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How to Capitalize on a Hot Housing Market

How to Capitalize on a Hot Housing Market

The housing market isn’t just hot, it’s on fire. As the nation continues to make progress on its recovery from the pandemic, both demand for homes and a supply shortage have pushed median sale prices soaring, according to the National Association of Realtors. Median sale prices were up 16.2 percent year-over-year during the first quarter of 2021.

To navigate a market like this, investors and developers need to understand what buyers are looking for, how to capitalize on stable or growing asset classes such as build-to-rent homes, single-family rentals and multifamily properties, and how to obtain flexible real estate financing. Here are a few tips to help make the most of today’s housing market.

single-family rentals

What will homebuyers be looking for in a home post-pandemic?

People have begun to view their homes differently since the onset of the pandemic. Homebuyers now seek a home with features that accommodate new hobbies and daily functions that previously were not performed as often within the home. Long-lasting lifestyle changes due to the survival mechanisms put in place by extended periods of lockdown will likely mean that people will be searching for spacious safe havens and remote work or education environments.

Here are three features that homebuyers and renters are now more likely to want in their future homes:

  1. Dedicated spaces

After spending a lot of time at home, people naturally start to crave larger spaces; but residents aren’t just looking for more square footage. While an open floor plan is great for entertaining and making a space feel larger, homebuyers have recently found that having multiple separate rooms can be both comfortable and functional. This can include a home office, closed-off living room, media room, etc.

Separate rooms still provide options for family time and entertaining, but also allow everyone to do their own thing. This is important for those who have family members working or doing schoolwork from home.

  1. Energy efficiency

Energy-efficient features have been upgraded to the “must-have” list. Not only are we spending more time at home, but we are using our utilities more, which can get expensive. Energy efficiency is a win for homeowners’ wallets and for the environment. Improvements like tankless water heaters, LED lighting, double-paned windows, and energy-efficient appliances are a few options for builders to include in newly constructed homes.

  1. Storage

For many, it can be difficult to find storage space for emergency supplies or essential products. Plus, more time spent at home helps people realize how important it is to keep things organized and clutter-free. Extra pantry and closet space will likely be more “must-haves” for the rest of 2021 and beyond.

How investors are capitalizing on for-sale homes, single-family rentals, and multifamily properties in today’s market

single-family rental home

For-sale homes, single-family rental communities, and multifamily properties have all displayed strong performance compared to other asset classes throughout the pandemic. This has allowed investors to capitalize on increased demand for these property types by putting their capital to work in high-growth secondary markets across the U.S. These include cities such as Coeur d’Alene, Idaho; Tampa, Florida; and Salt Lake City, Utah, to name a few. Many of these markets were already seeing a high amount of in-migration prior to the pandemic and have seen even more because of the public health crisis.

Each of these asset classes possess unique qualities that have made them strategic investments throughout the pandemic. Since people will always need a place to live, they are likely to remain viable investments for the foreseeable future. Reasons for this include the following:

  • For-Sale Homes

Mortgage rates have reached record lows, thereby causing demand to skyrocket and drive up median home prices. As the pandemic sped up the flight from large, coastal cities, markets with already tight housing supply were constrained even further. This has led to a surge in construction and an accentuated need for high-quality, for-sale homes.

  • Single-Family Rentals

Single-family rental communities have emerged as an increasingly popular option for those who want the amenities of a multifamily building with the breathing room afforded by a single-family home. Single-family rent growth more than doubled in April 2021, with prices increasing by more than 5 percent year-over-year.

  • Multifamily Properties

The multifamily market has enjoyed a strong 2021 thus far. The asset class remains an attractive option for those looking for best-in-class amenities without the hassle of owning a home.

How to obtain construction financing for your project

With the housing market surging, there have been more commercial real estate construction lenders entering the market, creating more competition. Therefore, to win business, some commercial real estate lenders may not be enforcing the same rigorous underwriting standards as their peers, which could result in riskier loans. Be sure to do your due diligence when you’re looking to obtain financing for your real estate project. You want to find a hard money lender that you can rely on.

We recommend a private lender that has a good reputation, is willing to communicate and is flexible. Hard money loans are known to be more flexible than traditional lending options; therefore, if they are not willing to communicate and negotiate your terms, you might want to keep looking.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.8 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

 

What are the requirements for a commercial construction loan?

What are the requirements for a commercial construction loan?

A construction loan is a type of short-term financing to fund a new construction project. If you’re planning to construct a multi-family home, apartment building, high-rise, commercial office building, or another type of large project, you will probably consider obtaining a commercial construction loan.

Commercial construction loans are different from other loans. Most loans are structured so the borrower receives the full amount they are requesting upfront. Then, once the loan is received, the borrower makes payments over a set period of time.

