Texas Real Estate Business

FEB 2018

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

Issue link: http://texasrealestatebusiness.epubxp.com/i/935994

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What is the biggest challenge you anticipate in 2018 as a direct lender or financial intermediary in commercial real estate? Where do you see the biggest opportunity for your company in 2018? I foresee 2018 being another great year from both a lending and borrowing standpoint. As a lender, we have seen tremendous growth in our business over the past year, growing from $116 million in loan volume in 2016 to $358 million in 2017, with our goal for 2018 set at $750 million. Challenges from a lending standpoint will be more competition, and a potentially increasing interest rate environment. We saw a number of new entrants come into the bridge space in 2017, and I expect this trend to continue in 2018. We have been very successful in attracting great people, both on the originations and back-office side, and we will grow both these parts of our business to address the increased production targets. With the continued regulatory constraints on traditional lenders, non-bank lenders, like Money360, will continue to grow and provide an increased amount of capital to the market, helping to fill this void. We are excited to be part of this trend. What is your company's lending strategy for 2018? Are there any new lines of business or opportunities that you are pursuing? We will continue to focus on our core bridge loan product, but will also be offering a permanent loan product. Both loan programs will be funded through one of our fully discretionary fund vehicles, and the programs will share the same basic criteria: loan amounts of $1 million to $20 million across all asset classes, except for land and some special purpose properties. Locations include primary, secondary and some select tertiary markets. We offer loans on a recourse and non-recourse basis. Bridge loans are offered on stabilized and non-stabilized properties, with permanent loans on stabilized properties only. Maximum leverage is up to 75 percent of the "as is" value on the real estate. Pricing for the bridge loans and other loan metrics are based on a number of factors, but typically run in the 8 to 10 percent range. Permanent loans are typically priced at 4.25 to 5.25 percent. What property sector of commercial real estate will experience the most activity in 2018, and why? Given the current regulatory environment (Dodd-Frank Wall Street Reform and Consumer Protect Act, capital reserve requirements for high-volatility commercial real estate loans, and CMBS risk retention rules), traditional lenders will be limited to how much they can lend and to whom. The non-bank and private lending space has provided an increasing amount of capital to fill this void, and I see this trend continuing. Asset classes such as retail and hospitality have fallen out of favor with some lenders. These out-of-favor property types may also hold lending opportunities for some groups. I think that most other property types will still have plenty of demand from both a capital and purchasing standpoint. Gary Bechtel President ADVERTORIAL We have seen tremendous growth in our business over the past year, growing from $116 million in loan volume in 2016 to $358 million in 2017, with our goal for 2018 set at $750 million. " " What is the biggest challenge you anticipate in 2018 as a direct lender or financial intermediary in commercial real estate? As a financial intermediary in commercial real estate, our biggest challenge in 2018 will be procuring viable construction loan alternatives for our clients. Most commercial banks have lowered their construction leverage, which puts sponsors in the position of having to either invest more equity or bring in other sources of capital to complete the capital stack. We have had success arranging preferred equity and/or mezzanine loans to replace the leverage previously funded by the banks. Private lenders and debt funds continue to enter the construction loan space with creative alternatives as another way to address this issue. Where do you see the biggest opportunity for your company in 2018? The primary opportunities for us lie with our traditional services to entrepreneurial clients who lack the bandwidth and frequency in sourcing capital to effectively access the capital markets. We follow clients to where the opportunities present themselves. We are doing business in multiple markets across the country as a result of this strategy. In addition, we are pursuing three new initiatives for certain clients of ours. The first is to provide small balance equity capital to select projects that are not large enough to attract traditional private equity or institutional equity. The second is to assist in the acquisition of certain credit tenant leased (CTL) properties to build a portfolio for a client of the firm. The third is to set up a private debt fund for some property types where there are inefficiencies in the capital markets. We are always looking for ways to serve our clients and think more "out of the box" than other financial intermediaries with whom we compete. What advice are you giving your borrowers to help them maximize their lending strategy in 2018? Values seem to be topping out (in terms of cap rates), but with strong economic growth the opportunities to create value are still abundant. Now is a good time for property owners to capture, or lock in, value on their existing portfolios by either selling assets or refinancing with permanent, fixed-rate, non-recourse financing and repatriating equity into new value-add investments. Scott Lynn Founding Principal ADVERTORIAL We are always looking for ways to serve our clients and think more "out of the box" than other financial intermediaries with whom we compete. " "

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