Real estate investors today are rightly concerned about financing their projects. The “hard money” lenders we traditionally relied upon have either vanished or fled the market, regrouping under the spotlight of enhanced Federal scrutiny.
There are new actors in this market, but we don’t have a lot of experience with them as yet. And their credit thresholds seem aggressive to many of us when compared with the comparatively “easy” criteria we enjoyed just a couple of years ago. The answer may lie with an unexpected resource.
An Unexpected Resource
A number of local and regional banks (quietly) never left the market. Their lending portfolios were largely unaffected by the nationwide case-by-case takeover of over extended banks by Federal regulatory agencies. (That’s how, locally, we lost Omni Bank as a local hard money lender, when their parent bank in Atlanta, Ga., was seized by the Fed.)
Meanwhile here in Chicago, a number of locally owned banks never left the field. These lenders always lent acquisition and rehab funds to investors and rehabbers; and they continue to do so today. In many cases, because they tend to be “relationship lenders” rather than automated underwriting-driven institutional lenders, their lending terms are often less rigorous than today’s newcomers to hard money lending in the Chicago area.
A Source of end-loan ‘permanent’ financing
These very lenders may also prove an important source of the financing investors need to pay off short-term development financing used to buy and fix properties. Here, it may prove useful to explore staying on the “commercial lending” side of the bank.
Commercial real estate lending departments work under different lending criteria than the residential lending department ‘across the hall’.
Commercial real estate lending officers as a rule do not originate long-term mortgages. Their loans are not subject to “seasoning” issues. What they may consider – as commercial real estate lenders – is the 3-5 year “balloon” mortgage financing historically used by developers to recast short term financing while awaiting more favorable long-term financing or selling opportunities.
Savvy investors always seek “work arounds” to aberrations in the lending environment. For some, this work around may reside with the commercial real estate lending departments of local banks. #