Why Investors Need to Roll Up Their Sleeves

Alex Horn, BridgeInvest's founder & managing partner, discusses the alternative lending environment and evaluates how the financing needs of small-property borrowers changed in the years following the recession.
Alex Horn, BridgeInvest
Alex Horn, BridgeInvest

BridgeInvest is a relatively new player in the lending landscape. With roughly seven years since it began its operations, the real estate finance company offers three lending programs: specialty bridge, small balance and construction. The latter was added just last year, as a timely response to constricted construction loans from banks.

Like several other alternative lenders, BridgeInvest puts flexibility and fast execution at the core of its business. Alex Horn, the firm’s founder & managing partner, shared his views on the small balance loan market and why investors will need to work harder to leverage real estate assets.

We’ve noticed a constant growth of the alternative lending landscape in recent years. What can you tell us about the reasons behind this rise?

Horn: Financial regulations, including the Basel III accords and the Dodd-Frank Wall Street Reform and Consumer Protection Act, have placed additional capital and liquidity requirements on traditional lenders, thereby limiting their ability to finance non-traditional loans. So, while the overall real estate market is displaying strong fundamentals that spur investor interest, banks have limited lending capacity, which creates a supply-demand imbalance that alternative lenders have taken advantage of.

What is your outlook regarding alternative lending in 2018 and beyond?

Horn: Alternative lending will keep growing as a major pillar of the market. More players are entering the space and will continue to do so as new lenders look for strong risk-adjusted returns in a more uncertain market. Interest rates will see some compression with the increased competition and alternative lenders will start to compete more with traditional lenders by offering more flexibility at competitive terms.

What part does technology play in BridgeInvest’s financing programs?

Horn: Technology is a major driver of the BridgeInvest process and internal organization of our pipeline and outstanding portfolio. We are completely cloud-based and developed a proprietary cloud-based servicing software to manage our portfolio. We also utilize a combination of Google apps, Box.com and SugarCRM to streamline our daily operations.

What can you tell us about the small balance loan market?

Horn: The BridgeInvest small balance program is larger than traditional small balance, featuring a floor of $500,000 and a max of $2 million on loan amounts. However, this market is growing thanks to more borrowers looking for non-recourse capital in this range. The market has traditionally been fragmented and dominated by private individuals and small shops. However, as it grows we foresee it becoming consolidated and institutionalized to better serve borrowers’ needs.

What do you expect from the SBL sector going forward?

Horn: We expect the small balance sector to keep moving forward with steady growth and for various new players to enter into the market. As with the overall market, competition will drive rate compression, which will benefit borrowers and attract more to the market. BridgeInvest will continue to expand its footprint in the sector as we further build-out our program and understand borrowers’ needs.

How have the needs of small property borrowers changed in the past few years?

Horn: Small balance opportunities have moved from simple acquisitions to acquisition and rehab (fix and flip) investments. The last remnants of the financial crisis have run their course and there are very few low hanging fruit-type opportunities remaining, so investors must look for more business plan intensive projects. They now need to roll up their sleeves and really work to get the full value out of their properties. These more complex investments mean they are looking for flexible, discretionary non-recourse financing, which BridgeInvest is pleased to provide.

What can you tell us about the Southeast real estate market, based on BridgeInvest’s lending activity? Is there a slowdown or are you seeing room for more growth?

Horn: Southeast U.S. leads the nation in growth with nine of the fifteen fastest growing major metro areas and we expect this trend to continue, especially with the recent tax reform that benefitted states without a state income tax. We are seeing strong growth in our pipeline throughout the Southeast and have noticed positive trends in industrial, office and retail markets throughout the region. There has been a noticeable uptick in requests for construction financing as cities continue to grow and regulations continue to restrict bank lending capacity.

What are the Southeast’s hottest markets in 2018?

Horn: The hottest markets that I’ve noticed in the Southeast are Charlotte and Atlanta. Charlotte is a major target market for us and we’ve seen an influx of construction opportunities there, for everything from assisted living facilities to food halls. Atlanta has experienced tremendous growth in the last few years with the reurbanization of its downtown core.

Image courtesy of BridgeInvest