Flexible Solutions: Q&A With a Small Commercial Lender

Gelt Financial Vice President Noah Miller on adjusting product offerings based on new market needs.
Noah Miller, Vice President, Gelt Financial. Image courtesy of Gelt Financial

Lenders have been compelled to adjust to the economic dislocation sparked by the pandemic. Small commercial lenders have been especially impacted, as many capital providers were forced to shut down.

Gelt Financial, a private, direct balance sheet lender, has maintained lending activity during these past months by employing flexible financing solutions.

“One way we have shifted in the crisis is being more open-minded to providing smaller loan amounts,” Vice President Noah Miller told Commercial Property Executive.

CPE spoke to Miller about the challenges small commercial lenders face amid COVID-19 and potential lending opportunities heading into 2021.


READ ALSO: Pandemic Accelerates, Rather Than Starts, CRE Trends


What are some of the challenges and opportunities the current lending environment has presented to small commercial lenders?

Miller: Most small commercial lenders are backed by warehouse lines or are brokering their loans to bigger shops. It is no surprise that most of these institutional capital providers are wary of lending during times of uncertainty, and, as a result, small lenders have been forced to shut down due to capital drying up. Gelt Financial is not backed by warehouse lines or credit facilities but instead operates as a direct balance sheet lender. This has allowed us to continue actively lending throughout COVID-19, providing liquidity in a market that has become very illiquid.

What are some best practices when it comes to assessing the creditworthiness of new real estate borrowers?

Miller: As a lender, the two rules to go by when assessing a potential borrower are experience and preparedness. First, review the CRE borrower’s professional background: Have they previously owned commercial real estate, managed property or worked for an owner or developer? Experience ties to my next rule of assessing preparedness efforts.

Secondly, ensure your borrower is prepared for uncertainty, i.e., a sudden shift in the economy, a CapEx plan going over budget or tenants leaving the property, causing a significant uptick in vacancy. There are a lot of unknowns in the commercial real estate world and as a lender, it is imperative to ensure that your borrower is prepared for any issues that may arise.

How has Gelt Financial navigated the financial climate since the onset of the pandemic? Can you tell us about your approach in order to maintain lending activity?

Miller: As a private, direct balance sheet lender, we were never forced to stop lending during the pandemic. In fact, we were getting more creative and flexible with our capital. We ramped up our origination efforts, increased back-office personnel and increased our maximum loan amounts from $2 million to $5 million.

We speak with hundreds of commercial real estate investors who own quality assets that had very limited borrowing choices and committed ourselves to being available, flexible partners. For example, just last month we provided a $3 million first mortgage on a 152-unit multifamily asset in Columbus, Ohio. The property, close to stabilization in a growing market, was in the middle of a complete repositioning plan, which included multiple down buildings.

Looking ahead to 2021, which are the asset classes considered “safe” for commercial lenders?

Miller: Residential is a safe investment whether it’s multifamily, single-family homes or manufactured housing. Why? Simply put, people need a place to live.

We recently closed on a $1.4 million first mortgage on a manufactured housing community in New York, where the buyer was the property manager for the last seven years. This was a special project for me, as we were able to offer an opportunity to make someone a first-time commercial real estate owner. In addition, we are in the middle of closing two more manufactured housing communities, both under $1 million, in Michigan and Ohio.

Although not considered a “sexy” asset, we love the stability, cash flow and growth potential of this sector. Manufactured housing has a real shot at becoming the asset darling of 2021.

Has Gelt Financial been closing any transactions involving retail, office or industrial assets? Has the health crisis shifted the way you evaluate potential transactions?

Miller: While COVID-19 has certainly made an impact on a slew of commercial assets, we still believe there are profitable opportunities in these sectors because ultimately consumers need a place to live, work and play. Despite the pandemic, Gelt has lent on small strip centers, single-tenant properties and medical offices since March 2020, when the virus hit. One way we have shifted in the crisis is being more open-minded to providing smaller loan amounts—i.e., a minimum of $100,000—in order to diversify our portfolio. In addition, we have been strategically placing capital in highly populated markets that show no signs of slowing down.

In terms of distressed properties and a potential wave of foreclosures, how does the COVID-19 crisis compare to the 2008 recession? 

Miller: Thankfully, we have not seen the level of foreclosures as we saw in 2008. However, there are select sectors, including hospitality and retail, where we are starting to see early indications of future distress. If you are a property owner and you are seeing any signs of distress, my advice is to get ahead of it. Reach out to your lender today and make a contingency plan—e.g., enter forbearance, a payment plan, etc. Remember, preparedness is important during these uncertain times.