I think we can all unanimously agree that 2017 will forever go down in history as the year we spent recovering from 2016 (which is bitterly known as “The Year Music Died”). But 2018 is shaping up to be quite good so far; we had a successful Winter Olympics, we were gifted with the incomparable Black Panther film, and were privy to an unintentionally humorous tweet from President Trump in which he casually name-drops Jay-Z. Oh – and there’s one more thing that’s happening this year (even as we speak) that equals good news for nontraditional lenders and people seeking real estate loans: a major pullback from banks in the real estate lending industry. Alternative Loans are ready to rule the day.
In order to fully appreciate what this means for loan brokers and nontraditional lenders, we need to break it down.
Banks are steadily pulling away from real estate lending, opting to increase restrictions and contingencies this year. Simultaneously, real estate brokers are also changing their views on lending, embracing the current trend of turning to alternative/nontraditional lenders.
Once upon a time, real estate brokers presented clients interested in real estate loans with a limited number of options; but as the market changes, they’re quickly diversifying their portfolios to include nontraditional lenders in that mix.
Clients seeking real estate loans are no longer placated by being presented with a slim selection of funding options; and in order to be successful in the current lending climate, it’s critical to know when to direct clients away from traditional bank loans and towards alternative loans.
We’re not claiming that banks will somehow become irrelevant in 2018; rather, we’re noting a major shift in the types of clients traditional banks cater to: those with the most impressive bank accounts and immaculate credit. Banks are doing this in part to alleviate risk; however, in the process they have all but shut out middle-market developers and investors – aka the rest of us.
We seriously doubt that the banks could have foreseen the consequences of their choice to do so; had they known that these developers and investors would partner with nontraditional lenders, perhaps they would have reconsidered their strategy.
Unfortunately, however, banks simply don’t have the same appeal that nontraditional lenders do – flexibility, the ability to offer nonrecourse loans and faster closing time frames.
And based on the inherent lending structure of traditional banks – which hasn’t changed much in the last few decades – we foresee the inevitability of banks being forced to forfeit a large share of their future real estate loans to nontraditional lenders.
But banks really shouldn’t be surprised by this forfeiture of real estate loans to nontraditional lenders. If there’s only one thing that is certain in the American financial market, it’s change; and for those paying attention, history has repeatedly favored ingenuity over institution.
We’ve almost reached the halfway mark of 2018, and real estate still ranks high on the list of lucrative investments. Competitive lenders need two qualities to increase their rates of closed transactions: reliability, and speed.
An investor’s needs are like a perpetually revolving door – a concept that nontraditional lenders simultaneously understand and can successfully cater to, contingent upon their ability to remain flexible.
Gravity Capital is both reliable and flexible when it comes to negotiating real estate loans – and we’re committed to finding the right terms and conditions for each and every one of our clients.
Knowledge is power – and it takes less than five minutes to drop us a line or contact us to learn more about how we can help you find the funding you need.
