Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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What is the biggest challenge you anticipate in 2018 as a direct lender or financial intermediary in commercial real estate? The biggest challenge as an intermediary is to make sure that we are working with very motivated borrowers and lenders, as it is harder to close loans even if money seems plentiful on the surface. Many real estate owners are overwhelmed with the information overload required to close loans in 2018. We assist in providing the lenders with all of the information needed in order to close the financing under the terms proposed upfront on a timely basis. The reduced regulations we've heard about have not yet made it from Capitol Hill down the line to commercial real estate closings. Where do you see the biggest opportunity for your company in 2018? Our biggest opportunity is to secure non-recourse financing for property owners who have created value in their properties over the last few years and would prefer to hold and finance long term rather than sell. This will allow lenders to undertake new projects without focusing on their contingent liabilities. There are more new lenders in the market now than ever before. Many new private lenders are becoming competitive with established national lenders, as they are looking to grow their business and fill the gap created by other lenders going out of business or merging with larger institutions. We estimate that there are 150 active bridge lenders in the commercial mortgage business today. What is your company's lending strategy for 2018? Our lending strategy is to add new clients to our roster throughout the Midwest in the markets that have a limited number of active lenders. We are able to bring capital from Chicago, New York, Dallas or California to Midwestern cities, where the banks are still very conservative. Many cities in the Midwest have rallied back and are experiencing demand for mixed-use, multifamily and mobile home parks, as many companies here are stable and growing. Are there any new lines of business or opportunities that you are pursuing? We have been able to close loans for mobile home park owners with the lowest cost of capital for properties that have room for growth. We work with lenders new to the market, and in some cases we closed their first few loans during 2017. Our lenders are looking to grow their portfolios in 2018. What property sector of commercial real estate will experience the most activity in 2018, and why? The industrial market is filling up due to the Amazon effect, and that will be where the most activity is. Retail is the most challenged asset class, as every retailer that competes with Amazon is re-evaluating its business model. Consequently, many retailers are not interested in signing long-term leases. Owners with industrial buildings close to the population centers are benefiting from the "last mile to delivery" concept, which has grown out of two-hour delivery by Amazon Prime. Ben Kadish President ADVERTORIAL We are able to bring capital from Chicago, New York, Dallas or California to Midwestern cities, where the banks are still very conservative. " " What is the biggest challenge you anticipate in 2018 as a direct lender or financial intermediary in commercial real estate? Where do you see the biggest opportunity for your company in 2018? I foresee 2018 being another great year from both a lending and borrowing standpoint. As a lender, we have seen tremendous growth in our business over the past year, growing from $116 million in loan volume in 2016 to $358 million in 2017, with our goal for 2018 set at $750 million. Challenges from a lending standpoint will be more competition, and a potentially increasing interest rate environment. We saw a number of new entrants come into the bridge space in 2017, and I expect this trend to continue in 2018. We have been very successful in attracting great people, both on the originations and back-office side, and we will grow both these parts of our business to address the increased production targets. With the continued regulatory constraints on traditional lenders, non-bank lenders, like Money360, will continue to grow and provide an increased amount of capital to the market, helping to fill this void. We are excited to be part of this trend. What is your company's lending strategy for 2018? Are there any new lines of business or opportunities that you are pursuing? We will continue to focus on our core bridge loan product, but will also be offering a permanent loan product. Both loan programs will be funded through one of our fully discretionary fund vehicles, and the programs will share the same basic criteria: loan amounts of $1 million to $20 million across all asset classes, except for land and some special purpose properties. Locations include primary, secondary and some select tertiary markets. We offer loans on a recourse and non-recourse basis. Bridge loans are offered on stabilized and non-stabilized properties, with permanent loans on stabilized properties only. Maximum leverage is up to 75 percent of the "as is" value on the real estate. Pricing for the bridge loans and other loan metrics are based on a number of factors, but typically run in the 8 to 10 percent range. Permanent loans are typically priced at 4.25 to 5.25 percent. What property sector of commercial real estate will experience the most activity in 2018, and why? Given the current regulatory environment (Dodd-Frank Wall Street Reform and Consumer Protect Act, capital reserve requirements for high-volatility commercial real estate loans, and CMBS risk retention rules), traditional lenders will be limited to how much they can lend and to whom. The non-bank and private lending space has provided an increasing amount of capital to fill this void, and I see this trend continuing. Asset classes such as retail and hospitality have fallen out of favor with some lenders. These out-of-favor property types may also hold lending opportunities for some groups. I think that most other property types will still have plenty of demand from both a capital and purchasing standpoint. Gary Bechtel President ADVERTORIAL We have seen tremendous growth in our business over the past year, growing from $116 million in loan volume in 2016 to $358 million in 2017, with our goal for 2018 set at $750 million. " "

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