Why It’s Easier Than Ever To Break Into The World Of Development
Developers hoping to grow in the world of multifamily have always faced a steep uphill climb. Development takes deep pockets, and even if they have a proven track record of flipping single-family homes or small properties, developers may not be able to find a bank willing to invest in their dream of tackling more ambitious projects.
But a new breed of private lenders has stepped in to help emerging developers grow beyond their first few projects. By lowering the cost of capital and moving borrowers smoothly from short-term to long-term financing, these lenders provide a road map for multifamily development.
“We’ve grown alongside of our developers and, in many ways, we are now partners who consult with them on how to scale their business,” said Allen Shayanfekr, the CEO of Sharestates, a real estate crowdfunding platform that specializes in turning developers who may have only ever fixed up single-family homes into powerful local and national players in the world of multifamily.
The company’s major innovation is providing a safer, faster and cheaper alternative to exorbitantly priced capital of mom-and-pop hard money lenders. Shayanfekr said that by and large, these local shops, some of which have been around for decades, were not very tech-savvy, and usually consisted of a few people in a single room with filing cabinets full of paper.
“They had zero sense of how to scale their borrowers’ business,” Shayanfekr said. “Sharestates built a technology platform for borrowers that streamlines the entire financing process for them.”
Borrowers looking for hard money loans from mom-and-pop lenders were paying rates anywhere from 13% to 16%, he said. Sharestates’ model, which is backed by both Wall Street capital and a wide pool of crowdfunded investments, is able to bring the cost of capital down to between 6% and 9%.
“That provides huge cost savings to our borrowers and ultimately allows them to focus on what they do best,” Shayanfekr said.
Working with a lender like Sharestates has allowed some developers to grow into new markets, and move from renovation projects to large ground-up developments.
Gotham Bedrock, a New York-based development firm, had worked with Sharestates to renovate multifamily residences in Brooklyn and Harlem. When it saw an ambitious opportunity in Philadelphia, it jumped, and brought Sharestates with it.
The result is The Views at Penn Treaty, a development of 19 townhomes in Fishtown’s Penn Treaty park. Curbed reported that The Views is the very first project to break ground on the Delaware River waterfront, an area that has seen a renewed interest from developers in recent years.
While the company began as a pure bridge lender, Sharestates now offers 30-year rental loans. This added capability lets borrowers roll smoothly from a bridge loan into a term loan without the stress of having to find another lender.
Sharestates is also able to eliminate delays thanks to the technology that streamlines its due diligence and underwriting practices. Developers that may have been stuck doing two or three projects per month with a local hard money lender can grow to 10 projects per month thanks to the reduction in bureaucratic delays, Shayanfekr said.
He was also quick to emphasize Sharestates’ difference from other private lenders. Since their faith in the economy has been strong, many investors have gone after higher risk-adjusted returns, making it is easier than ever for developers to obtain capital.
“As a result, many lenders have increased their risk appetites to drive in more business by stepping out of the typical credit box,” Shayanfekr said. “They tend to overleverage many of their loans.”
By contrast, Sharestates has purposefully set up an agency-type lending strategy in order to withstand market volatility that is looking more likely every day. The company, Shayanfekr said, has not adjusted its risk appetite even given its remarkable growth and success in the past few years, and is taking a more conservative approach than many private lenders.
That approach is complemented by a focus on finding talented developers that the company trusts, Shayanfekr said. Though getting funding is an important piece of any development, having the right site and the right leadership are even more crucial.
“Despite how much technology we deploy to improve the experience for them, we primarily focus on building relationships with our borrowers,” Shayanfekr said. “Ultimately, that’s the lifeblood of our industry.”
This feature was produced in collaboration between Bisnow Branded Content and Sharestates. Bisnow news staff was not involved in the production of this content.