LOS ANGELES—With the excess of capital in the market, the demand for hard money is increasing, according to Johanna Traynor, senior loan officer at Lone Oak Fund. Lone Oak recently reached a noteworthy milestone, funding more than $2 billion since its inception in 2003. With a keen insight on the hard-money financial trend, Johanna Traynor sat down with GlobeSt.com exclusively to discuss the drivers of the demand for hard money, how it is affecting deals and how long it will be around.
GlobeSt: What is driving demand for hard money?
Johanna Traynor: In any market, strong or soft, there is a demand for hard money—whether it is a developer after a lucrative opportunity, or someone who can’t qualify for conventional financing. The recent influx of value-add opportunities, however, has shifted that demand to stronger borrowers. Developers and investors have now turned to alternative financing sources that are more efficient and flexible than banks.
GlobeSt: Is this trend a short-lived effect of the financial crisis, or should we expect it to be long-term market characteristic?
Traynor: We believe that the current market condition will continue for a while as investors will continue to seek, and find, profitable opportunities. Also, the financial crisis resulted in heavy bank regulation, which makes the closing process slow and frustrating. Hard money provides a sometimes necessary solution when a bank can’t perform. As long as there are opportunities, and banks remain highly regulated, there will be a strong demand for hard money.
GlobeSt: With over $2B funded, Lone Oak has a unique perspective of this trend. How has it affected the company and its deals specifically?
Traynor: Lone Oak was founded in 2003 in a very strong market, and we were busy. During the recession we not only survived, but we continued to grow since banks were not lending. Now, we are seeing the demand shift back to A-paper borrowers, and business is still growing; our volume has more than doubled over the past few years.
GlobeSt: What kind of investors are you seeing emerge in the current market and what types of properties are they seeking?
Traynor: In the past couple years we have seen a surge in development deals, especially in the high-end home market. Multifamily is obviously another hot product. We have also seen an influx of foreign investors—hard money is a crucial financing source for them because they often don’t qualify with banks.
GlobeSt: How has the trend toward hard money affected deals both positively and negatively this year?
Traynor: Hard money has become a key component in deal closings, and so demand is high. As a result, there has been a plethora of new hard-money lenders emerging to take advantage of the market. Borrowers must now sift through a sometimes overwhelming number of options. Speed, service, reliability, fair pricing, and a strong track record should all be factors in their decision when turning to hard money.
GlobeSt: What are your predictions for the later part of the in respect to this trend?
Traynor: We believe that the remainder of the year will mirror the first half. As more investors realize that hard money provides a crucial alternative to clunky bank financing, not just in speed, but in certainty of execution, demand for hard money will continue. This is more than just a trend.