Real Estate Lending In The New South Florida Market (Video) – Real Estate

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With the rapid growth of South Florida’s real estate market
has come a flurry of lending activity in the region. One of more
marked trends in the current investment cycle has been the
increasing prominence of non-traditional lenders fueling local
deals and driving development. In this interview, Jake Greenberg,
an attorney in Bilzin Sumberg’s Litigation Group, sits down
with Camilo Niño, CEO and founding partner of Linkvest
Capital and LV Lending, to discuss the recent lending activity of
non-traditional lenders and how they are shaping the development of
South Florida.For more
thought-provoking interviews on Florida’s rapid growth, please
visitFlorida Is The Future.

Transcript:

GREENBERG: Hello, I’m Jake Greenberg, an
attorney with Bilzin Sumberg’s litigation group. I’m here
today with Camilo Niño to discuss the rapidly growing South
Florida real estate market. Camilo is the CEO and founding partner
of Linkvest Capital and LV Lending, one of the leading private and
non-traditional commercial lenders in the South Florida market.

Recently there’s been a large entry of both the traditional
lenders and non-traditional lenders in the South Florida market,
which has become one of the hottest markets since the COVID-19
pandemic. Today Camilo and I are going to discuss some of the
challenges that face lenders and borrowers, as well as developers
in this market.

Camilo, thank you for being here today. Let’s dive right in.
The first question we have is that the rising volume of financing
hitting the South Florida market has been matched with a rising
diversity of financiers and I’m sure you’ve seen that
competition with new lenders entering the South Florida market.

Can you speak to how non-traditional lenders such as LV lending
compete with both the traditional lenders and other non-traditional
lenders?

NIÑO: I feel like right now, everybody
wants to be here in South Florida. From New York, from California,
from Chicago money out of the U.S., everybody wants to have a part
of the market and it looks like everybody is a private lender or
hard money lender or whatever you want to call it.

GREENBERG: Well let’s stop there. Can you
explain really what differentiates a non-traditional lender, such
as LV lending from the traditional lenders, the big banks that most
people are familiar with?

NIÑO: Sure. First, normally the rich
lenders or private lenders like us, we do non-recourse loans where
the only collateral and the only warranty for us is the asset. We
are really asset-based lenders.

GREENBERG: And does that change how you
underwrite or view a deal?

NIÑO: Yes, it changes. We really need to
understand the market. We really need to understand the property.
We really need to understand the business plan that the developer,
or the sponsors, will have because we are not counting on the
personal assets or the cash flow from the borrower, the developer
to pay for the loan. We need the property to be able to support the
transaction. And normally the banks don’t do that. The banks
focus on the cash flow.

GREENBERG: So this would allow a borrower with
perhaps a lower credit score to be able to get a loan provided that
there’s sufficient equity in the property that’s backing
the loan, is that right?

NIÑO: That’s correct. Theoretically,
yes. We try to focus on good quality sponsors but good quality
sponsors normally have 2, 3, 5 projects at the same time. So they
will not have enough liquidity or enough assets to cover all the
covenants, all the financial covenants on the five
transactions.

So as long as the person is a quality sponsor, experienced
developer and the property is a good collateral, we can work it out
really fast and really flexible, which is the main difference with
the banks. Banks are really slow, a lot of regulations and focus on
the ability to repay from the borrower.

GREENBERG: Okay. And do you focus more on
commercial or do you ever do any residential lending?

NIÑO: We started doing private lending
in 2010 so it’s been an interesting journey. Back in 2010,
nobody was lending. I remember that after the crisis, the banks
went from lending to anybody and to make it really difficult to
lend to even with people on good projects.

We started doing a lot of residential finance because in the
crisis, a lot of people was buying just bulk of condos, 10 houses
at really discount prices. But over the years we start going more
into the commercial, into the construction side, into the land
development, finance and right now, 95% of our transactions are
commercial, including land development.

GREENBERG: Now did you see a shift during the
pandemic? Can you say, was there a pre-pandemic focus and how has
that really changed I guess since the beginning of 2020?

NIÑO:

I will say that after June, July 2020, there was a lot of
liquidity coming into this market. When the pandemic started, March
up to June, July, everybody was scared. Nobody knew what was
happening, what to expect, and then the banks and even the private
lenders stop financing or reduce the exposure just to understand
what was going to be the result.

But then we really saw Florida boom and a lot of people and
money coming into this market. So the banks, the debt funds, the
private lenders, everybody became much more aggressive to finance
and the market has been supporting that because the prices are
growing a lot.

The question is, what is going to happen next? Can this continue
to go up forever? Can the rates continue to go up or what is going
to happen with this market?

GREENBERG: Well, you mentioned before that a
lot of your underwriting is based on the value of assets. And I
think as we all know, we’ve kind of hit the peak or we’re
close to the peak of values right now.