However, with construction loans, the borrower does not receive the full amount upfront. Instead, you’ll work with the lender to create what is known as a draw schedule. This means that you will receive payments from the lender as your project hits new milestones. For example, the first draw might be used for the clearing and developing the land. The next draw you receive may be provided when the foundation is poured and another when the framing is complete, and so on.

construction loan

Typically, a lender will require a confirmation from an inspector that your project has hit each new milestone before releasing the next draw. This process will continue until all milestones have been completed and you have received the full amount.

When you take out a construction loan, you will only pay interest on the portion of the loan proceeds that you have received. Therefore, if the total loan amount is $600,000, but the lender has only lent you $150,000, you will pay interest on the $150,000.

Once the project is done and the full amount is due, what should you do next? Instead of making one large payment, you can look into a commercial mortgage. The property will likely serve as collateral for the mortgage, and you can use the lump sum from the mortgage to pay off the commercial construction loan.

Commercial construction loan process

1. Connect with a lender
Contact a hard money lender or traditional lender to discuss your project and find out what financing guidelines and solutions they have.

2. Commercial construction loan underwriting
After you submit your loan application, the lender will quickly evaluate the application internally to make a decision on whether or not to proceed. During this review, the lender is looking at the project cost, summary projections, underlying assumptions, and background of the developers. If the project is one the lender would like to move forward with, they will sometimes provide you with a loan term sheet. The term sheet typically outlines the terms and conditions of the loan, provided all the information that was provided is accurate and reasonable. Once the term sheet has been reviewed and accepted, the lender will move to full underwriting and approval of the proposed loan.

During the underwriting process, the lender compiles more detailed information about the project. Expect the lender to request building plans, general contractors’ bids, cost projections, construction timelines, etc. It’s also typical for a lender to ask for the borrowers’ tax returns, financial statements, and any other documents that can support the loan request.

One of the biggest differences between a commercial construction loan and investment real estate loan, from an underwriting standpoint, is that a construction loan has no operating history to underwrite. Therefore, the valuation of the property is only based on the real estate pro forma. As for the credit approval process, it’s similar to other commercial loans, but due to the extra risks involved, the development team, general contractor, and market conditions are all reviewed in more depth.

After the loan has been approved, the lender will provide a commitment letter. This is similar to the term sheet but is a legally binding contract, whereas the term sheet is non-binding.

3. Loan agreement and closing
Once you’ve committed, you’ll be provided with a closing checklist which outlines in detail what needs to be completed prior to the loan closing and funding to begin. As mentioned, additional funds are distributed on based on a draw schedule for the costs incurred in each stage.

Typical construction loan rates and requirements

Interest rates and fees vary greatly but generally increase as a direct correlation to leverage or risk. The higher the leverage or risk to the lender, the higher the cost to the borrower. Factors such as borrower creditworthiness, liquidity, and experience, also play into the cost of capital.

  • Conventional Lenders:
    • 3 – 6% interest
    • Fund 50 – 75% of project cost (“Loan-to-cost” or “LTC”)
    • 60 – 90-days to fund, typically
    • Strict financial, experience, and credit requirements, underwrite covenants, and prepayment penalties
    • Usually have additional deposit requirements and concentration limits for markets and asset classes, or for particular borrowers
    • Modifying or changing construction loan terms mid-way through with a traditional lender can be difficult or impossible
  • Private and hard money lenders:
    • 7 – 14% interest
    • 75 – 90%+ LTC, requiring much less cash at closing (“down payments”) to fund than conventional lenders
      • Broadmark Realty Capital, for example, will typically fund between 80 – 90% of project costs and can use the land as equity
    • Much more relaxed liquidity, net worth, experience, and credit requirements
    • 15 – 60-days to fund, typically
      • Broadmark Realty Capital, for example, is able to close within 1-2 weeks on most project types from the time appraisal is received (larger loans may take longer)
    • No deposit requirements and will rarely have covenants
      • Broadmark Realty Capital, for example, rarely underwrites covenants or prepayment penalties and has no deposit requirements

While conventional lenders may have lower interest rates, they also have lower leverage (requiring you to have more cash and equity), more difficult and longer approval and closing processes, and strings attached. Private and hard money lenders have higher interest rates but lend more towards the project’s costs, requiring you to contribute less cash upfront, making loans easier to qualify, faster to close, and have fewer strings attached.

Types of commercial construction loans

There are a few different scenarios in which developers and investors can use commercial construction financing solutions. These include land development, vertical construction, and acquisition and development projects.

Conclusion

Commercial construction loans can become complex and tough to secure. However, understanding how they are evaluated by lenders can help clarify the funding process. Broadmark Realty Capital has specialized in commercial construction loans and real estate development loans since 2010. Whether you’re looking for financing or have questions, call one of our loan specialists today!

A Glossary of Hard Money Lending Terms

After rehab value (ARV): The market value that the investment property is expected to have after it has been improved or renovated.

Appraisal: A professional estimate of how much the property is currently valued or will be worth after updates.

As-is value: The property value as it exists, as of the appraisal date.

Bridge loan: A short-term loan used to bridge the gap between one obligation and the next. Bridge loans are a great way to move from one investment to another.

