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14C — June 23 - July 13, 2017 — Mid-Year Review — M id A tlantic
Real Estate Journal
C onstruction L oans
S3 Capital Partners Filling the void for middle- market construction loans
York at any given time, one could be forgiven for thinking that financing for those proper- ties is rela- tively easy to secure. The W
ith so many active construction projects in progress in New
to find, particularly when it comes to those middle-market projects that drive growth in burgeoning neighborhoods. “New York’s construction lending market has remained a tough environment for financ- ing;” said Schwartz, who noted that conventional lenders tend to reserve a limited amount of capital for certain clients. “This is true across all market segments, but it’s especially evident among smaller balance loans – the transitional bridge space where conventional lend- ers typically don’t find it an efficient use of resources to monitor.”
It was that niche in the marketplace that inspired Schwartz and Joshua Crane – who also lead real estate investment and development firm Spruce Capital Partners – to launch S3 with finance industry veteran Safdie five years ago. The company has since funded more than 150 projects, including over $400 million in the last 18 months. “Early on, we saw a hole in the market for smaller-balance construction loans, and we were able to establish a struc- ture where we can fill that gap,” added Schwartz. “With our extensive background as
owners and developers, we’re able to underwrite each deal from the lens of a developer, making our platform more user-friendly.” Since its inception, S3 has seen an increase in requests from clients and brokers work- ing with conventional lenders, most of whom are tightening their belts and limiting their construction finance activity. The reasons are harder to pin down, whether concerns stem from risk, supply or simply that the books are full and the funding isn’t available. For developers, the Depart- ment of Buildings presents its
own set of issues, including stop-work orders and other obstacles that can negatively affect schedules, budgets and timely repayment of loans. The slowdown in the residential real estate market is also hav- ing an impact. “Sales and rental velocity is not at the extremely high levels that we saw even a couple of years ago – there has been an increase in supply, and any time supply goes up there will be risk in funding new projects,” said Schwartz. “That being said, there is still a market for well-conceived, appropriately-priced properties – it’s not as if there’s no liquid- ity. The projects in trouble are the ones where investors over- paid, didn’t establish the right capital structure and now have to achieve higher price points to be profitable.” S3 has funded dozens of projects throughout North Brooklyn, including Bush- wick, Bedford-Stuyvesant, Williamsburg and Clinton Hill. The firm is currently seeing a lot of growth around Prospect Lefferts Gardens, Flatbush, Sunset Park and Greenwood Heights – largely a result of rising prices. “In Prospect Lefferts Gar- dens and Flatbush, there’s been a growth in the popula- tion of Millennials who’ve been priced out of Williamsburg; Greenwood Heights has be- come an extension of South Slope; and Sunset Park has seen a lot of action among older generations who have been priced out of other areas,” said Safdie. “Developers and spon- sors are driving this growth as well, as many of them have also been priced out of the more traditional neighborhoods.” In addition to its longstand- ing presence in Brooklyn, S3 has been extending its geo- graphic influence to establish stronger footholds throughout the metropolitan New York City area including Manhat- tan, Queens Bronx, and Jersey City. “The revitalization of 125th Street has created a hotbed of activity in Harlem – we’re doing deals for brownstone conversions in the 120s and 130s, and there’s also a push for ground-up construction around 110th and 111th Sts. near Lenox Ave.,” said Safdie. “In Flushing – a well-established residential community we’re continued on page 20C
Robert Schwartz
truth, according to Robert Schwartz and Shawn Safdie of S3 Capital Partners, is that construction financing is in- credibly difficult for most real estate owners and developers
Delivering the deal.
Understandingwhat’s important.
At M&T Realty Capital Corporation, we understand that speed and certainty of closing complicated transactions is important for commercial real estate clients. We have more than 160 years of experience building relationships, providing seamless execution, and tailoring financing solutions to meet your unique needs. With $3.4 billion in commercial and multifamily loans closed in 2016 alone, M&T Realty Capital Corporation offers the know-how and experience you need to close deals with confidence. To find out how we can deliver for you, call 1-800-737-2344 or visit learnmore.mandtrcc.com.
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