liquidity commercial real estate

How Liquidity Promotes Opportunity, Yield and a Greater Public Good

Access to capital is the lifeblood of the commercial real estate industry. It’s what allows a buyer to close an acquisition, enables expansions and renovations of properties and keeps projects afloat when a maturing loan comes due.

In the first six months of this year alone, roughly $65.6 billion in CMBS debt will come due, mostly on office and retail properties, according to Trepp, one of the industry’s leading providers of data and analytics. In February alone, more than 7 percent of that debt had fallen into default, Trepp reported, while 15 percent has been transferred to special servicing.

Clearly, the wave of maturing debt for commercial real estate properties has not yet subsided. These are still worrisome times for many in the real estate industry, and while traditional bank lenders remain constrained by the regulations enacted by Dodd-Frank and Basel III, alternative lenders in large part have been filling the void and providing the liquidity this industry needs to stay afloat.

A lifeline for viable projects

Alternative lenders, such as marketplace lenders, have benefitted from a significant flow of tens of billions of dollars invested over the past few years to help fund worthwhile commercial real estate ventures that traditional banking institutions would be unable to fund.

According to Innovate Finance, global fintech hit a record high in 2016, with as much as $17.4 billion in investments. Many industry projections put anticipated capital flow for 2017 even higher as prudent investors seek out higher yields backed by short-term loans on income-producing properties.

Alternative lenders, now flush with investment capital, are often able to look beyond the stringent underwriting criteria and one-size-fits-all checklist approach forced upon traditional lenders through these recent risk retention rules.

Access to alternative lending doesn’t mean that everyone can get a loan—due diligence in the underwriting process is still very important,—but it does open opportunities for borrowers who may have experienced a temporary setback, yet have projects that are not only viable, but promising investments.

Commercial real estate marketplace lenders will typically provide a range of funding options, from bridge to permanent loans, which can be tailored to meet the needs of the borrower and support ongoing growth in the market.

Another benefit to marketplace lending is its accessibility. Many platforms offer online services that can be accessed any place, any time. A common term applied to this phenomenon has been the “democratization” of lending—opening the availability of capital to a much broader range of borrowers.

Good for commercial real estate and the economy

Access to financing options and capital is what drives a robust market and that, in turn, stimulates jobs and growth in broader economic circles.

Development and construction of new office, industrial, warehouse and retail continues to be a powerful contributor to the U.S. economy, supporting roughly 3.2 million American jobs and contributing $450 billion to the U.S. GDP in 2015, according to NAIOP, the nation’s largest commercial real estate development association. The same principles hold true for commercial real estate renovations and upgrades, which by and far are the predominant reasons for capital transactions nationwide.

We frequently lose sight of the underlying significance of the projects we support through our work as commercial real estate professionals.

Commercial real estate creates opportunity for entrepreneurs, work spaces for jobs and storefronts for retail. It fuels commerce and promotes ancillary economic benefits that not only stretch into virtually all industries, but indirectly support millions of families nationwide.

That’s the underlying good in what we do.

Gary Bechtel serves as president of Money360. Prior to joining the company, he was chief lending/originations officer of CU Business Partners, LLC, one of the nation’s largest credit union service organizations (CUSO).

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