Borrowers grappling with the unpredictability of real estate financing have more options than just traditional lenders. In fact, working with a private lender can be more beneficial than just funding a deal and getting a project off the ground. This is after Donald Brown, President of the HALL Group and Managing Director of HALL Structured Finance (HSF), HSF is a private lender with a focus on the provision of multi-family and hotel construction loans as well as hotel bridging loans. GlobeSt.com reached out to Braun to discuss the advantages of private lenders over banks and other credit institutions, and what the resulting adaptability means for developers.
“The way we deal with borrowers is not driven by regulation, but real estate-oriented, which enables greater flexibility, a key difference that private lenders offer,” said Braun. “The process is more efficient in terms of time because we simply have to go through fewer levels than most financial institutions to close a loan.”
Unlike banks and other financial institutions, private lenders can offer greater leverage in real estate deals, non-recourse financing, and a faster credit process. The tactical advantages combine with strategic thinking outside the box, which leads to more deal flexibility and thus more options for borrowers.
“This property-centric approach means that we are primarily focused on the project, with the tactical result that we can rely less on the sponsor’s financial report than banks and / or other institutions may require,” added Braun.
For example, private lenders like HSF have the option of taking out loans for projects that are already under construction and for whatever reasons their financing is not secured. With fewer regulatory restrictions and thus more flexibility as well as an expert view of the respective project and real estate conditions, such financiers can find this deal, a diamond in the rough.
With flexible financing solutions, private lenders are not only much better equipped to cover external capital requirements, they can also work more creatively in the capital stack, according to Braun. HSF recently closed a deal in which it provided “a significant land value above its cost base” which in turn proves that it is more about the project itself and that deep pockets are not the only factor.
Credit workarounds have been a key option for borrowers during the pandemic and will continue to do so during the next economic downturn. With their greater flexibility, non-institutional lenders have much more leeway to offer borrowers alternatives during difficult times. These may include lowering wage rates, extending the completion dates of construction loans and extending the terms. Depending on the situation, HSF was also able to increase the loan amounts in cooperation with some of its customers.
“Banks have to deal with compliance and regulatory issues on a daily basis that limit their ability to act in situations that require a certain amount of adjustment, such as the one mentioned above. “On the other hand, private lenders have the opportunity to view a project from a longer-term perspective and to reach into a kind of larger tool bag when working with the borrower on various topics. There is more flexibility to do business. “