Capitalization rate: A real estate valuation measure used to compare different real estate investments. It represents the ratio between the net operating income produced by an asset and the original capital cost or its current market value.

Commercial use: A property with no residential component that is only used for a business.

Cross-collateralize: A lending technique in which collateral for one loan is also used as collateral for another loan.

Default: The failure, for longer than 30 days, to meet the legal obligations of a loan.

Distressed properties: Properties that are in poor condition or near foreclosure.

Draw schedule: A detailed payment plan for construction projects. This schedule helps hard money lenders determine when they need to provide funding to borrowers based on the work completed.

Escrow account: An account run by a third party that disburses payments based on the loan agreement. The money is typically used to cover property taxes and homeowner’s insurance.

Exit strategy: A real estate exit strategy is how the borrower plans to pay off the loan and reduce liability. It is a plan for how to exit one situation for a better one. Tip: have three exit strategies in mind – a best-case scenario, back-up, and “last-ditch” plans. Here are four common exit strategies.

Foreclosure: The process through which the lender legally takes control of the property due to the borrower missing loan payments.

Guarantor: The person who promises to pay a borrower’s debt if the borrower defaults on their loan.

Hard costs: Direct costs relating to the construction or improvement of a building or structure.

Hard money loan: Also called a private equity loan or a private money loan, a hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real estate property.

Holdback: The portion of a hard money loan that is not paid until the project reaches a certain stage, such as completion of the framing.

Holding costs:  Costs associated with owning a property for a period. This includes insurance, taxes, and utilities.

HUD-1: A form that lists all the transaction cash flows between the property’s buyer, seller, and lender.

Interest Rate: A percentage of the principal loan amount charged by the lender for use of money.

Lien: A legal form filed by a lender showing possession of property belonging to a borrower until the debt is paid off.

Liquidity: How quickly an individual or firm can purchase or sell a property due to having cash on-hand.

Loan broker: See: real estate broker below.

Loan officer: Person who evaluates, authorizes, or recommends the approval of loan applications.

Loan points: An origination fee. One point is equal to one percent of the loan’s principal amount. Two points on a $100,000 loan would be $2,000. Most private money/hard money loans fall between 2 and 5 points.

Loan to Cost (LTC) Ratio: Compares the financing amount of a commercial real estate project to its costs. It is calculated by taking the loan amount and dividing it by the construction cost.

Loan to Value (LTV) Ratio: Compares the proposed loan amount to the appraised value of the completed project.  (Loan amount divided by appraised value)

Maturity: The date the final payment of a loan is due.

Private lenders: Individuals or companies that lend to real estate investors and developers. Finding the right private lender can be tough – here are five qualities to look for in a private lender.

Proof of funds: A document or bank statement proving that a person has the financial ability to perform a transaction.

Real estate broker: Someone who acts as an intermediary to facilitate real estate transactions. In the case of a hard money loan transaction, they gather important information from the borrower such as income, employment documentation, and credit reports to assess how much the borrower can afford.

Real estate investor: Someone who purchases properties with the goal of making a profit, either through renting or reselling.

Refinance: Replacing an old loan with a new one. Typically, people refinance to take advantage of a lower interest rate, but can also refinance when an old loan becomes due.

Scope of Work: An outline of all the renovations scheduled to be completed before the property is sold, including their estimated costs.

Short Sale: A situation when a seller is selling their property for less than they owe on their loan. A bank or lender must approve the sale at the lower price.

Soft costs: Non-construction costs such as legal, financing, architects, etc. required for the project.

Title: Proof of ownership on a real estate investment property.

Turnaround time: The amount of time from when an investment property is purchased to when it is sold.

Underwriting: The assessment of how much risk a lender will take on for an investment property. Underwriters will verify the borrower’s income, assets, debt, and property details before approving a loan. Hard money and private money underwriters are typically more concerned with the property’s value than the borrower’s credit history.

Single-family homes in high demand due to COVID-19

Following the Great Recession, the single-family rental (SFR) market experienced solid growth. In fact, the SFR market expanded by more than 3.8 million households between 2006 and 2016. Now, with COVID-19 a part of everyday life, this trend has continued as Americans rethink the kinds of lifestyles they want. With social distancing and stay at home orders in place, densely populated areas are losing their appeal to many, creating an uptick in interest for single-family homes.

Single-family homes are in demand

Demand for single-family homes was already a rising trend prior to the onset of the global pandemic. Experts are now predicting that the impact of COVID-19 could make homeownership more difficult for those who have suffered job losses, reduced salaries or potential decreases in credit scores. This means we may see an increase in demand for rental homes.

Whether renting or buying, data suggests that nearly one-third of Americans are considering a move to less populated cities, and in some regions, they’ve already relocated.

Real Estate Market Differences

Despite COVID-19, real estate investors continue to find profitable deals across the US. For 2020, experts have marked states such as Texas, North Carolina, Florida, Georgia, Tennessee and Arizona at the top of the list. Additional secondary markets have picked up steam, while expensive fees and high land costs have slowed others.

