Alternative lenders in real estate are no longer the black sheep they once were. Nearly a decade after the Great Recession, a new type of non-bank lender has appeared in the real estate market, and the future of this group looks promising, to say the least.
In fact, non-bank lenders are now dominating the real estate market. As banks continue to remove themselves from the real estate lending market, third-party lenders are serving a much-needed function in filling the money lending void. The past few years have seen tighter and more expansive restraints put on bank loans, and in turn, banks have raised their prices and rates. Third parties – with the absence of strict government regulations – have risen to the task, and the results are proving to be quite beneficial to borrowers and lenders alike.
Why the Rise?
The Great Recession saw an extreme distrust of banks develop in the minds of many Americans. And perhaps this is nowhere more evident than in the realm of real estate. With the increased regulations on bank lending, coupled with distrust from the borrower, more and more banks have escorted themselves out of the real estate loan process. While a direct need for alternative lending may not have existed a decade ago, it has almost certainly been created by the economic downturn of 2008.
Many within the industry prefer to deal with alternative lenders. While the costs for financing may be higher in some cases, third-party lenders have shown a willingness to continue long-term relationships, provide flexibility on underwriting and documentation, as well as provide a sense of reliability. With a third-party lender, it’s often their reputation that is on the line, too. So, there often develops a sense of camaraderie and trustworthiness between the borrower and the lender.
What to Expect
With banks still recovering from governmental regulations, alternative lenders are in a great position to pick up where the banks left off. Commercial real estate, development, and construction loans are proving to be extremely lucrative outlets for third-party lenders. The real right hook that alternative lenders have is their ability to provide loans to borrowers without the regulatory red tape that banks currently face. So long as third-party lenders continue in their path of reliability and accessibility, the future of real estate lending may see the current alternative lenders stepping into the mainstream.