In The Emerging Southeast, Developers Need A Lender That Can Go The Distance
The next big real estate boomtowns are spread across the Southeast, from Memphis, Tennessee, and Birmingham, Alabama, through to Charlotte and Durham, North Carolina. But despite the massive opportunity in these growing urban centers, banks are sometimes hesitant to lend on projects.
A bumper crop of private lenders has stepped in to fill that void, but finance experts in the area are urging caution — especially in burgeoning Southeast markets, developers need a lender that they can be sure is in for the long haul.
“You have to know who you’re dealing with,” said Gary Bechtel, president of Money360, one of the oldest private bridge lenders in the market. “It’s not all about pricing, it’s about reliability and credibility. You need to be sure that your lender will be around in the years to come, which is not a sure thing for all these new players.”
Money360 has lent on projects in markets throughout the Southeast where banks have very little presence, from a shopping center in Lake Charles, Louisiana, to a seaside mixed-use district in Punta Gorda, Florida.
At Bechtel’s count, there were over 300 lenders in the bridge lending space, from huge institutions like Starwood and Blackstone down to local mom-and-pop lending shops. Total bridge lending has exploded since 2015; as banks have dialed back their tolerance for risk, existing bridge lenders have expanded their businesses to fill the void.
But importantly, many newcomers have joined in. Life insurance companies, banks and developers as well as former CMBS, mezzanine and equity players are now offering bridge lending, Bechtel said, and the crowding within the space has driven pricing down to levels that he feels are unsustainable. Many of these new entrants to the market may not survive the next downturn, he said.
“They may have to leave as quickly as they came in,” Bechtel said. “They’re aggressively lending on these projects and just trying to show off that they can offer financing as fast as humanly possible.”
This pattern is playing out across the construction-happy Southeast, Bechtel said. Especially when developers have construction or heavy renovations planned, lender longevity is crucial — many borrowers are looking to take out their recourse construction loan while the property is still stabilizing, but if the lender fails in the meantime, the developer is out of luck.
At this point, Bechtel said, most of the deals that Money360 wins in the Southeast are based on having an innovative structure, tailoring a loan to each developer’s particular business plan. The interesting part of bridge lending, Bechtel said, is not rushing in and providing a simple stopgap for a property that is nearly stabilized, but in finding deals that have “a little more lift to them” — projects with strong locations and fundamentals that need capital for rehabilitation or re-tenanting.
In Memphis, Money360 put together a two-year, $5M financing package for a 436-unit multifamily property. The borrower not only needed a bridge loan to pay off debt that was coming to maturity at the end of the year, but also needed a flexible loan structure in order to renovate several of the units.
“If we can put in capital for a couple of years and help a complex that’s 50% occupied go from a B- to maybe a B+, and get taken out with an agency loan, that’s a perfect project for us,” Bechtel said. “It’s all risk and reward, and we’re working to mitigate our risk through our structure.”
With sacrificing its commitments to risk, Bechtel said that Money360 has expanded into even smaller markets where it sees opportunity, and has begun to take on unique projects, since it is able to offer loan structures tailored to unconventional client needs.
Money360 provided a two-year, $28M loan to a 288-unit multifamily property in Hattiesburg, Mississippi. The complex had just completed construction and was set to become the most desirable property in the town when the lender the team had been working with backed out.
“When the borrower’s current lender was unable to perform, the broker called Money360 because of our proven track record of success and we got the deal done on schedule,” Bechtel said.
This feature was produced by Bisnow Branded Content in collaboration with Money360. Bisnow news staff was not involved in the production of this content.