From the Editor
By Neil Pierson
A new year brings optimism in the face of adversity
Despite a rising interest rate environment that is expected to continue in 2019, commercial mortgage brokers and
their clients have reasons for optimism at the dawn of the new year.
According to an Urban Land Institute forecast from this past October, U.S. commercial real estate transaction
volumes are expected to total $450 billion in 2019 and $415 billion in 2020. Although these numbers represent a
continued decline from the post-recession peak of $569 billion in 2015, they’re still well above the average annual
transaction volume of $313 billion from 2001 to 2017.
The latest figures appear to reflect the common notion that the decade-long upswing in the
commercial real estate market is coming to an end, yet they also may signal an opportunity
for lenders that are willing and able to be creative and flexible. And hard money — our
January focus topic — may be the avenue to future financing for property owners and
investors who are determined to stay the course.
Returning author Jan B. Brzeski provides a glimpse into the future of nonbank, or hard
money, lending with his lead article on Page 30. Brzeski predicts that loan-default
rates for these nonbank institutions may increase in the coming year due to a rising
number of high-leverage loans, but he also sees them as increasingly viable options
in the next decade as they cement their presence inside local communities.
A first-time author, David Knudson of Gravity Capital LLC, lays out the pros and cons
of hard money financing on Page 88. Brokers and borrowers should seek out lenders
that offer minimal upfront fees and avoid those with the goal of owning property,
Knudson writes. Regardless of their own financial situation, however, borrowers who are
willing and able to provide equity can usually find a hard money lender willing to strike a deal.
Hard money is quite literally capable of crossing borders, as Edwin Urrego of Kennedy Funding
Financial points out on Page 81. For many international real estate investors, traditional banks are not an option,
but there are private lenders capable of overcoming unusual obstacles — such as language barriers or currency
fluctuations — to make these deals happen.
Our January issue also features a pair of articles about the growing rental-housing sector, a popular target
for hard money loans. On Page 53, Michael Miller of 5 Arch Funding Corp. discusses an emerging trend that
commercial real estate investors and mortgage brokers should be aware of — the opportunity to partner with
homebuilders on new-home purchases or speculative construction. These single-family rental (SFR) properties
have seen rent prices skyrocket in recent years in many U.S. markets, Miller writes.
On Page 66, new author Michael Oddi of Velocity Mortgage Capital notes that, from 2007 to 2016, the number of
SFR properties nationwide grew by 31 percent while the number of multifamily rental units increased 14 percent.
The demand for these property types is likely to grow, Oddi says, as millennials —who are less interested in
homeownership than prior generations — become the largest share of the U.S. population.
Richard Sarkis, CEO of data-analytics company Reonomy, wraps up the January issue on Page 36 by talking
about high-tech and hyper-targeted marketing strategies for mortgage brokers. The wealth of available data on
properties and existing loans can be overwhelming, but brokers who are able to sift through the mounds of
information can formulate marketing messages that are personalized for an individual borrower, Sarkis writes.
Although it may be more difficult to stay enthusiastic as uncertainty swirls around the real estate industry,
we hope this month’s Scotsman Guide helps provide some optimism for the future of your business.
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or email@example.com.