From the Editor
By Neil Pierson
Build the best options
in the construction-loan arena
Growth across the United States is all but inevitable. The nation’s population is expected to rise to 359 million by
2030, according to the U.S. Census Bureau, an increase of about 13 percent from 2014. The anticipated growth
translates into sure-fire opportunities for commercial mortgage lenders, brokers and borrowers as this larger
population will need more places to live, work and play.
Alternative and nonbank lenders have stepped in to fill the void in construction lending since the
onset of the Great Recession, but there is evidence that banks have a growing appetite for
ground-up construction and development projects. According to a survey this past July
from the American Bankers Association, nearly a quarter of the banks that responded
had construction-loan concentrations equivalent to 100 percent or more of their risk-based capital. And about one in seven banks had 300 percent or more of their capital
concentrated in commercial real estate, including construction loans. Banks that do
so aren’t breaking any rules, but they are exceeding risk-threshold guidelines established by federal regulators.
Our December magazine, which is focused on construction and development,
seeks to provide perspective for mortgage brokers who do these types of deals.
Although many lenders have upped their risk tolerance in this area, brokers and their
clients should dip their toes in the water before plunging into the market.
Our lead article from Paul Rahimian of Parkview Financial centers squarely on the dynamics of the construction-loan industry. On Page 31, Rahimian writes that increased costs
for labor, land and building materials are not only making construction deals more difficult for
developers, they’re also making them riskier endeavors for lenders.
If you work with clients who are small-business owners, you may already be aware of a construction-financing
option that offers low downpayments and associated costs. On Page 56, Kurt Chambliss of TMC Financing writes
about the U.S. Small Business Administration’s CDC 504 loan program and its usefulness for small-balance construction projects.
On Page 51, Ron Zimmerman of NetLeaseX Capital LLC explains the benefits of preferred equity, arguing that it is
the least understood layer of the capital stack. Preferred equity is a strong option when your client needs more
leverage than a traditional lender will provide, and it also can be structured to benefit brokers through direct
investments in their client’s deals, Zimmerman writes.
Industrial properties continue to be good investment opportunities, says Jonathan Pharris of CapRock Partners.
On Page 81, Pharris writes that mortgage brokers should know the factors behind loan pricing in order to steer
their clients to the best deals in this sector. Banks and life-insurance companies, among others, are good lending
options in the current environment, Pharris writes.
Timing is of the essence in many deals, of course, and Milton Franklin of Commercial Mortgage Exchange Inc. offers
some “transactional-lending” advice on Page 114. This approach involves having a take-out lender in place to ease
short-term financing headaches, and it can reduce the approval process from months to mere days, Franklin says.
Garry Barnes of PW Partners Consultancy wraps up the December issue by looking at foreign-national borrowers.
On Page 36, Barnes notes that this group now represents about 15 percent of the U.S. population. Brokers with
the cultural know-how stand to benefit because of the highly specialized needs of these borrowers.
As we head into the final month of 2018, the folks at Scotsman Guide thank our readers for another great year.
We’re always on the lookout for new voices and ideas, so please get in touch with me if you’re interested in contributing an article.
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.