Navigating the Packed Alternative Lending Environment

With an avalanche of alternative debt providers impacting the commercial real estate landscape, there are a few things that borrowers focused on long-term growth should consider. One would be the experience of the lender, and another would be the underwriting process. The latter is also a factor affecting market stability.

“New entrants in this space may be aggressive with their underwriting practices, and it’s important that as this space grows we maintain high standards of underwriting,” Gary Bechtel, president of Money360, told Commercial Property Executive.

After more than two decades in the industry, Bechtel admits that serving the borrowers’ needs and taking advantage of emerging technologies are key to a successful business strategy.

Competition in the lending environment has increased in the past couple of years. What can you tell us about the business today?

Bechtel: In general, alternative, non-bank lending has seen significant growth throughout the past few years because we can offer transparent, fast and creatively structured financing, and we expect demand to only increase from here. From an investing standpoint, we’re seeing more institutional interest in the private debt arena as investors seek higher yields.

We’re also seeing a shift from borrowers, as they pursue properties outside of primary markets and look to secondary markets like Houston and Phoenix. This shift has led to growth in opportunistic buying, as the borrowers can oftentimes more easily raise the value of secondary-market properties versus those in core markets.

What are the risks and challenges associated with the rise in alternative lending?

Bechtel: The rise of alternative lenders opens the door for new borrowers who are in need of flexible and structured financing to operate in commercial real estate. But with new lenders entering the alternative lending space regularly, it is not without its challenges. New entrants in this space may be aggressive with their underwriting practices, and it’s important that as this space grows we maintain high standards of underwriting. For borrowers looking to work with an alternative lender, it’s imperative to find a company with experienced and knowledgeable team members, who put the needs of the borrower at the top of their priorities.

What can you tell us about investor interest in the bridge lending space, another sector on the upswing?

Bechtel: Bridge lending has seen a surge in activity over the past year, and we anticipate that to continue into 2019. One trend we’ve noticed in the bridge space is that longer-term transaction structures have become increasingly common as more borrowers look to rehab and hold properties longer term, as opposed to positioning them for an immediate sale.

There has been a lot of discussion on the impact of rising rates on commercial real estate and capital markets. One possible outcome is the slowdown in acquisition financing opportunities. What is your view on this topic?

Bechtel: As interest rates have increased and more lenders have entered the market, spreads have tightened from most lenders. We haven’t gotten to the point where we are debt service coverage-constrained on loan requests, but with narrowing spreads, we expect rates may start to increase in 2019, potentially impacting loan proceeds to borrowers.

What are your predictions for the alternative lending space going forward?

Bechtel: Alternative lending will continue to be an attractive option for borrowers going forward. As more borrowers pursue alternative lending, we’ll also see an increased interest from investors to get involved in this sector. We’ve already seen this trend taking shape, as global investors have entered the space and are seeking out commercial real estate debt vehicles of various types.

Moving into 2019, we’ll see more borrowers looking for long-duration bridge loans and utilizing the funds for properties requiring extensive rehabilitation. With this shift, we’ll also see new entrants continue to flood the space, reinforcing the importance of seasoned executives and experienced underwriters.

How does Money360 pursue lending opportunities now? How did the process change over the past few years?

Bechtel: Money360 was founded on the commitment to making the lending process as streamlined and transparent as possible for the borrower. We are always evolving our processes and looking for ways to improve the customer experience. For example, we recently launched new technology, My360, that offers our borrowers a visual and easily digestible dashboard that keeps them apprised of the status of their loan applications and allows them to submit paperwork and communicate with our team. We also continue to develop new and refine existing loan products as the markets evolve.

What are Money360’s goals for the future?

Bechtel: As an alternative lender, our goal remains to provide dependable, transparent and streamlined financing options for our borrowers, ensuring that we close loans in a timely manner. We will continue to expand our origination capabilities, borrower base and our financing programs so that we can serve each borrower’s unique needs. In addition, our investing arm, M360 Advisors, is continuing to grow and provide private debt vehicles for investors that seek to offer attractive returns while preserving capital.

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