Despite strong investor appetite for US real estate, both domestically and overseas, lenders are being a bit more cautious in their underwriting since they expect values to soften at some point, Money360’s CEO Evan Gentry tells The firm closed $143 million in loans in the second quarter, marking its best quarter to date.

Money360 has now closed more than $350 million in total loans and is on pace to close more than $500 million by the end of the year. On average, the company is now closing $50 million in loans each month. We spoke with Gentry about how lenders are viewing CRE financing for the second half of the year and their greatest concerns about the market at this point. How are lenders’ views on CRE financing shifting as we move further into the second half of the year?

Gentry: As we move into the second half of the year, we are being a bit more cautious in our underwriting at Money360. We are clearly on the upward end of the real estate cycle and expect a softening in values at some point, but we do not foresee a significant correction in the near term. The fundamentals are still fairly strong, and we don’t have the irrational over-leverage that existed in the market prior to 2008.

There continues to be strong investor appetite for US real estate, both domestically and overseas. Having recently spent time in Asia with institutional investors, it is clear to me that their appetite for US real estate and debt is not waning. Because of political and economic uncertainty globally, the US real estate market appears to be the most stable major market in the world and is considered a safe haven for investors. What are lenders’ greatest concerns about CRE at this point?

Gentry: We are being very cautious with retail properties. There is clearly a changing dynamic in this industry with the rise of online shopping and the convenience it provides. That said, there are also unique opportunities to lend selectively against retail properties that have been repositioned with recreational or fitness tenants, restaurants or other stable tenants that meet local needs.

Additionally, interest rates are poised to climb. Rising rates drive up financing costs, which have a negative impact on valuations. We do not see modest rate increases of 25 to 50 basis points having a dramatic impact on the market, but beyond that, the impact can begin to be much more meaningful. What are alternative lenders focusing on as the economy continues to improve?

Gentry: At Money360, we continue to see significant opportunities to refinance maturing loans coming out of the CMBS market or off bank balance sheets. As regulations have led to more narrow guidelines for traditional lenders, this has created a significant opportunity for alternative lenders.

As a tech-enabled direct lender, we are extremely focused on creating and leveraging technology that allows us to enhance the customer experience and speed the closing process. Just as technology is impacting the retail industry by creating a more efficient and speeder solutions, we are leveraging technology in ways that allow us to deliver better solutions to our borrowers. What do you anticipate the lending climate to be like in 2018?

Gentry: Excluding unknowns such as international confrontations, we do not foresee major market changes in 2018. As we near the top of the cycle and are in a rising-interest-rate environment, however, we certainly may begin to see a softening of valuations, but we believe there will continue to be many strong lending opportunities in 2018.

It is important to note that our experience tells us that real estate is very local. Different property types are impacted differently in certain markets, and some markets may be moving up while others are moving down due to microeconomic factors. At Money360, we utilize technology and data to quickly analyze market fluctuations and trends, and this drives our decisions on where, and at what terms, we will lend.

Finally, we anticipate that the current trend of CRE loan originations transitioning from traditional lenders to alternative lenders will continue and even accelerate in 2018 and beyond. The regulatory factors driving decisions at the banks and CMBS lenders are creating restrictions that both shrink the lending box and lengthen the closing timelines. Companies like ours, which are leveraging technology to speed and enhance the experience and applying greater flexibility to meet customer needs, will continue to gain market share in the coming years.

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