Residential Lending Boom!
With the steady recovery in homebuilding activity, one of the biggest trends is the reentitling of existing projects for residential development. (Cute hats are also trending this fall.)
This week, we spoke with Presidio Residential Capital principal Don Faye, who is re-entitling properties that have uses that are incompatible with today's market, including five deals in the Greater LA area alone. One example: an old office building in the San Gabriel Valley. He says the community as well as local officials and planners would rather see new residential units on the site than outdated office space. (Let's look at it mathematically: Cubicles < Ottomans.) While the San Diego-based real estate investment firm makes loans to homebuilders, Don says 75% of its business is composed of JVs where it teams up with a local developer on entitlements, development, or home construction. Another example is a retail site in Mission Viejo that will be re-entitled for 60 condo units.
Recently, Presidio partnered with Alta Verde Group and funded $38M of a $43M townhome development in La Quinta: Alta Verde Coral Mountain. The gated community will sport a Balinese-inspired, "Cali Bali" design that melds indoors and outdoors. According to Don, a big trend in the Palm Springs area are big windows offering great visibility, small swimming pools for each unit, and sliding doors that create a tremendous amount of openness. (And trick birds.) Sponsor, location, and product are still key to getting a loan, however. Presidio lends to builders throughout the Western US, from Houston to Hawaii, providing debt as well as equity (though never both on the same transaction). Suburban Seattle is another hot market, he says.
Sustainability is increasingly attractive to lenders. The company recently provided $8.2M to fund the first phase of the $18.8M Golden Hill Row Homes, a green, urban multifamily development where more than 50% of the electricity will come from solar energy. It's in one of San Diego's older communities, Don notes. "This kind of project is helping to bring those communities back into the forefront." Is the underwriting different for green projects? Don says it's not something that's tangible, but there are buyers out there who want to buy green, which can give a particular project a little bit of a benefit over a non-green project. But when the deal is finished, the econonics and profitability component have to be there.