On the other hand, COVID-19 has created labor shortages in some markets, which means that some investors can’t get approval for property inspections while others have had job sites shut down. This all can mean delays in construction.

Why renters prefer single-family homes

Investors should consider what amenities will be in high demand, given the way COVID-19 has altered how people approach living and working. Outdoor living spaces, for instance, will be more appealing and having a home office will be a top priority for many.

Additional amenities that will likely attract long-term renters even after the pandemic is no longer an issue are:

Privacy – There are no other tenants right above, below or beside single-family inhabitants. Renters prefer this privacy. They don’t want the sound of their neighbors blaring music or TV coming through the walls, or of kids running and jumping in the unit above them. 

More space than a townhome, condo or apartment – Tenants have a lot of stuff! A single-family home provides more storage, with larger closets, basements, attics, and garages. Single-family homes could also provide space for a home office, washer and dryer, shed, and/or an outdoor living space.

Feels like home versus a rental – As mentioned before renters tend to feel more permanently set up in a single-family home where their pets and children can play in a backyard. In addition, it allows families with children to have school stability. Moving a child in and out of schools is hard for both kids and parents – and is preventable if they stay in one place.


Renters are paying their rents amidst COVID

Real estate investors across the country were expecting a period of increases in unpaid rents due to COVID-19. Surprisingly, this has not yet been the case. In May, Multi-Housing News reported that 87.7 percent of renters paid full or partial rent. For comparison, 89.8 percent of renters paid their rent during the same time period last year. Multi-Housing News goes on to say that as of July 5, 2020, 77.4 percent of renters made payments, and as of July 13, that number was up to nearly 88 percent.

The data doesn’t show any difference in payment trends between property types – it is largely the same between apartment, condos, townhomes, and single-family rentals. 

Advantages of investing in single-family homes over condos, townhomes, and duplexes

Appreciation – Single-family homes tend to appreciate faster than multi-unit properties. A single-family home is valued on supply and demand, while other rental properties are valued on rents and market condition.

Monthly cost savings – The monthly cost of owning a single-family home versus owning a multi-unit investment property can be significantly less. They’re typically easier to finance, carry lower interest rates, and don’t carry the burden of monthly condo fees. In addition, HOA fees are less common and lower on single-family homes, depending on your local market.

Liquidity – Historically, there’s a higher interest in living in a single-family home rather than apartments or multi-unit properties. Most of the market for live-in homes is due to people seeking to escape a shared wall with another person.This can make it easier for investors to collect income from their investments, potentially resulting in higher profits and more liquidity. 

Easier to manage due to longer leases – Turnover costs time and money. Updating, cleaning, repainting, and attracting new tenants can be expensive and exhausting. Tenants looking for a single-family home are more likely to sign longer leases. They tend to become more emotionally attached due to the ability to add their own touches to the property – planting flowers, adding their own patio furniture, watching their kids and/or pets play in the yard, etc. This reduces costs caused by vacancies. 

Even with the uncertainty of the market during the pandemic, investors have continued to flock towards single-family homes. They’ve noticed that owning a large pool of rental homes is allowing them to weather the crisis far better than initially feared. Many investors assume single-family homes will become more desirable to live in, but also more expensive to buy. 

Housing trends are likely to change or fluctuate as the U.S. recovers from COVID-19. While some variations may be subtle, staying acutely aware will help real estate investors make informed decisions.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Multifamily Guide: How to attract Generation Z renters

Each generation has its own quirks. Gen Z is no different and appears to be more practical than others. While we’ve seen that some generations are happy to rent forever, Generation Z sees it as a stepping stone. In fact, 97 percent of them want to buy a home someday. Now, most of them won’t leave their parents’ home and immediately buy a house. This means you still have a chance to reach them. With this in mind, let’s cover how multifamily operators can reach Gen Z where they are spending most of their time – online.

Social media marketing

Gen Z is more reluctant to use traditional social media channels such as Facebook. Instead, try reaching out to them via a partnership with influencers and creating a strong presence on channels like Instagram, Snapchat, YouTube, and TikTok. Influencer marketing is a useful way to spread the word to younger renters. Consider setting up a referral program to your residents in exchange for promoting your community.

Online video content

It’s official. Gen Z spends the least amount of time watching TV. They spend most of their time watching online videos, so consider sharing video tours of your property. To help keep their attention, be sure the content is concise, engaging, digestible, and shareable.

Mobile-friendly website

Generation Z spends an average of 26 hours per week on their mobile phones and uses laptops rather than desktops. They also grew up with Google and Siri in their back pockets, so they expect fast and easy interactions. Forget about emailing or calling, they want to ask a question and have an immediate answer. Multifamily websites are no exception, property managers will want to make sure that their website is optimized for mobile and accessible on the go, from any device.

