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• Bank Turndowns
• Loans to $3,000,000
• Office, Multifamily, Industrial/Warehouse
• Brokers Protected
• No Prepayment Penalty
35 YEARS OF COMMERCIAL REAL ESTATE LENDING
Jim O’Dea 650-575-0778
Southern California – S. Los Angeles:
Tim Burwell 310-540-2777
Southern California – N. Los Angeles:
Barry Judis 818-877-6270
Notice: This is not an advertisement to extend consumer credit as defined by Sec. 226.2, Reg Z.
Real Estate Broker, CA Bureau of Real Estate | Lic. No. 00619104
OUR BUSINESS IS ROOTED
IN YOUR SUCCESS!
By Tom Farrell
Director of homebuilder lending
Sabal Financial Group
development and construction. The
housing downturn has come with a sharp
contraction in bank financing, however.
Some banks that once were major providers of financing to homebuilders either have failed or exited the business
altogether. To fill this gap, nonregulated
lenders are stepping up as viable contenders in the debt arena with competitive interest rates, fees and terms.
In under writing a homebuilder, banks
typically follow the age-old premise of
the three C’s — character, credit and col-
lateral. Character has the most impor-
tance to most lenders. Nonregulated
lenders, especially the ones that offer
nonrecourse loans, prioritize the other
two traits slightly differently, although
collateral typically outranks credit.
This is important as many homebuild-
ers are still in “balance-sheet repair”
mode because of the downturn. These
homebuilders often are restarting their
operations with limited liquidity and
capitalization. Nonregulated lenders are
giving them an opportunity to replenish
their liquidity and build their net worth
by financing viable projects.
Commercial mortgage brokers should
be aware that collateral is important to
nonregulated lenders because it represents the borrowers’ main source of repayment. That’s why projects get more
scrutiny in terms of product, location,
pricing, etc. Another “C” that’s important to a nonregulated lender is capability, which refers to the homebuilder’s
capability in building the proposed
product on time and on budget.
Some nonregulated lenders offer desirable nonrecourse debt that banks typically hesitate to offer. Many homebuilders
were hit hard in the downturn and were
under pressure to honor guarantees on
their borrowings, which led many to file
bankruptcy and some to shut down their
operations. The wounds are fresh, thus
homebuilders are hesitant to sign personal guarantees if they can avoid it.
Another advantage of nonrecourse
loans is that they typically are not included in the leverage calculation that
This past September, the Na- tional Association of Home Builders (NAHB) reported that
291 metropolitan areas across the
United States qualified as “improving
markets.” This marks the largest number of improving markets since the
NAHB’s improving-markets index was
initiated two years ago.
Although this indicator is positive news
for homebuilders, many key players in
the building industry remain cautiously
optimistic about the housing recovery.
Increasing interest rates, decreasing af-fordability and tightened banking regulations are headwinds that may impact the
housing market’s positive momentum.
Similarly, despite recent reports of improved lending, the credit recovery is not
a full one. Acquisition and development
loans are still harder to secure than construction debt, and in addition, advance
rates continue to be conservative.
Before the financial crisis, banks his-
torically made up the majority of lend-
ing activity when it came to acquisition,
many homebuilders have to comply
with to meet financial covenants. This
allows these homebuilders to take on
more leverage while remaining com-
pliant. Nonregulated lenders also are
more aggressive in advance rates for
the right project, which allows a home-
builder to use less equity — i.e., the
highest cost of capital.
Although market indicators point to
a general recovery across the country,
builder-finance availability varies geo-
graphically, correlating directly to the
downturn. With banks being strapped
with regulations and a hesitation to re-
enter many markets, nonregulated lend-
ers are becoming an increasingly viable
choice for builders to turn to with their
new for-sale housing projects. •
Taking an Alternative Route to Lending
Nonregulated lenders offer a viable option for homebuilders
Tom Farrell is director of Sabal Financial
Group’s homebuilder lending program. Sabal
serves reputable homebuilders coast-to-coast
with nonrecourse construction, acquisition
and development debt for new-home projects.
Reach Farrell at Tom. Farrell@sabalfin.com.