The New Role of Family Offices in Finance

LOS ANGELES—As competition among lenders continues to heat up, family offices are now participating in a variety of financing scenarios for potential borrowers, said speakers at RealShare National Investment & Finance here last week. During the panel session “Winning Deals: What's New in the Capital Stack,” panelists said there's no dearth of opportunities for financing real estate transactions in the market.

Alexa Mizrahi, loan originator for Lone Oak Fund, said “A lot of borrowers are much better capitalized than in the past, but they can't close with the bank fast enough, so they're coming to us.” While not a common scenario, the firm has been known to close a loan in as little as six hours and is known for its speedy turnaround. Mizrahi adds that her firm is seeing “better borrowers” now than in the past because of the services it provides over traditional lenders.

When moderator Gary Tenzer, principal and managing director of George Smith Partners, asked how due diligence is done when loans are done via automated processes that cut time to execute, Jason Fritton, co-founder and CEO of Patch of Land, said, “We pride ourselves on our technology, but we still need to look at everything because these are still up to $10-million deals.” He explained that his firm started out as a crowdfunding platform but is now cooperating with institutional capital, so the paper can go out to that group. “Our responsiveness makes us unique. We can move out quickly into new markets and products with institutional capital bring in the firepower.”

Barbara Morrison, founder and president of TMC Financing, said the SBA is fairly active in hospitality lending and has become the number-one 504 lender in hospitality in the country. She said most hotels are considered owner occupied, and there is a small group of lenders active in the hospitality market. “Many people come to us without a first-mortgage lender in tow, and we will help them find that. Up until a year ago, you could be too rich for an SBA loan, but that's no longer true. The size standard has nothing to do with revenue—it's all about the net worth of the company; the net worth of the borrower is not a factor.”

Jeff Hudson, CEO of George Elkins Mortgage Banking Co., said family offices are the newest faction in business. “The will bring in the equity part of debt and mezzanine and will provide credit enhancement for the developer.” He added that this is usually done on multifamily properties with relatively conservative loans of less than 70% loan-to-value. “The risk is lower, and family offices feel comfortable stepping in and taking over as developers in multifamily and then retail; their appetite for office and industrial is way down the scale.”

Fritton said his firm won't do construction financing, and Philip Block, SVP, commercial lending for RealtyMogul.com, said, “We won't do anything on spec, and no ground-up.”

In discussing life companies vs. CMBS, Hudson said, “Life companies are reluctant to do interest-only; CMBS will do two to five years interest-only. In the Inland Empire, the buyer profile is more passive, so they're better off going with CMBS; if they're more aggressive, they go with a bank or life company.”

All of the speakers said they work with other lenders or other forms of lending in an effort to provide borrowers with everything they need to complete their transactions.