You might ask yourself; how do I fill this need of instant gratification? Try adding chatbots. Chatbots are programmed to interact with users. They get to know a user by asking a series of questions and are then able to provide the user with answers. For example, a chatbot could ask a user where they want to live, how much they want to spend, and what amenities they want. Then based on those preferences, respond with information. Chatbots could also help with managing maintenance requests. A renter can interact with the chatbot making them aware of a broken A/C unit and schedule the maintenance. Allow Gen Z renters and other potential renters to interact in the way they want.

How to appeal to Gen Z renters

Keep it simple, mobile, and digital. Make everything accessible online– basic communication, rental applications, community news, virtual tours – all these can and should be managed online.

Create a highly rated online reputation

Be authentic. This generation is keeping up with what you’re posting to social media and what is said about your community online. Stay consistent and realistic with all your posts and responses to online reviews. If you receive a bad review, it’s not the end of the world, just be sure to respond immediately. For Gen Z, seeing the negative reviews might provide balance and will allow you to show how you deal with conflict in your community.

Pricing

As natural researchers, Gen Zers know where to look for the best deal and answers. Property managers must keep units priced appropriately to capture this group. If you have your apartments listed above market value, they won’t be attracted to your community.

Gen Z is a largely untapped market waiting to be recognized. If your real estate business is proactively seeking to tap into this market and improve resident engagement, implementing the technologies and content strategies that appeal to this generation should be a large part of your strategy. If companies manage to incorporate lively video posts and conversation-starting events into their marketing routines, they will increase their odds of winning over this generation.

 

Related article:  The growing impact of Gen Z on the Multifamily Housing Industry

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Keeping Employees Safe: How to Successfully Re-Open Your Job Sites

As states begin the slow, careful process of reopening, many of you might be wondering what your construction site will look like or what additional steps you can take to ensure your employees remain healthy. We’ve put together a list of ways you can help ensure your site is reopened safely.

Start by creating and posting a COVID-19 exposure control, mitigation, and recovery plan at each job site.

Next, designate a COVID-19 supervisor at every job site. They should be responsible for monitoring the health of employees and enforcing the job site safety plan.

a COVID-19 supervisor

Safety Training

Conduct a training on your job sites on the first day of returning to work, and weekly thereafter, to explain the new procedures and protective measures that are in place for all workers. Maintain social distancing during these training sessions. In addition, post the safety requirements in highly visible areas at each of your job sites.

Social Distancing

Ensure employees are able to maintain at least six feet of separation. Mandate that workers take breaks and lunch in shifts, minimizing the possibility of large group gatherings. Identify and control “high-risk areas,” such as those where workers typically congregate, to ensure they are practicing proper social distancing.

Minimize interactions between those picking up or delivering equipment and/or materials. Try to restrict the number of job site visitors and screen those that do come prior to their arrivals.

Personal Protective Equipment (PPE), Sanitation and Cleanliness

Provide employees with personal protective equipment such as gloves, goggles, face masks, and face shields.

Post information on hygienic practices, including:

  1.   Don’t touch your face with unwashed hands or while wearing gloves
  2.   Wash hands as often as possible with soap and water for 20 seconds
  3.   Use hand sanitizer
  4.   Clean and disinfect frequently touched objects and surfaces such as workstations, phones, machines, shared tools, and doorknobs
  5. Cover your mouth with your inner arm when coughing or sneezing

If an employee reports feeling sick and leaves the job site, immediately disinfect the area(s) where that person was working.

Employee health

Start each employee shift by taking temperatures and asking if they have a fever, cough, shortness of breath, fatigue, muscle aches, or new loss of taste or smell. Use a thermometer that is no-touch. If a no-touch thermometer is not available, the thermometer used should be sanitized between each use.

Encourage employees to stay home or leave the worksite when feeling unwell or if they’ve been in close contact with someone who is confirmed to have COVID-19. If an employee has a sick family member at home, he or she should inform his or her supervisor and that employee should follow the isolation/quarantine requirements set by the State Department of Health.

Don’t force employees to come back to the job site. If they don’t feel it is safe to return to work, they should be allowed to leave and stay at home.

These are some of the best practices that have been put into place where construction projects are up and running. The challenge for the construction industry will be to ensure workers can effectively do their jobs, sometimes in close quarters, while also protecting the health of everyone else on the job site.

For more information, updates and additional recommendations, visit the CDC website.

This blog was written as useful information only; use of the content provided herein is at your own risk.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

 

Resources:

https://abc.org/Portals/1/Documents/COVID/Phase%201%20Construction%20COVID-19%20Safety%20Requirements%20–%20Adopted.pdf?ver=2020-04-29-110843-967&timestamp=1588173670969

https://www.michigan.gov/coronavirus/0,9753,7-406-98158-528335–,00.html

https://www.cdc.gov/niosh/

 

 

Real Estate Trends That May Become The New Normal

In a matter of weeks, lives across the U.S. have changed in ways we could have never imagined.  People can no longer work, eat, shop, travel, and socialize as they had before. Instead of traveling, shopping, and going out to restaurants, many consumers are tightening their wallets to only spend on essentials.

