Lastly, national lenders are not geo- graphically bound to a market. This is, in some ways, the most serious concern of all. National lenders are usually backed by fickle capital from hedge funds, making them prone to aban- doning a space when the market turns, when LIBOR increases, or another more enticing opportunity presents itself. The United States witnessed the lending industry transition from a local context to a national one with the “megatization” of banks, which happened at great cost to most Americans. Lending left its commu- nity-focused roots, becoming impersonal and detached from the nuances and needs of neighborhoods. The private lending space is one of the few truly local lending paradigms left, and its work continues to transform communities for the better, one house at a time. Local lending should be supported and protected as much as pos- sible. For these and many other reasons, local lending helps create a better and overall less risky system for everyone. TECHNOLOGY CAN HELP With the rise of fintech, local lenders now have access to the capital and tech- nology they need to compete against na- tional lenders. Digital platforms connect lenders with new capital sources from in- vestors as well as data and analytic tools that empower local lenders to strengthen and streamline their work. Fintech resources enable local lenders to complete time-consuming tasks faster, better, and more efficiently. Furthermore, tools that provide ‘back-end’ tasks to local and private lenders enable those lenders to focus on what they do best: finding great


Local lenders have relationships with local construction crews and other operators that can help in these situations. The ability to navigate workouts at the local level is a key benefit of partnering or working with local lenders. When national lenders enter a new market, they don’t have existing borrower relationships. In order to attract customers (which can be very expensive), they resort to undercutting pricing and increasing advance rates. This adds risk to the entire system because it doesn’t just af- fect their deals, it becomes the new market norm in that area. The lack of relationships with bor- rowers or the community at large also removes social pressure for a borrower to perform. When borrowers work with lenders within their communities instead of a larger, more impersonal entity, there are additional social and reputational expectations that the local lender and the borrower will both strive to meet.

LOANWORKOUT: An agreement between a lender and a delinquent borrower to either bring a loan back on track or resolve the delinquency in some other way. Workouts often include extensions of the payback period to lower monthly payments and other adjustments to the loan terms. LIBOR: The world’s most widely used benchmark for short-term interest rates. LIBOR stands for London Interbank Offered Rate. It is based on the U.S. dollar, the euro, the pound sterling, the Japanese yen, and the Swiss franc. When LIBOR rises, interest rates also tend to rise.

by Marc Heenan


t’s not news that national hard money lenders are making it hard for local lenders to compete. Thanks to institutional backing and easy access to capital, national lenders are equipped with highly competitive rates that are hard to beat. As these lenders grow, it will only get more difficult for private lenders, who tend to be local. Fortunate- ly, the solution is right on hand: Use fi- nancial technology, or fintech, resources to galvanize and unify local lenders with tools that make them more efficient and nimble than national players.

mately as well as which borrowers to work with or which ones to avoid. Since most of these national lenders are headquartered in major metropolitan cities such as Los Angeles, San Francisco, and New York, it’s not possible for national lenders to have that level of nuanced knowledge of every submarket in which they lend. Second, when a loan goes into default, it’s much harder for a national lender lack- ing local relationships to handle a workout. This issue only becomes more pronounced in the event of a major market dislocation.


There is a recent trend of national lenders entering markets that have traditionally been serviced by local pri- vate lenders. This shift is causing some systemic risks: First, national lenders tend to lack local market knowledge. Data is great, but it isn’t enough to fully evaluate these submarkets. You need “boots on the ground” profes- sionals who know the historical trends inti-

> Continued on :: PG 113

Marc Heenan is Head of Originations at PeerStreet. Learn more at

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