NIÑO: Yes.

GREENBERG: Is there any cause for concern that
perhaps lending at these values, that these might be inflated for a
longer term loan?

NIÑO: I think with real estate, real
estate is really local and depends a lot on the small market that
you are in and the quality and experience of the developer that you
are working with. So even in the same market, one developer can
make it work and the other developer right next door could go
broke.

I think it’s not a time to be aggressive for sure. I think
it’s a time to understand the quality and experience of the
sponsor and it’s time to understand what is his plan. If
he’s planning just to create a building and sell it for 20%
over the current market price, I think that’s going to be
difficult.

If you are counting more on rents like multi-family properties
and the rents that you are underwriting and the performer that you
are doing to analyze your project is not that aggressive or
it’s supported by demographics, supported by higher income,
supported by new employers I think you can be okay.

But definitely it’s not an easy time. Definitely, nobody
knows what is going to happen. A lot of people are talking about
recession. Some people say Florida will not suffer a recession
because we have real input. A lot of new employers, a lot of cash,
not only from the U.S., but from Latin America as always.

I do believe that the South Florida market will do better than
other markets in the U.S. I do believe that it’s a moment to
focus on quality assets and quality sponsors because nobody knows
what is going to happen.

GREENBERG: Now I know your Linkvest and LV
lending are based in Miami but I know you lend throughout the
state

NIÑO: Yes.

GREENBERG: Have you noticed a difference
between the South Florida market as opposed to other areas in
Florida?

NIÑO: We are growing in other areas of
Florida. We love Broward, Palm Beach, Orlando, Tampa, St. Pete,
Naples and even Jacksonville markets. And also we are doing some
transactions in North Carolina, South Carolina and Georgia.

We do believe that those states are the ones that are getting
better demographics and better income at the cost of other states
like California and New York, for example. And as long as we have
people and as long as the demographics support, we believe in the
real estate market. We are not focused on the luxury product. I
think has been a really good market for the last two years for the
luxury product.

We do believe more in rental properties, like multi-family. We
do believe a lot in creating value through the land pre-development
and development. There are some people that can do that, I know
that you know this, but for example, we do the lending side, but if
we find good developers and good sponsors, we also invest in the
equity side with them as long as they demonstrate to us that they
have the experience to do it.

GREENBERG: You’ve mentioned something
really important about equity versus debt financing. And as you
know, the fed has recently increased interest rates and
there’s, as you also mentioned, the possibility for a
recession. Do you think that would have an impact on doing more
equity investing as opposed to debt financing because of those
interest rates and how do you think that would impact the
market?

NIÑO: I think it will be better. When
you analyze risk-return, at least we think we’re going to focus
more on the lending part because we also believe that we’re
going to get the quality of bank deals. Banks, as long as they hear
the recession word, even if it’s coming or not, they stop
lending.

So there is a big space now that is going to be open, that’s
what we believe. The banks were filling those projects and their
financing to sponsors. But now, because they are scared of
recession because the interest rate is going up, I think
they’re going to delay the decisions and we will have better
quality of lending opportunities. We do equity, but we will only
focus on multi-family projects.

GREENBERG: Okay and you also mentioned money
coming in from other states, other lenders. So what is LV lending
done to distinguish itself from those other private lenders?

NIÑO: Relationships. We try to work with
the same group of sponsors, developers, many times. Of course,
everybody tries to get cheaper money and they try to go to the
banks, but the flexibility execution, how fast can you close is
really important to those people. And I think we can compete not in
the cost of capital, but in the flexibility and the understanding
of the situation, much better than the banks; we can move much
faster.

That’s how we get the deals. We try to do more deals with
the same people, so they know we can execute. Even though we are a
little bit more expensive. It’s just a bridge loan. It’s
just a short-term finance.

Nobody wants to do a 9% or 10% loan for five years. But if they
need it for 6, 9, 12 months and they can create the value that they
need, sometimes it’s even cheaper than the banks when you
consider the time that they took you and also the prepayment
penalty that they have. I think we have a big opportunity in the
next 12 to 24 months.

GREENBERG: Have you seen anything slow down
since interest rate rises?

NIÑO: Not yet. But I hope it will slow
down, but not yet. And I don’t know if the recession is coming
or not. I don’t think it’s going to be that hard in South
Florida as it can be in other places. I hope it’s not going to
be a long recession, but the problem is that nobody knows. So what
we can do is analyze good assets, good sponsors, good projects and
work with them during the process.

GREENBERG: Alright, thank you for your time
today. I think this was a very informative and helpful
discussion.

NIÑO: Thank you for having me. A
pleasure to be here.

GREENBERG:Thank you. To our audience, thank you
for tuning in. We look forward to bringing you more information and
additional podcasts regarding South Florida’s real estate
market. All of our podcasts can be found on Bilzin.com. Thank you
again for tuning in.

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