Physical distancing has changed the way people interact and inhabit space and could potentially lower demand for certain types of spaces. This has created an unprecedented challenge for the real estate industry. The longer this pandemic continues, the more likely we are to see lasting changes in behavior.

Most property managers have been able to adjust their operations to protect the safety and health of both staff and tenants, but it’s important for real estate leaders to think about how the real estate landscape could forever be changed and adjust their strategies accordingly.

Consumer shifts

Americans have never before spent this much time in their homes; because of this we expect consumer preferences to shift. We’ve highlighted three primary shifts below:

Working from home

You can almost be certain that one result of this pandemic will be more working from home. Even once social distancing standards have been lifted, we suspect many people will continue to work from home at least part of the time. We’re curious as to how many people dislike their work space at home, or didn’t even have a space – you know, the ones that had to turn their kitchen table or living room into an office.  Some consumers prefer a more separate office – a room at the front or even back of the home. In addition, the concept of at-home school spaces will be closely aligned with home office spaces. This includes quiet, dedicated environments that have easy access to technology such as a strong Internet connection.

Sustainable living

In recent years, this has been one of the fastest-growing trends in home building and community design. Think: the rise of community gardens, energy-efficient appliances, and smart living amenities. Expect the pandemic to speed up these trends. New homes and commercial real estate projects have an advantage over resale in this category. Builders or property managers can sell the benefits of the smart living technology they implement into their projects moving forward.

“Surban” over Urban

“Surban” – a mix of urban and suburban living – is a recent trend that is expected to continue to attract millennials and young families looking for more privacy and open space. Since having to social distance, individuals are likely to continue to move to the suburbs. Some may refer to these areas as “mixed use.”  Examples of these areas would include:

  • Downtown Naperville, Illinois, in the suburbs of Chicago
  • A-Town in Anaheim, California, in the neighborhood around Angel Stadium of Anaheim
  • Legacy Town Center in Plano, Texas, in the suburbs of Dallas
  • Downtown Tempe, Arizona, in the suburbs of Phoenix

In the post-pandemic age, customer-focused sensibility will be vital to best position existing assets in a competitive landscape. COVID-19 is likely to shape us in a way that will require our buildings and operations to be reshaped as well. Real estate owners and operators who are able to adjust and serve tenants’ needs on-site will help your community stand out among competition, positioning it to perform optimally in the new normal.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

The Value of Hard Money in the Real Estate Investment Industry

Private (or hard money) lenders are some of the most important funding sources for real estate project investors. Whether you’re new to real estate investing or an expert, chances are you will want to scale your business at some point. And every successful real estate investor knows that, to scale your business, you need one thing: reliable funding.

With the current condition of the market, it’s now more important than ever to make sure that you have a relationship with a hard money lender that you can rely on. Here are a few benefits to using a private lender:

Men discussing the hard money

Hard money loans are approved and funded quickly

The approval speed of hard money loans is one of their biggest advantages. In many cases, lenders can approve your loan in one to two days. They will consider the attributes of the property, the down payment amount or equity you have in the property, your experience, your exit strategy, and they will make sure you have some cash reserves to make monthly payments.

In addition to the quick approval, hard money lenders can also fund projects quickly. If needed, projects can be funded or have draws completed within three to five days.  Compare that to the 20+ days it can take a bank to fund. In today’s real estate market, how quickly you can close on a project is often more important than the cost of capital. Most investors would rather pay slightly more to be assured they will close in a week rather than risk closing in 45 days.

This fast funding is also helpful when you’re trying to close on a project in a timely manner. For example, a deal that would benefit from a 1031 exchange.

Private loans provide funding for projects that cannot be financed elsewhere

Hard money lenders often provide funding that banks may not consider. An example of this would be a short-term loan for an investor that wants to purchase a property, quickly rehab it, then sell or rent the units. In most cases, you only need a 12-18-month loan, which most banks don’t offer. Banks prefer long-term loans and are happy to make their interest over a long period of time.

In addition, hard money loans are ideal for properties that have numerous issues that prevent them qualifying with a bank. These issues could be related to the foundation, electrical work or plumbing, for example. Banks are highly regulated, risk-averse lenders and are unable to consider loan scenarios that are outside their criteria.

A hard money lender would be able to fund a loan for a property that has these issues. They employ their own lending guidelines and some even have in-house underwriters, enabling them to adjust the loan conditions to meet your funding needs.

writing pros of private lending

Increased capital, bigger projects

Many hard money lenders will have a maximum loan amount as well as a maximum Loan-to-Cost (LTC) ratio, dictating the amount of financing you receive for your commercial real estate project. Hard money lenders that have a high LTC percentage can provide increased capital upfront, providing you with more flexibility and the option to fund the project on your own rather than bringing in a partner.

In addition, increased capital allows you to slowly build your way up to bigger projects. You can start looking at multifamily and commercial deals, rather than solely looking at single-family properties. Closing more deals will also increase your personal capital and give you higher returns on bigger deals.

