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Nontraditional CRE lenders becoming more active

On Behalf of | Sep 27, 2016 | Uncategorized

Real estate developers in Oklahoma and around the country may have noticed that stricter underwriting standards have made it more difficult to get money from traditional lenders. However, this has provided an opportunity for private lenders to become more active in the market. Nontraditional lenders like hedge funds and real estate investment trusts can often provide money more quickly and with fewer conditions than traditional banks, but this flexibility and convenience comes at a cost.

Fears of overbuilding have led some to worry about an emergence of a commercial property bubble that could cause another financial crisis. “Shadow bank” lenders such as Starwood Property Trust Inc. and the Blackstone Group LP are expected to provide developers and investors with up to $32 billion in 2016. However, much of the money they provide still comes from traditional banks.

Lending money to a hedge fund or REIT is generally less risky for banks than dealing directly with developers. Commercial loans made to non-depository financial institutions rose by almost a quarter year-over-year to $41.2 billion between October and December 2015. “Shadow bank” lenders are not bound by the same underwriting rules as traditional banks, but the interest rates they charge are often significantly higher.

Settling on the appropriate financing package is sometimes one of the most difficult tasks faced by commercial property developers. Experienced real estate attorneys may be able to assess loan packages to determine whether or not the funds on offer will be sufficient to bring a project to completion. Attorneys could also help developers avoid some of the regulatory issues that can bring construction work to a halt and cause costs to soar.