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Banks Struggle to Compete Among Bevy of Alt Lenders | By Mariah Brown, GlobeSt.com

Dec 9th, 2019

With borrowers willing to pay a premium rate in favor of more leverage and more flexible loan provisions, bridge lenders and alternative lending platforms are finding a robust pipeline of deal flow.

Momofuku Noodle Bar.

New York City, NY – December 09, 2019 – globest.comDebt service coverage, debt yields, and loan-to-value restrictions have challenged the ability of banks and other traditional institutions to compete on value-add transactions, leaving the gates open to alternative lenders.

With borrowers willing to pay a premium rate in favor of more leverage and more flexible loan provisions, bridge lenders and alternative lending platforms are finding a robust pipeline of deal flow for value-add financing opportunities, David Berg, partner at Infinity Real Estate, tells GlobeSt.com.

“Some of the alternative lending groups have experience in the borrower’s shoes on the same types of value-add investment, so these lenders have an easier time getting their arms around the business plan,” Berg said.

Often, value-add deals have the low in-place cash flow or a business plan that intends to alter the cash flow, which in many cases makes traditional lenders that focus on debt-yield and coverage ratios reluctant. As a result, alternative lenders such as Infinity have found a niche in providing higher leverage to borrowers to execute on a renovation or repositioning investment strategy.

For example, in a transaction last week, Infinity Real Estate teamed up with BridgeInvest to lend $12 million on BH’s $14 million acquisition of 169-171 First Avenue. The high-leverage senior loan will finance the two buildings comprised of two retail units and five, full-floor residential units that are each approximately 2,000 square feet. Combined, the total area of the two properties is 13,185 square feet. At 169 First Ave., Momofuku Noodle Bar serves as the anchor tenant and is on a long-term lease.

“We understand the upside that the borrower is trying to capture through the value-add program and see a clear path for the borrower to do so, and we’re comfortable providing financing through this lens,” Berg said.

Alternative lenders, who were traditionally private equity players, are launching debt funds and issuing loan products that banks and even large insurance companies cannot keep pace with, emerging a  competitive force in the space, a recent GlobeSt.com article noted. Alternative lenders could soon overtake loan issuance over life insurance companies, according to data from Real Capital Analytics.

For the 2019 year, debt funds represented a larger share of the commercial mortgage markets than life insurance companies. RCA noted a 10% share for life insurance companies compared to a 9% share for debt funds. It is in the riskier investment styles, where debt funds are more competitive, allowing them to capture more market share than insurance company lenders this year, the data noted.

About Infinity Real Estate, LLC
Infinity Real Estate is a privately-owned developer, owner, and manager of high-quality real estate in primary U.S. markets. The Company’s portfolio includes over 60 individual properties representing over 1 million square feet of retail, office and hospitality space and over 1,800 urban rental apartments. Through its affiliates and portfolio companies, Infinity has managed over 115 properties representing over 20 million square feet. The Company’s principals have led or have directly transacted on over $5 billion of real estate related investments spanning the acquisition or development of individual properties and portfolios, as well as several private corporate deals. Infinity has established a strict investment discipline centered on active management of all its projects. The Company has completed over 30 historically protected redevelopment projects in five US cities. Infinity’s “Green Landmark Initiative” is aimed at modernizing the infrastructure and transforming the spatial programming of historic properties, so that they operate with the highest efficiency and smallest environmental footprint possible, while rehabilitating and preserving precious architectural elements of the historic structures. Infinity pledges 1% of its revenues to environmental preservation and social causes as a member of 1% FOR THE PLANET – the environmental non-profit’s only member real estate company. Infinity Real Estate was founded in 2005 by Steven J. Kassin and is headquartered in New York City.

 

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