Owners, investors turning to 'unconventional lenders' - Insiders Outlook - Brief Article

The sluggish economy had already created a take a step back, "let's see what happens" attitude in the real estate market when the devastating events of Sept. 11 unfolded.

Now, as shockwaves from the World Trade Center attacks begin to abate, we are all trying to get back to business, but it is not business as usual in a city that is not and, for quite a while will not be the same.

As displaced tenants scramble for space, retailers cast a hopeful eye at holiday spending, the stock market continues to stumble, rumors of layoffs persist and bankruptcies become anticipated, conventional lenders, although ostensibly offering favorable interest rates, are exhibiting a reluctance to do deals. Unconventional lenders, such as BRT Realty Trust, are stepping in to fill that breach.

We are seeing an increase in inquiries and transaction flow from real estate investors and building owners seeking to take advantage of time-sensitive real estate opportunities. Unwilling to be bogged down with delayed or flat out rejection of loan applications from commercial lenders, investors and owners are turning to bridge lenders who can provide quick response.

A significant market transition taking place is the mindset of property owners making a shift from acquisition to improvement mode. In a market continuing to price high regardless of economic slowing some borrowers are foregoing pursuit of acquisitions and, instead, are obtaining short-term financing to improve, renovate,, reposition and retenant existing portfolios. One BRT client, for example, is renovating an inventory of vacant apartment shells to put them on the market as rental units. Taking the long-term view, owners are willing to pay higher rates for short-term loans, and for the conventional lenders to become more proactive.

Another area of increased activity stems from property owners or business owners experiencing economic trouble and having an immediate need for a cash infusion. In order to realize cash, they are seeking to sell or refinance real estate, in order to "cash out" equity.

Just becoming noticeable in the short-term lending market, are borrowers experiencing difficulties with their current lenders, whether through an inability to make mortgage payments, or the lender indicating nervousness about its portfolio. This development had led to opportunities for financing for BRT.

There is an expectation that bankruptcies will be on the rise as a result of the economic downturn and World Trade Center disaster. Conventional lenders are not an option for those coming out of bankruptcy, whereas short-term lenders will at times finance borrowers with lesser credit ratings, allowing them time to stabilize their financial situation.

Borrowers turn to short-term lenders to take advantage of a real estate need, including opportunistic acquisitions that require immediate response. They view the higher rates philosophically, as a mechanism to make the deal happen, as part of the purchase price, as a strategy that advances the desired goal. Further, they contemplate a relatively quick turnaround with a substantially increased yield at a later date, once refinancing at lower rates from conventional lenders are obtainable.

Notwithstanding the sound business reasons for working with an unconventional lender, there are those who hesitate to do so based on the negative perception of entities engaged in short-term lending.

As with any business transaction, let the buyer -- or, in this case, borrower -- beware and seek out institutional unconventional money lenders with ethical reputations. BRT is a public mortgage REIT traded on the New York Stock Exchange with more than two decades of lending experience. It honors its commitments and has a repeat clientele due to the honest and direct manner with which it treats its borrower base.

In these unusual economic times, and with the overall uncertain environment which currently prevails, short-term financing will be a critical resource for borrowers in need of lenders capable of quick response and the ability to creatively finance even the most complex loan.

COPYRIGHT 2001 Hagedorn Publication
COPYRIGHT 2001 Gale Group