UP CLOSE & PERSONAL
STREET SMART
Evaluating Online Lenders BY WHAT CRITERIA SHOULD A REAL ESTATE INVESTOR EVALUATE AND SELECT AN ONLINE MARKETPLACE LENDING PLATFORM?
There are certainly many criteria to look at when choos- ing a lender to help you scale your busi- ness. In my opinion, one of the main things to consider is the expertise and experience the lender has for your specific kind of project. Flipping a house
MATT RODAK CEO FUND THAT FLIP
In evaluating and choosing an online lending platform, investors should consider all business conducted by the platform, alignment of interest (between the platform and investor) and the way in which the investor’s interest is secured. Platforms can be marketing portals, origi- nation platforms or hybrids. If the platform is aggregating deals from others, what is the platform’s involvement in underwriting? Who is actually underwriting the loan? Other platforms source, underwrite and service the loans all in-house. If the platform raises equity in addition to debt, for the same transaction, which investor base is the platform aligned with—the equity side or the debt
has many moving parts. Everything from finding a deal, getting it on contract, closing quickly, managing construction draws and selling the house requires a lot of coordina- tion. Any process that has so many moving parts inevitably is going to also have things that don’t go 100 percent according to plan. Partnering with an experienced lender that is familiar with your type of project offers you several benefits. First, the lender is going to understand that things don’t always go according to plan and is going to be equipped to work with you to manage the new reality. Second, the lender’s experience can be a great help to you while you think about your best path forward as your project evolves. Just like you want to work with plumbers or electricians who are experienced and spe- cialists for their trade, you want to also pick a lender that specializes in your type of project. •
LAURA CATALINO SVP OF INVESTOR
RELATIONS MONEY360
side? In a foreclosure situation, which side will the platform represent? Finally, how are you as the lender secured? Some platforms issue borrower-dependent notes that offer an indirect security interest, meaning the investor is exposed not only to deal risk, but also to plat- form risk. With this structure, if the platform were involved in litigation or filed for bankruptcy, investors would be exposed to the credit risk of the platform in addition to the risk of the commercial real estate loan. However, some platforms use LLCs or put investors directly on title. These structures provide a direct security interest and are “bankrupt- cy-remote” from the platform. With all of the above, nothing is inherently “wrong” or “dangerous”— but investors should have a complete understanding of the business of the platform and how they are secured. •
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82 | think realty magazine july :: august 2016
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