Real estate developers and investors are facing challenges with obtaining capital for their projects. However, some organizations have found innovative ways to raise funds for building and purchasing properties. In this second installment of a four-part series on real estate capital, industry experts discuss the various types of flexible financing solutions available.
Traditionally, developers and investors would approach banks for loans after undergoing a thorough evaluation process. However, with fewer traditional lenders in the market today and higher costs associated with borrowing money, there is now a need for more creativity in securing funding.
According to Brian Heflin from PlainsCapital Bank , lenders are now more willing to work together with borrowers by extending loan terms until they can be stabilized or refinanced. This trend has been observed by Jonathan Lee from Colliers Structured Finance Group as well who notes that many borrowers are engaging in discussions about extending their current debt obligations.
Ivan Kustic from MetroGroup Realty Finance also points out that institutions have been offering shorter-term financing options at lower interest rates to help borrowers get through the next few years while waiting for long-term rates to come down.
In addition to traditional lending sources becoming less flexible due regulatory constraints, Gary Bechtel from Red Oak Capital Advisors predicts that private non-bank lending sources will become increasingly popular as they offer more creative structures such as stretch senior loans or “debtquity.” Adam Finkel of Tower Capital agrees that we will see an increase in alternative lending groups providing capital solutions while Jon Pharris from CapRock Partners cautions about high cost-of-capital potentially limiting asset values.
Other potential sources of liquidity include seller financing which buyers may try encourage but could result in low leverage situations according Adam Finkel . Jeff Salladin believes there will be increased activity within preferred equity space but it depends on deal flow and asset values; however he notes senior secured lenders remain active currently .
Overall consensus among experts is although traditional lenders may become selective when it comes to funding, alternative sources of financing will continue to offer different options. Ivan Kustic summarizes the situation by noting that life companies have ambitious allocations for 2024 while national banks will focus on institutional clients and regional/local banks may remain selective due to regulatory scrutiny. Debt funds and credit unions are also active players in this space according Jonathan Lee .
