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How To Survive In Today's Shrinking Construction Lending Environment


New construction lending has remained bearish several months into 2017, and the call for Wall Street deregulation from Washington shows no immediate sign of curing uneasiness. Speculative investments remain the hardest hit by banks and institutions pulling back on financing. For Hall Structured Finance, the lending arm of Dallas-based Hall Group, diversifying its portfolio of projects has helped the company to thrive in an uncertain market. The company is on track for a record year. 

HSF is part of an emerging group of alternative lenders capitalizing on the financing hole left by institutional lenders. Many builders that specialize in high-volatility project types like hotels need these loan programs, as they are unable to secure financing through traditional sources. Banks have restricted loans to high-capital projects with well-established developers. Loans are also typically being catered to a middle-tier, local market, which is seen as less of a risk.

"There are less options for developers to turn to today for financing. If banks aren't out completely, they have significantly shrunk their capacity to lend on construction,” HSF president Mike Jaynes said.

Projects that do not fall under these qualifications have sent developers scrambling. 

While HSF has historically specialized in the hospitality industry, Jaynes has looked to fill the construction lending gap across several other real estate sectors, including multifamily, student housing, condominiums and senior living.

“We are seeing opportunities that fit into our program structure and pricing in other types of real estate," he said.

To meet the new strain on its pipeline, HSF added four new employees this past year.


The team has already closed two deals worth more than $50M, both within a two-week period. The first was a $14.7M construction loan for a Marriott SpringHill Suites in Newark, Del. The HSF team is working with the development team at Danneman Hospitality to build a 125-room hotel, the first major brand hotel to open in Newark. The project is next to the University of Delaware.

HSF’s second deal of the year expanded into multifamily. DCL Residential received a $37.7M loan for the Millennium at Citrus Ridge, a luxury apartment complex in Kissimmee, Fla. This is HSF’s sixth construction loan in the Sunshine State, and the project boasts 326 high-end units within two miles of Disney World and Universal Studios.

Loans come with a strict vetting process. HSF's position within the Hall Group gives Jaynes and his team access to a wealth of real estate development, ownership and operational experience. It knows what it is looking for in an investment opportunity. 

“We vet the opportunities and developers through a very selective process and when it's a match, we help get their projects off the ground," he said.

Developers also benefit from having fellow CRE professionals finance a development, creating a more collaborative relationship.

The Trump administration’s promise to overhaul regulations like Basel III and Dodd-Frank offers some hope that banks might become more bullish on construction loans in the near future. An increasingly partisan government will likely delay those plans. In the meantime, alternative lenders like HSF will continue to grow in demand, continually adapting to the needs of developers stuck in an uncertain market.

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