FATE, TX—Although residential developers face headwinds of a lack of supply of new residential lots and lending challenges, one development in the Woodcreek master-planned community is soon to overcome those obstacles. The developer, an affiliate of Miami-based Southstar Development Partners, will be working with homebuilders Meritage Homes, Dunhill Homes, Lennar Homes and Pulte Homes to bring to market nearly 400 new homes priced from the upper $200,000s.

PMB Lending, a subsidiary of Dallas-based PMB Capital, provided $15 million in financing for the project. Matt Mildren, partner at PMB Capital, recently discussed the lending climate, non-bank lending trends and opportunities/concerns in this exclusive.

GlobeSt.com: What is the lending climate these days, especially with rates rising?

Mildren: Typically, traditional banks are averse to lending on residential lot development. It doesn't have recurring cash flow and tends to be hyper cyclical. If a bank does lend, it is usually based on a repayment guaranty from a borrower and has lower advance rates than a non-bank lender can provide. Rates on bank loans are rising some, but that impacts the market less than banks' general aversion to the business in the first place. That is the opportunity for non-bank lenders like PMB Lending. We know the markets, the builders and the borrowers well, and are less sensitive to rising rates, and want to make more loans to fuel more development.

GlobeSt.com: What concerns or trends are especially of note?

Mildren: The overarching theme in residential development is the lack of supply of new lots and the dramatic increase in home values. We need more supply at affordable home prices in quality markets. The market needs to provide housing for the jobs that are being created in Texas and we have not done that coming out of the downturn.

GlobeSt.com: What are some of the advantages of non-bank lenders?

Mildren: PMB Lending strives to make the financing process as quick and painless as possible. Because of our development experience, we are able to close and loans in a much more efficient process. With all of the issues that come up with getting a property closed and ready for development, we try to simplify the capital piece as much as possible, which leads us to the next question.

GlobeSt.com: What advice/pointers would you share with borrowers considering non-bank lenders?

Mildren: We learned this first hand as we have developed lots on our own. Borrowers should underwrite projects with traditional bank loans with recourse and limited partners, and then compare that to using a non-bank lender at higher rates and higher proceeds without recourse. What we found is that the profit opportunity is likely higher and the personal exposure is lower with a non-bank lender. That, in addition to dealing with a local team that has full authority to make loans, takes a lot of uncertainty out of the financing process, and allows developers and builders to focus on getting their projects completed.

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Some Banks Averse to Residential Lot Lending

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