental model as underwriting discipline: many small decisions, consistently executed, beat single grand bets.
The Bottom Line
The episode’s through-line is professional sobriety: lower leverage, cash-flow bias, relationship banking, and operational flexibility. In a market obsessed with timing “the turn,” Andrus’ approach reads less like a trade and more like an operating system. For sponsors and LPs alike, that is, quietly, the most durable edge on offer.
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