Since the financial crisis, many banks have all but abandoned financing for commercial real estate. Many financial institutions are still struggling under the weight of non-performing commercial real estate (CRE) loans and increased regulation, which has left the door open for non-traditional lenders to serve up the capital needed to finance today’s real estate opportunities.
Traditional banks and lending institutions today are being barraged by an onslaught of new regulations and capital ratio requirements. As a result, non-regulated finance providers are benefited by their ability to bypass many of the lengthy lending processes that plague banks. These providers include investors of private and institutional capital, via un-regulated companies.
This new class of CRE finance providers is able to put capital into play quickly, and serve borrowers with every major property deal size and type. It is exactly these non-traditional lenders that are helping shape both the comeback and the future of our industry.
Because they aren’t confined by banking regulations or struggling with non-performing debt, these newcomers are able to act nimbly and flexibly when assessing real estate financing needs. They make lending decisions on factors such as the viability of the borrower’s business plan, the real estate operator’s experience level, and a projection of results; as opposed to making a decision solely on the income in place. Some are even able to offer non-recourse financing – something banks are by and large avoiding.
With a real, current need for commercial refinance, these new lenders have the opportunity to fill a demand and reap the rewards. And the projects they are financing are bringing reputable players off the sidelines to become an integral part of the comeback of the commercial real estate industry at large.
Jim Martin is Director of Sabal Financial’s Commercial Real Estate Bridge Lending Group and a 25-year veteran of commercial real estate finance.