How will it impact demand for hard money loans?

Is the demand for private capital (hard money) loans in Colorado stronger or weaker when the local commercial real estate climate is strong or when it is weak? Counter to what one might think, the hard money lenders are more likely to experience strong loan demand in a strong CRE economy.  Let’s take a short look at where Denver’s commercial real estate market is today.

According to Cushman & Wakefield’s capital market group the volume of commercial sales transaction is Denver last year reached levels not seen since 2005 – approximately $2.5 billion dollars. Denver has benefited from many different factors which help it rebuild its CRE economy.  Denver did not suffer as severe a downturn as many national markets during the great recession, which has left a positive impression on many national investors.  We have a reputation for attracting an above average educated workforce.  The redevelopment of the Union Station area has created a national buzz with kudos being given to Denver by respected groups like the Urban Land Institute.

Good Real Estate Markets are Good for Everyone

All indications point towards a renewed willingness for banks, life insurance companies, and CMBS lenders to make commercial real estate loans.  Why does this mean that demand for privately funded loans – such  as asset based loans – will also pick up?  The answer is simple:  the higher the volume of CRE transactions the higher the number of buyers that are still not going to be able to qualify for institutional loans.  The very fact that buyers want to put their funds back into the commercial real estate markets creates a demand for financing. Banks – still under strict review by the Federal Reserve’s regulatory agencies – have adopted higher standards than were prevalent during the 2000 to 2007 bubble.  If a deal doesn’t meet the highest standards it is not going to get done by a bank and life insurance companies are, if anything, even more conservative.

Buyers want to do deals – but not all of them are going to qualify for traditional financing and thus the demand for private capital financing has to increase.  When banks were the most restricted (say in 2009), the volume of CRE transactions in Denver sunk to such a low level that very few sales were consummated.  Sales volume in 2009 dropped to a low of $533 million. Compare that with the record breaking $5.3 billion volume in 2006.   A strong commercial real estate market is good for everyone – buyers – sellers – banks and institutional lenders and the “shadow banking” system that steps in to fill the niche created when traditional lenders are unable to fund loans that are just “outside the box” but still make sense when using the asset based underwriting standards used by hard money lenders.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.