Money360’s new president explains why bridging loans are thriving
After taking a step back from active loans in recent months, direct alternative lender Money360 has resumed operations.
“It’s an amazing time to be a lender,” said Tom MacManus, the company’s recently appointed president. Commercial Real Estate Manager.
Given the current volatility, improving capital flows and the increased need for flexible financing solutions, demand for bridging loans is particularly strong. And as 2021 approaches, MacManus anticipates this trend to intensify. From a global perspective, what changes are temporary and what is here to stay? In the interview below, MacManus talks about some of the main issues facing the financial market environment in the future.
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What are the main reasons for the decision to resume lending activity?
MacManus: When the pandemic struck for the first time and during the months that followed, the whole market came to a halt. However, we are starting to see a resurgence of activity as capital flows have improved and transaction activity has picked up, despite the uncertainty that persists. Going forward, we see a tremendous opportunity to deploy capital to provide solutions for borrowers who require personalized financing.
In times of uncertainty and instability, demand for commercial real estate bridging loans increases as properties, markets and capital structures require interim solutions to pave the way for permanent financing or exit strategies. We are also seeing increased demand as some lenders have pulled out of the market and banks have pulled out. This gives Money360 the opportunity to intervene. It is an amazing time to be a lender. We anticipate substantial growth in 2021 and plan to lend $ 1 billion over the next 12 months.
What does your pipeline look like?
MacManus: Before COVID-19, we were closing between $ 50 million and $ 75 million in CRE bridging loans each month. As we prepare, we already have just under $ 100 million in our closing pipeline and we expect the deal flow to exceed pre-pandemic levels.
Since the pandemic struck so fiercely, there is – and will continue to be – stress in the CRE industry. This stress can lead to more distress as properties and borrowers cope with the effects of the crisis. The downward pressure on rental rates, the increase in concessions and vacant homes, collection losses and absorption problems are the result of changes in shopping habits and workplaces, and these Behavior changes will take time to be fully determined.
What do you take into account when evaluating transactions?
As a lender, we are ready to help borrowers refinance matured loans, renovate and reposition assets, and complete their business plans. We meet challenges through discipline, demanding in-depth and extensive expertise from sponsors, seeking out assets well positioned in their market, structuring adequate reserves to withstand unknowns and avoiding markets or properties where the degree of uncertainty is too extreme for us to be able to structure ourselves comfortably.
What do you think of including additional layers of protection in transaction structures?
MacManus: This is a very important element today, whether it is additional reserves, a credit enhancement built into loans or requiring a larger cushion for leasehold improvements, rental commissions, tenant credit, absorption assumptions and rollover risks, among others.
As 2021 approaches, which real estate sectors offer the greatest opportunities for Money360?
MacManus: We expect demand for bridging financing to increase in all categories. Right now, our focus is on increased demand in office, industrial, self-storage, multi-family housing and select retail businesses. We are also looking at other types of income generating properties like mobile home parks and doctor’s offices. We plan to provide a good number of loans to borrowers who need to refinance a maturing loan or if the current lender is unable to honor its subsequent funding commitment. Loan maturities certainly haven’t stopped because of COVID-19, but it has prompted some lenders to exit the market.
Commercial real estate loans are very different from what they were a year ago. Which changes do you think will be temporary and which are likely to be permanent?
MacManus: The severity of the stress has had a negative impact on the availability of capital today. As the pandemic cloud lifts, lenders and investors will gain confidence to deploy capital in greater abundance and for longer durations. The constraint on the availability of capital will persist in the short to medium term, but over time it will fully recover. I expect demand for bridging loans to remain particularly strong over the next few years given our current climate.
The exodus from dense urban areas to more spacious suburban markets is a trend today, but we could see demand in urban areas resurface in a few years as COVID-19 becomes a distant memory. While macroeconomic trends are important, I place more value on the differences in the locations and characteristics of properties in the markets. So “averages” don’t mean much; rather, it’s the relevant metrics and demand drivers that really matter. Despite the differences in properties and borrower profiles, the essence of bridging credit remains the flexibility of the loan structure, speed and certainty of execution.
What are your strategies to increase bridging loan opportunities and expand the company’s origination network?
MacManus: We plan to hire a handful of experienced originators with expertise in structuring bridging loans and with extensive client networks, which will allow us to increase our lending volume against our lending target of 5. to $ 30 million. My relationships with financial intermediaries and borrowers will complement this recruitment initiative and increase our market share. Over time, we may also seek to introduce new loan programs to further expand our capabilities and opportunities.