If you had to analogize the role of private lenders in the real estate investment industry to an example in nature, you could compare them to bumble bees—the only discernable difference being that instead of spreading pollen to nourish blooming flowers, lenders distribute capital to similarly facilitate the growth of investment operations. Extending this analogy allows the logical inferences to be drawn that if there was no pollen, there would be no flowers, and if there was no capital, the investment sector would grind to a comparably screeching halt.
This principle underscores the criticality of liquidity—the availability of liquid assets to a given entity. And while the Federal Reserve and Congress have recently implemented several initiatives to enhance liquidity for businesses and individuals alike amidst the developing COVID-19 situation so that the economy can continue functioning during an extended downward trend, several lending firms have found it increasingly difficult to maintain optimal liquidity to sustain lending operations.
Much in the same way real estate owners and investors must have the liquidity to meet their financial obligations, banks and private money lenders alike also have specific reserve requirements they must maintain to do business. Originate Report recently had the pleasure to sit down with the leadership team of Constructive Capital, a leading capital provider for business purpose DSCR rental loans, to learn more about their approach to sustainable lending practices and how they are adjusting to the evolving economic conditions.
Market Volatility Trending Upwards—Not a Problem for Constructive Capital
It is safe to say that the economy has been anything but stable over the past few months. “The securitization market for DSCR loans has been extremely illiquid and volatile since beginning of this year,” notes Kyle Concannon, Senior Director of Business Development at Constructive Capital. “This has resulted in lenders slowing down or shutting down completely, and many re-trading rates and loan terms for loans in process, sometimes right before their closing.”
Fortunately, Constructive Capital can maintain consistent access to cash flow, allowing them to weather market instability considerably easier than competitors. As Concannon explains: “Lenders that work with Constructive Capital benefit from our reliable partnership with one of the largest life insurance balance sheets in the country, Constructive Insurance. Borrowers can count on our consistency, best-in-class execution, and competitive rates.”
Consistency and reliability are two sought-after attributes for savvy investors looking for a long-term lending partner. Access to capital is key to profitable investment operations. Arguably just as important is efficiency, and Constructive Capital certainly has that requirement covered as well. “One of the hallmarks of working with Constructive is speed. And when we say we can close your loan in 2 weeks or less we mean it,” says Alex Offutt, Managing Director of Constructive Capital. “That is one reason why brokers and investors love working with us. It is not just because we have simplified the process but also because our teammates know exactly what brokers need so they can get funding for their client’s residential real estate investment projects as quickly as possible. That is the Constructive Advantage.”
The ability to continue successful lending operations in a less-than-ideal economic environment is a testament to the organizational quality of Constructive Capital. “The unprecedented turbulence in the mortgage market coupled with the tepid economic outlook has caused a great deal of pain for many market participants,” states Robert Kang, Senior Director of Constructive Capital. “However, credit crunches like this are an inevitable aspect of this business over the long term and the current environment is necessary to clear out unhealthy participants with unsustainable business practices. Our success in the BPL mortgage industry is largely attributable to the quality of our investors and their faith in Constructive. Our loan quality and resulting loan performance have built trust between investors and Constructive.”
Benn Jackson, Senior Director of Business Development at Constructive, succinctly captures why Constructive Capital is the talk of the town within the private lending industry of late: “Constructive has been able to thrive while others try to survive.” Offutt echoes this sentiment and mentions that “Constructive has always been at the tip of spear in the BPL industry when it comes to consistency and stability. We have grown in the last few months as others have fallen off, and it is our continuing mission to provide best in class pricing, product, and execution through these dynamic times.”