LOS ANGELES—The more complex a deal, the less competition lenders have, making these otherwise unappealing transactions ideal for non-traditional lenders, said participants in the “Opportunities in Debt and Equity” panel at RealShare National Investment & Finance here last week. Those willing to go the extra mile for the borrower, with increased expertise and service, are winning the deals in a highly competitive lending environment. Also, among bridge lenders especially, those who can distinguish themselves from the competition are winning as well.
Zach Murphy, SVP, commercial lending, for Liberty SBF, said, “The hairier the deal, the less competition we have.” He added that his firm doesn’t do ground-up construction loans, and Don Pelgrim, CEO of Wilshire Finance Partners Inc. said the same thing.
“There’s a lot of competition among lenders,” said Pelgrim. “Ground-up construction goes to more-traditional lenders; we do repositioning.”
For Alexa Mizrahi, loan originator for Lone Oak Fund–which doesn’t do any development or construction financing, but will bring in lenders who specialize in it—timeliness is key. “If we can’t close a deal in a timely manner, someone else will get the deal. We can work with a deal that others can’t. Because we have an asset-based platform, we help to provide a fast close for a more competitive purchase offer.”
Steven Moreira, CCIM, added, “It’s all about the equity and the sponsor in today’s lender market,” and Lynn King-Tolliver, SVP of Heitman Capital Management LLC, said, “There’s a lot more liquidity now than in recent years—there’s more equity available now.” She added that underwriting today is a challenge. “The market has been disciplined, but the fundamentals have not fully recovered in all markets.”
Moderator William Hughes, SVP of Marcus & Millichap Capital Corp., asked panelists what challenges they face in putting equity to a deal. Tolliver said that pricing is getting higher, and it’s difficult to say if the environment will get more competitive or back down. “But if there is momentum when interest rates rise, the market will support that.”
Pelgrim said for him the equity challenge was which assumptions to use for value-added properties in the current market, and Moreira added that trying to figure out how equity gets the exit strategy when the capital is stacked so high is one of his firm’s challenges.
Regarding deal structure, Michael Sanchez, VP of Colony Capital LLC, said that the acquisition price is based on credit, the property and the business plan of the borrower. “We try to structure a deal that meets the exact needs for that particular borrower.”
Mizrahi added that her firm distinguishes itself from other capital sources by only lending in California with a 50%-to-60% LTV, and Lone Oak can close a loan within 24 hours. “We have to lend in secondary and tertiary markets to stay competitive because yields have gotten so low.”
Moreira said that cheap debt encourages aggressive underwriting, and he wasn’t sure this trend was going to last. “I’m not as optimistic as everyone else that interest rates will remain low after the election.”