Following the real estate crash, there was a time when it was challenging to find financing to fund nearly any real estate project. Before the crash, there were plenty of loans for real estate investment projects, even when those investments were in some cases far out on the risk spectrum. Unfortunately, after the crash, many of those loans went unpaid and properties either drastically lost their value or were never completed. Now, we’re beginning to see a bit of a resurgence in loans being given, particularly in the bridge space by debt funds. As time goes on, there is more and more competition in the bridge loan space for real estate projects.
What type of loans are being given?
We’re currently seeing a high amount of competition with bridge, or conforming, loans. For projects that are focused on renovating existing properties or want to undertake projects to add value to a property, lenders are jumping at the opportunity to offer loans. Many of these loans do not have the strict underwriting they once did and are becoming easier to obtain. There is currently an abundance of supply and in the market and borrowers are benefiting from the excess.
Does the project cost matter?
For many lenders, the estimated price of the real estate project is vitally important. While there are a fair amount of debt funds offering loans in the millions, for those projects that are estimated to cost about $50 million, the options for loans decrease. At that higher amount, the more established companies are sticking to their guidelines and can focus more on larger deals.
How much competition is there?
There’s a lot. It’s estimated that nearly 120 debt funds have been active in the last few years. These debt funds can offer incredible deals to those looking for loans, often drastically lowering interest rates and offering looser deals. However, when the cost of the project or the asset class rises above a certain point, there is much less competition, with only a couple of companies offering loans for those projects.
Are there possible concerns?
There’s a high likelihood that we’ll eventually see some debt funds end up making poor loan offers or not be able to continue to compete at the level they currently are. Some experts feel that loans have already been offered to projects that lack experience or promise. Luckily, it seems like lessons have been learned from the pre-crash era, when groups funded any types of projects for any amount.