A note on our lending environment

We understand there is uncertainty in the markets and recognize the seriousness of the current environment. Broadmark Realty Capital’s focus is primarily on short-term, real-estate-backed senior mortgage loans, and we currently have no debt on our balance sheet. Because we do not use leverage and are not dependent on outside lenders to fund our loans or construction draws, we expect to be able to effectively navigate the liquidity and funding challenges that some of our highly levered competitors are facing in this environment.

The world has changed considerably since we founded Broadmark ten years ago following the financial crisis, and the current global public health emergency is a stark reminder that developments in financial markets are impossible to predict. However, what has remained a constant over the past decade is our commitment to always functioning responsibly on behalf of our borrowers and our investors. We remain focused on continuing to serve as a reliable source of funding for our borrowers who have come to value our flexibility and the certainty of execution that we provide.

The growing impact of Gen Z on the Multifamily Housing Industry

What Gen Z renters are looking for in their community and from property managers

 

Watch out, there’s a new generation defining the future of the multifamily industry. While millennials make up 56 percent of the rental market, Gen Z comprises 74 million people, making it equal in size to millennials and baby boomers. Even though they may be young, they have money to spend. They contribute $44 billion to the U.S. economy and it’s only a matter of time before they head into the rental market.

If you rent to college students, you might already be familiar with the preferences of Gen Z renters. If not, you may ask yourself how different are their preferences from those of the millennials? The primary difference is their relationship to technology. Gen Z relies on social media and the internet to make purchasing and lifestyle decisions more than millennials. They understand how to leverage technology to benefit them and find the information they need.

Personalization

Gen Z is used to having everything personalized just to their liking. From their playlist to their newsfeeds, their world is designed to their tastes and interests. Look further and you’ll see that this generation is the most connected to brands through which they can build experiences. For commercial real estate, this means cultivating individualized tenant experiences.

Affordability

Finances are often front and center for most generations, but even more so for Gen Z. They would rather put their money into their businesses and savings accounts than into rent. Rental prices that allow them to do this while not feeling house poor are ideal. Longer term leases, 18 to 24 months, are more attractive to this group than 12 months. They appreciate the stability and they want to know what their rent will be over a year from signing to avoid worrying about what their next step is.

Human interaction

Gen zers having a game night in apartment complex

Community. Gen Z craves community, one that helps build a creative network. Incorporate resident events and other activities such as movie night, pool parties, and game nights. If your apartment community hosts property-wide events and spaces, make sure you promote them. This will help attract Gen Z renters and help build your commercial real estate community.

Positive messaging

88 percent of Gen Zers invest in companies that share their values. Have you sponsored a charity event or local sports team? To attract these renters, use social media to share your apartment community’s involvement in the neighborhood.

Authenticity

As mentioned before, this generation craves a company they can connect with and trust. Figure out your community’s brand and core values, then start building an authentic marketing campaign around it. Share residents’ stories, educate renters and provide them the opportunity to build relationships.

Energy-efficient amenities

 

Again, this generation is passionate about environmental causes. In fact, the majority of them define success as having made the world a better place. So, investing in green amenities is worth the upfront costs. Whether you’re building new or updating older units, make more sustainable choices. For example, upgrading the windows to energy-efficient panes and installing eco-friendly appliances are good places to start.

Consumers drive the market, and the best businesses are the ones that meet and exceed those needs. Gen Z may be new, but they are making a large impact on the multifamily industry. So get social and start reeling in new residents!

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

What is Geotechnical Engineering

Geotechnical engineering, also known as geotechnics, soil testing, or soil analysis, is the evaluation of the earth’s components before starting a construction project. Most examinations include surface and subsurface exploration, soil sampling, and laboratory analysis.

Significance with large construction projects

The characteristics and quality of your soil play a vital role in how a building is constructed. It’s best to have a professional analyze the soil before any construction begins to determine if it’s suitable for your project. They will test the soil for strength, organic material, contamination, and density, among other things in order to:

  •      Identify types of soil on the property
  •      Identify whether the soil can support your desired construction project
  •      Create safety reports, which are often needed to obtain a building permit

All the information gathered by the engineer is then used to determine important factors about your construction or multifamily project. For example, if the results show sandy soil, you will likely need a different type of foundation than if you were building directly on bedrock.

Soil testing can help determine drainage issues, the placement of your septic or sewer system components, the size of the structure, and whether the soil or bedrock would support a structure in an earthquake. These investigations are important in preventing human and material damages.

When is goetech testing needed in the construction process?

Soil testing is typically required for building permits. During the construction phase, the soil engineer may need to take further soil samples to ensure the soil conditions are compatible with those observed in the initial testing – and will make recommendations as needed.

What do you do if your soil isn’t right for your construction project?

If your soil has any issues your geotechnical engineer should be able to provide you with recommendations on how to address the problem. The solution could be installing wider, deeper footings, or digging out the bad soil and replacing it with engineered soil. No matter what they recommend, you’ll want to get it in writing and share with your structural engineer and building inspector.

