Non-bank lenders diving into construction, investment loans

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    There has been a surge of new non-bank lenders offering construction and investment loans this year, driven by private capital seeking higher yields in the red-hot property market, according to commercial mortgage broker Stamford Capital.

    “[Lending] has come back like a boomerang,” Stamford Capital joint managing director Michael Hynes told The Australian Financial Review. “There was a huge dip [last year during the pandemic] but then the market has swung back even harder compared to where it was 12 months ago. There’s more money, it’s cheaper, and non-bank lenders are being materially more aggressive in chasing deals.”

    Hynes said that in more than 20 years in the industry, he had never seen so many non-banks operating in the market.

    “It’s extraordinary. Every week [it seems] there is a new non-bank lender,” he said. “We know because we are one of the largest commercial brokerages in the country and one of the first parties these new lenders approach to access our deal flow.”

    The spike in appetite and competition in the market is examined in Stamford Capital’s latest Debt Capital Markets Survey, which tracks lender sentiment and trends in the real estate debt market. The survey, based on responses from over 100 lenders – including non-banks, banks and private financiers – found a “dramatic swing from the bleak outlook of a year ago” when capital was scarce, leverage levels decreased and lending criteria grew more stringent.

    The survey found that lending appetites had returned to pre-COVID levels, with increasing deal competition from non-bank lenders predicted to create price wars and force interest margins down, AFR reported.

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    Capital is being driven into debt markets by record-low interest rates and increasing optimism in most real estate sectors. The survey found that the supply of capital was likely to exceed demand, and lending criteria were loosening as more alternative lenders jumped into the market.

    Eighty-two percent of lenders surveyed by Stamford Capital said they expected to increase the size of their loan books this year – up from 71% in June. The share of lenders requiring project pre-sales to secure construction funding fell from 72% pre-COVID to 55% in March.

    Two-thirds of lenders surveyed said they expected non-banks to ramp up construction lending activity, up from 42% in June, and more than half of private lenders do not require any pre-sales to secure construction loans.

    “Banks are still miles cheaper than non-banks, and they will do deals if you meet their parameters, but it’s hard and painful,” Hynes told AFR. “For everyone else it’s a race to the bottom [to win business].”

    Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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