Non-traditional lenders warn developers and real estate investors of looming recession

Miami Freedom Tower (Credit: Juan-Oropeza)
Miami Freedom Tower (Credit: Juan-Oropeza)

During the first day of the Urban Land Institute 2016 Florida Summit, a panel of non-traditional lenders and private equity representatives painted a gloomy outlook for developers and property owners looking for financing in the capital markets.

“Generally, people in private equity are talking about a recession in the coming year,” said Greg Vogel, CEO of Arizona-based Land Advisors Organization. “We will see a tightening of the markets as investors seek to lessen their risk.”

Vogel was joined by BridgeInvest Managing Partner Alex Horn, Principal Real Estate Investors’ Investment Director Mary Scott, and Joseph Tagliola, head of U.S. operations for Australian private equity fund QIC. James Fried, managing director of the Aztec Group, moderated the panel.

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Specifically, the commercial-mortgage backed securities industry is going to take a major hit by the end of the year, Scott said. On Dec. 24, a new federal rule goes into effect that requires asset-backed loan originators to retain at least 5 percent of the credit risk relating to the assets that underlie the securities. “If you are going to do a CMBS deal, now is the time do it,” Scott said. “If a CMBS deal doesn’t close by October or November, you are going to hit a very bumpy period until the market figures out how to price out this additional risk.”

Horn said the cooling capital markets will drive developers and property owners to seek out lenders like BridgeInvest that can provide short term financing to weather the slowdown. “There is a need for our type of capital in a contracting market,” Horn said. “An owner can use this capital to hold on to the property for the next two to three years.”

Non-traditional lenders will also be looking for more deals that involve urban infill mixed use projects, Horn added. He noted BridgeInvest, which is based in Coconut Grove, recently provided a $3.2 million second mortgage to One Real Estate Acquisitions, which owns two properties on North Miami Avenue and 22nd Street in Miami. One Real Estate’s owner Jeronimo Hirschfeld is planning a 12-story tower on the site called Wynwood Square that will include about 26,000 square feet of retail on the ground floor, 51,000 square feet of office space, 200,000 square feet of rental apartments, and about 505 parking spaces.

“Wynwood Square is a very good example of a live-work place,” Horn said. “Multifamily in Wynwood is very attractive because that market has a void right now. This is going to be one of the first projects that gets off the ground.”

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