How A Private Mortgage Lender Works With CRE Clients When Credit Is In Short Supply
Investors and borrowers in the commercial real estate sector, concerned by today’s business headlines, are asking two questions: Where is the economy headed, and where can they find financing at a time when some important sources of credit are not available?
Noah Streit, a principal with private mortgage company Streit Lending, understands where those borrowers are coming from.
“There's this bizarre situation at the macro level where you have two opposing forces acting on the economy,” he said. “You have the executive and the legislative branches that are pushing money out. And then you have the Fed, which is trying to cut the supply and raise interest rates. They're not working in lockstep with each other for many reasons, and I don't think we've had a chance to really see the macro effects of the tightening versus the printing of additional money.”
But while the direction of the economy remains uncertain, many would-be borrowers are seeing a very tangible impact of these forces. They are having trouble finding financing for their projects.
“Anecdotally from what we've heard, and also just based on how busy we've been, it does seem like a lot of capital sources of credit are slowly drying up,” said Auriel Streit, a member of the Streit Lending executive management team, along with brother Noah Streit and sister Nava Streit Raziel.
Where does that leave a developer or building owner, particularly one seeking a bridge or construction loan within Streit Lending’s sweet spot of $500K to $10M?
The good news, Noah Streit said, is that Streit Lending is highly focused on CRE segments that continue to perform well.
“We're still relatively bullish on multifamily,” he said. “More multifamily is needed because there's a lack of housing, especially in California, which is our focus.”
Industrial, particularly around Los Angeles, and strategically located retail also look good, Streit added.
Even the office segment, which continues to struggle in California and beyond, and is not a current area of focus for Streit, holds promise for patient investors and developers, Noah Streit said. He expects the work-from-home trend will lose steam once the unemployment rate begins to rise somewhat, which is believed to be an unspoken goal of the Fed’s recent actions to raise interest rates.
“If you're a believer in office, then this is the biggest no-brainer time to get in because prices have come down,” he said. “And you'd be buying on existing caps on existing streams of income, which are way below historical averages and occupancy levels that are just lower than historical averages. I think there are tremendous opportunities in office in the long term.”
In the shorter term, many borrowers looking to finance a building purchase or construction job could be best served by working with a small private lender rather than a big bank, the Streits said.
“Banks have always been notoriously difficult in closing deals, sometimes making you wait months,” Noah Streit said. “But oftentimes with our borrowers, they have only 20 or 30 days to close. You just wouldn't be able to do that sort of deal with banks, which in the current market are backing out left and right on deals and their underwriting times have gone up as well.”
Streit Lending, by contrast, can process a loan in a matter of weeks versus months, offering interest rates starting at 7.99% for bridge loans and 8.5% for loans on construction projects and for distribution or retail centers in California’s cannabis space.
“The biggest distinction between us and banks is there's no black box here in terms of who you're dealing with,” Auriel Streit said. “And while there is a loan committee, in general, it's just the three of us, and so there's far less miscommunication and confusion on the underwriting process.”
Streit Lending uses the Streit family’s financial strength and liquidity to give borrowers direct access to private capital. The firm has originated more than $500M in loans since it launched its lending business in 2012.
“This means there is more certainty of close,” Noah Streit said. “And we can also be more creative in certain circumstances than other lenders could be because we're not beholden to investors.”
But perhaps the greatest distinction between Streit Lending and other CRE lenders is that it understands where its borrowers are coming from.
The company was founded by the principals’ parents in the 1970s as a multifamily investment firm, and to this day it owns and operates its own multifamily properties. The Streits said this means they understand the opportunities and challenges their clients face.
“We like to view our relationship with our borrowers as more of a partnership than just as a debtor-lender relationship,” Noah Streit said. “And between the three of us, we bring a substantial amount of real estate knowledge to the table in terms of providing guidance and counsel, especially when we're going through the due diligence phase with a borrower.”
At a time when the economy is behaving bizarrely, he said, clients appreciate a family approach.
“We have a great relationship with our borrowers and we all very much enjoy being able to interact with them as partners,” Noah Streit said.
This article was produced in collaboration between Studio B and Streit Lending. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to firstname.lastname@example.org.