Q&A with Thomas Bencivengo of North Field Capital

The key risks are collateral value decline, borrower performance issues, and liquidity timing. We mitigate these in several ways. First, we focus on low attachment points and strong real estate fundamentals, ensuring there is meaningful equity beneath the loan. Second, our structures emphasize senior lender alignment and non-acceleration protections, reducing the chance of forced outcomes that harm junior positions. Third, we structure loans with economic incentives for refinance, such as rate step-ups, which encourage repayment without creating hard maturity defaults. Taken together, our goal is to ensure that time is working in favor of the capital stack rather than against it.

Traditional A/B structures often place B-note investors behind bank lenders that prioritize regulatory capital treatment and balance sheet management, which can lead to quick enforcement actions in a stress scenario. Our model replaces that with insurance-funded senior capital at roughly 35% LTV, recreating a historically conservative lending structure. That means the B-note at 50% LTV sits behind deep collateral coverage and long-duration senior capital with aligned incentives. In effect, we are capturing the yield premium of subordinate debt while benefiting from the structural stability typically associated with insurance company ABS investments.

Our primary protection is basis and structural alignment. We typically acquire B-notes at 50% of appraised stabilized collateral value, meaning our effective attachment point is well below where the value of the real estate lies. In addition, the senior A-note is held by long-duration, insurance-style capital, whose objective is stable yield rather than loan acceleration. This creates a much more patient senior lender compared to banks. We also incorporate other lender protections, which prevent a default from automatically triggering full loan acceleration. Together, these factors significantly reduce the likelihood that a technical default leads to a foreclosure scenario that could impair the B-note. At the end of the day we are still a first lien, senior-secured lender across the entire financing, meaning we have all the traditional rights of foreclosure and secured lender protections available to us.