MARKET & TRENDS
FUTURE OF PRIVATE LENDING
Where Is Private Lending Headed? THERE IS STILL MONEY AVAILABLE TO GET DEALS DONE; HOWEVER, IT MAY BE MORE EXPENSIVE.
By Anthony Geraci, Esq.
Civic Financial sold to ROC 360. Civic Financial, once the darling of PacWest Bank, was another casualty of the interest rate environment. Unfortunately, PacWest packed its balance sheet with Civic’s loans at the same time superregional banks such as PacWest were feeling the strain caused by the exodus of depositor funds. That forced Civic to be put up for sale. ROC 360 ended up buying Civic for an undisclosed amount.
ave you tried to secure private money for your deals recently?
is being filled by traditional private lenders who have balance sheet control over their funds (either via personal wealth or through investors and/or mortgage funds). Some lenders have said they have the pick of any deal they want to do because of the vacuum of capital in the space. This makes sense because there has been significant disruption in the banking model. Sili- con Valley Bank, First Republic Bank, Signature Bank and many similarly situated banks have either failed or floundered enough to become unreliable sources of capital.
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There’s a lot going on in the current lending landscape that is important for you to understand. Let’s dive into some current industry trends, what’s happening in the overall marketplace, and some forecasts for the next few months. Crystal balls are often murky, how- ever, so proceed with caution when it comes to predictions.
BIG PLAYERS EXIT OR CONSOLIDATE
WHAT DOES THIS MEAN FOR PRIVATE LENDING?
To understand the current lending landscape, let’s focus on a couple of large moves in the industry: PeerStreet and Civic Financial. PeerStreet bankruptcy. PeerStreet was formed to raise capital from people, or peers (hence, its name), and then lend to others, all in return for an investment. On June 27, 2023, PeerStreet filed for Chapter 11 bankruptcy, revealing an astonishing number: More than 50% of its portfolio was nonperforming loans. To put that in perspective, for every two loans PeerStreet bought, one loan was not performing. PeerStreet won’t be alone in the coming months—the interest rate environment lends itself to uncertain times.
Numerous consolidations have occurred at the top as underlying business models have been chal- lenged, as noted in each of the two previous examples above. What this means is traditional balance sheet lenders or mortgage fund operators have tremendous opportunity (and funding capability for you) to obtain more of the market share, which previously was being dominated by these larger players. WHO WILL DO MY DEAL NOW? If there is any silver lining, it’s that plenty of local funders are still willing do your deal, if you look hard enough. PeerStreet and similar entities have vanished, but the void
HOW TO FIND YOUR LOCAL LENDER
You may not have fingertip access to your local private lender, but they are around. If you’re not familiar with any local lending associations, the biggest and oldest trade association for private lenders is American Association of Private Lenders (aaplonline.com). Use the filters on the website to sort through their members; you’ll likely find one to fund your deal. WHERE IS LENDING HEADED? Great question. We know where we’ve been, but where are we headed? To get a good sense of
50 | think realty magazine :: september – october 2023
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