Private Lenders Look Past Turbulence
- Jan 23, 2019
At a time when tariff wars, Washington, D.C. scuffles and the exit of top administration officials have contributed to recent turmoil in the financial markets, an increasing number of real estate developers are finding some pullback among their traditional financing sources. Banks and other real estate investors in general seek certainty and tend to reduce their exposure when the market gets rattled. Many developers continue to look to high-yield private lenders, especially those who do not shy away from complicated projects, to achieve their business plans.
One such example is a Florida-based investor who saw an opportunity to acquire land in Bonita Springs that could conceivably host a marina and a senior citizen facility. He was unable to secure conventional financing because the property needed significant rezoning and variance approval before it could be marketed to developers. Our team analyzed the property and the local market—and considered the experience and financial health of the investor—and proceeded to extend a $12 million, 18-month “predevelopment” loan. Case’s financing gave the investor the breathing room he needed to get it market-ready. Fourteen months later, the land was successfully sold to a developer and the loan was paid off—in full and ahead of the due date.
When banks reviewed the Florida investor’s loan request, they turned it down because they did not think he would have the experience to procure the multiple variances and authorizations. Although this was the investor’s first transaction in this segment, we considered his previous successful projects, along with his net worth and ability to pay off the note even if the project did not go as planned. These kinds of reasonable assurances gave us the confidence to move ahead with the loan.
Numerous other complex opportunities are out there, and despite the recent roller-coaster market activity and the likelihood of higher interest rates, we are seeing increased activity in a number of sectors. They include warehouse; commercial, particularly facilities that offer co-working space; rental and condominium residential multifamily; and retail, in which—despite the inroads of e-commerce—retailers that pair quality products with top-level customer service are still succeeding.
We also anticipate new opportunities in New Jersey, where the likely legalization of recreational marijuana use will create new demand for land for growing the plants and for warehouses for storage and processing.
There will be some challenges, of course, including the possibility of an inflationary spiral that may be triggered by the tight labor market and higher commodity prices. And more investors may keep their capital on the sidelines until the economic upheavals abate. Visionary developers, however, will adjust their capital budgets accordingly, and will continue to launch new projects.
An increasing number of them will likely tap private lenders for funding, since they continue to have access to capital to invest. Similarly, experienced investors will continue to be presented with opportunities that go beyond a cookie-cutter format while offering potential returns that exceed cookie-cutter standards.
Chris Mavros serves as managing director, principal & CFO of Case Real Estate Capital LLC. He possesses more than 20 years of experience in financial control, oversight of loan portfolios and their servicing, and asset and property management.