Pricing and how to structure construction loan terms to get this included

There are many factors that play a role in the cost of your soil test, such as the type of testing you perform and size and site of the proposed project.  The more comprehensive the analysis, the more expensive the testing will be. Talk to your lender about your options. If there is room, some lenders will incorporate the testing into your loan – allowing you to pay it off through the course of the loan.

Geotechnical engineering can be crucial to the integrity of your construction project. Make sure you have the time and budget put aside to get it done right.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.

Mortgage Broker vs Direct Lender

You’re in the market for an investment property and you’ve found a viable project, and your next step is securing a loan. For some, this is the most stressful step. You want to ensure your finances are in shape and examine your credit score before deciding where to apply for your loan. This used to be a simple matter of walking into a bank or credit union. Today there is a wide range of options, including mortgage brokers and direct lenders.

What is a mortgage broker?

Mortgage brokers assist in comparison-shopping, serving as middlemen bringing borrowers and lenders together, but do not actually fund the loan.

They gather pertinent information from the borrower, such as income, employment documentation, credit report, etc. to assess how much a borrower can afford. The broker will then determine the loan amount, loan-to-value ratio and type of loan they see fit for the borrower and submit it to lenders. Once you’ve selected the lender and been approved, you work directly with the service provider or loan originator.

What is direct lending?

Exactly what it sounds like – direct. Instead of going through the middle-man, a direct lender usually can do everything in-house. They employ experts in various divisions like underwriting, asset management and loan servicing to help ensure your loan is processed accurately. Direct lenders can do everything from inspecting your credit to handing you your check. A direct lender is a one stop shop.

For the best results, be sure to research direct lenders before you apply. It can make all the difference in securing more funding and better customer service.

Flexibility:

Typically, a mortgage broker is bound by guidelines that are set by the individual lender, meaning they do not have the discretion to adjust the requirements to gain your business. A direct lender sets their own lending guidelines, allowing them to waive requirements under certain circumstances.

Fees:

Both a mortgage broker and direct lender charge fees, which could include origination fees, application fees and appraisal fees. However; the fees charged by the mortgage broker are usually higher than those of a direct lender. Direct lenders don’t typically charge prepayment penalty fees and are transparent about the fees they charge. While the prices may vary, the knowledge, expertise, and dedication of a direct lender is very important.

Speed:

Since operations are done in-house, direct lenders can provide funding quickly – deals can be completed within weeks. Compare that to a broker who has little control over the processing of your loan.

Personalized Solutions:

Either a mortgage broker or direct lender can provide you with loan options. Before choosing, you may want to ask for quotes from both and compare.

A mortgage broker can help you compare many quotes more easily, therefore saving you time on shopping around and applying to numerous direct lenders. But, if you want the loan approval and funding more quickly, then working with a direct lender may be your preferred route.

At Broadmark Realty Capital, we offer competitive rates on a wide range of loan programs. Our lending experts will take the time to understand your project, financial needs and goals in order to create a personalized loan solution.

 

What Are Bridge Loans?

Bridge loans are a fantastic way to move from one investment to another. They are typically used to bridge the gap between one obligation to the next and are popular among business owners and real estate investors.

Companies use bridge loans to cover expenses while waiting for long-term financing options. For instance, they may use a bridge loan to provide working capital so they can pay salaries, rent, and utility while they wait for larger sources of funding. The nature of bridge loans gives them the ability to be approved quickly so that deals can be quickly arranged and finalized.

On the other hand, real estate investors can use bridge loans to finance a property while waiting for their current one to sell. This isn’t common, but it’s a great way for customers with excellent credit ratings to bridge two properties together. However, bridge loans typically only go up to 80% of the combined value of both properties, meaning the borrower does need significant home equity in the original property or lots of savings.

However, there are two different types of bridge loans and it’s important to understand them both in order to pick the best choice for your personal situation.

Open Bridge Loans

Open bridge finance is used by borrowers who aren’t certain of their future financial situation. In these cases, it’s possible to use open bridge loans which don’t have set repayment dates. These offer more flexibility and ensures that you can avoid penalties if you can’t meet the set terms.

Open bridge loans give you plenty of flexibility, but they also come with higher interest rates due to the uncertainty. Lenders apply higher interest rates in order to cover the potential risk. This also makes open bridge loans uncommon compared to closed bridge loans. However, if you’re able to prove that you can pay for this type of loan and have the credentials to make it work, then you can be accepted just as easily.

Closed Bridge Loans

On the other hand, closed bridge loans are used when borrowers have a short-term requirement for funding. For instance, it can be used to secure a deal that will quickly pay off, or to use as working capital before a larger source of funding pays out.

Closed bridge loans typically come with lower interest rates and are more likely to be accepted by lenders than open bridge loans. This is because a closed bridge loan gives more guarantee to the lender, thus increasing their confidence in the loan. However, the financial penalties for breaking the terms of a closed bridge loan can be far more severe.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.