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M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant/Graphic Artist ............................... Julie King Associate Publisher ....................................................... Kim Brunet Associate Publisher ................................................. Alissa Aronson Associate Publisher ...................................................Eric Ballenger Associate Publisher .............................................. Barbara Holyoke Associate Publisher .....................................................Steve Kelley Office Manager .........................................................Joanne Gavaza Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 28 Issue 12 Subscription rates: $99 - one year, $198 - two years, $4 - single copy
Jeffrey Wolfer
Bridge lenders poised to bridge distressed properties funding gap
D
istressed properties are problematic, for reasons economic and
demographic. The economic rebound hasn’t been across- the-board, and the propensity for millennials and companies hiring them to gravitate to- ward urban areas has resulted in suburban landscapes with vacant office buildings. Conventional lenders con- tinue to demonstrate an aver- sion to financing distressed properties, paving the way for bridge lenders to provide the funding to get these properties functional, repurposed if nec- essary, and at full potential. The last recession had an impact difficult to overcome. One emerging problem was property owners, for finan- cial reasons, had difficulty maintaining their properties. Thus, the market saw more instances of investors acquir- ing sub-standard multifamily, office buildings, hotels, and retail assets. That was especially prob- lematic for hotel owners whose properties no longer complied with standards required by ho- tel chains. Needing financing to improve their properties, operators began approaching lenders for funding, if only for cosmetic improvements. It was also problematic for retail. Investors have been acquiring run-down centers, many suffering from closure of major tenants like Circuit City and Linens ‘n’ Things. And Internet retailing, or e- tailing, continues to damage brick-and-mortar retail. Generally, across all prop-
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The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
erty sectors, investors have the opportunity to upgrade or reposition these assets. In reality, most banks stay away because such properties may have been acquired for a frac- tion of the value of the reposi- tioned property. To them, the borrower doesn’t have enough equity in the deal. A bridge lender will make that loan. Once the property is upgraded, that loan is replaced by conventional financing when the property meets tra- ditional lenders’ requirements. One key advantage bridge lenders offer is closing loans quickly. Another: Bridge lend- ers are more willing to look beyond the present to future values, providing the basis for required short-term financing so that loan can be taken out with a conduit lender or per- manent financing. In Allentown, PA, $5 mil- lion in financing was secured by two hotels, utilized for a discounted payoff of existing debt after the borrower was rejected by conventional lend- ers. Also, the properties are situated in a secondary mar- ket, and conventional lenders typically look to finance in
primary markets. Bridge lenders routinely assist borrowers with out-of- the-ordinary situational loans. Here, the properties are oper- ated by experienced owner/op- erators under the Holiday Inn banner. Continued hospitality growth in the market factored into a decision to provide fund- ing. Bottom line: If a borrower has a strong track record, the bridge lender will take the long view. Another example: Silver Arch provided $12.6 million for development of an 81-acre site in Mansfield, TX. The borrower was under contract to acquire the property, re- quiring funding to complete the acquisition. While the transactionmade sense, that it was speculative made it unat- tractive to traditional lenders. The potential fell into the focus of a bridge lender—providing bridge financing outside tra- ditional sources to visionary developer/owners. Conventional lenders do generally like multifamily, retail and office properties, but are turned off by “negatives.” Bridge lenders looking at the continued on page 14A
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