Strong Fundamentals for Commercial Real Estate, New & Enhanced Loan Products Emerge

Originally published on MPA Mag

Late July brought significant change to the commercial lending space with a highly impactful announcement by the Small Business Administration (SBA).

For the first time, the SBA announced the opportunity to refinance 7a loans into 504 loans. Commercial real estate investors often utilize high-leverage, floating-rate SBA 7a loans to finance construction projects but find themselves without an easy exit strategy.

This rule change enables borrowers to refinance into an SBA 504, another high-leverage, government-guaranteed loan with a low fixed rate. Refinancing can potentially save thousands of dollars on interest, plus allows cash-out for working capital.

For Liberty SBF, the proposed changes were welcome news. With a client base made up of investors and businesses eager to refinance out of SBA 7a loans into low-cost, fixed-rate SBA 504 loans, this change has opened more doors for potential borrowers as well as generated a great deal of interest and direct referrals from brokers in the mortgage community.

“This is a really big deal. Any borrower in that high leverage (SBA 7a) loan should be thinking of refinancing, because theoretically there should be very little out-of-pocket expense. Most of the fees can be capitalized into the new loan,” Alex Cohen (pictured), chief executive officer of Liberty SBF, explained.

“Brokers and mortgage professionals who work as intermediaries should be thinking about their 7a clients who can now refinance into high-leverage, fixed-rate SBA 504 loans. We believe that this is a total of around $100 billion to $200 billion in outstanding volume,” Cohen continued.

Liberty SBF hit the ground running in anticipation of the SBA announcement. To capitalize on the significant change for high-leverage small business loans, Liberty SBF set up a team dedicated to pursuing this opportunity and have been growing this team over the month since the proposed change took effect.

How has the announcement panned out so far? “We have already been successful in signing up several deals. We are working with a lot of referral sources in the mortgage community that send us transactions. It has been a big deal for them,” Cohen stated.

Liberty SBF has also introduced additional bridge and construction options to participants in the mortgage industry with the launch of a bridge loan platform.

On the heels of such welcome news in the commercial lending space, Liberty SBF is now able to offer its client base a new bridge loan option that is generating buzz in the industry.

“This second loan appeals to institutional investors. Debt funds and institutional lenders typically do not lend below $10 million or $15 million per transaction. With our bridge option, we will go down to $5 million. We can now offer a low interest rate for deals between $5 million and $15 million that have in-place cash flow,” Cohen stated.

Cohen further explains that Liberty SBF can offer two options: a “heavy lift” bridge loan, which is geared toward construction for borrowers with less in-place cash flow, and a “light lift” bridge loan, which suits projects with more in-place cash flow and offers the most competitive non-recourse pricing available on the market.

Aside from the ability to go down to the $5 million mark, what other advantages does this bridge loan carry?

Cohen doesn’t hesitate to answer. “It is low-cost, high-leverage, and non-recourse.”

In simple terms, Cohen explains that Liberty keeps a competitive edge by offering lower rates, which range from 5-6%. Additionally, the loan-to-cost ratio can be as high as 80% and the borrower is not personally liable aside from fraud (the collateral for the loan is the property, not the borrower).

What is down the road for commercial lending?

With new construction not expected to slow down any time soon, the odds are in the commercial lending space’s favor.

“We feel that there are strong fundamentals for commercial real estate. There are a lot more people than housing and apartments in most markets across the country. Over the next two to three years, we will be watching rates very carefully. If there is an opportunity to refinance at a fixed rate, now is the time to do it because we are at the bottom of the rate cycle,” Cohen explained.

Cohen added: “We are bullish in the one-to-15-million-dollar space, which is the size we play in and eligibility for these loan products. Both are predicated on a resilient real estate market.”


Conditions Favorable for Penciling Out Middle-Market Senior Living

Originally published on Senior Housing News

The middle market is one of the biggest opportunities in the senior housing industry, and conditions may be particularly favorable at the moment for operators and capital providers to embark on projects.

The reward for senior living companies that can carve out a working middle-market model is that there is a rapidly growing group of older adults in great need of those services at this price point. To attract them, operators must charge a low enough rate that middle-income residents can afford, but one that is high enough to carry the right margins to make it a profitable endeavor for operators and owners alike.

But there are some companies focused on senior living that are blazing new trails in the middle-market space today by tweaking how these communities are financed and built.

They include Lloyd Jones, a Miami-based real estate investment, development and management platform that is actively forging a new middle-market model under the umbrella of its Aviva brand; and Innovation Senior Living, a Winter Park, Florida-based company that pivoted to serving middle-income older adults under an owner/operator approach earlier this year.

Before the pandemic, some senior living capital providers might have looked at middle-market senior housing as an emerging or niche product type. But Covid-19 has led to a wave of disruption, and lenders such as Liberty SBF see current conditions are more favorable for middle-market senior housing than before the pandemic.

“There are better opportunities to acquire properties at a lower basis, which makes executing on those types of business plans more realistic and less risky,” Liberty SBF CEO and Co-Founder Alex Cohen said during a recent Senior Housing News webinar.

Lloyd Jones COO and EVP of Senior Living Tod Petty believes that the middle market is the industry’s “opportunity of a lifetime.” And, he thinks it’s a product type that providers have the tools to reach.

“Some say it’s a mystery, and we may never figure it out,” Petty said during the webinar. “But I think we’ve been doing it all along.”

Middle-market strategies

Part of what makes the middle-market opportunity so attractive is the fact that many senior living communities are trading at a discount to replacement costs, given the level disruption that Covid-19 has brought.

Looking across the market today, Petty believes that the greatest opportunity to serve middle-income seniors is by acquiring properties at a good price and transforming them into middle-market senior housing. As many as 70% of the communities Petty sees on the market are “tired and old,” and have been starved of CapEx. Typically, they are owned by real estate investment trusts (REITs) who “want to dispose of them at very nice prices,” he said.

“For someone that has the vision, the wherewithal, has done it before and has a creative, vertically integrated platform, then this building can be bought, repurposed and put back on the market,” Petty said. “You will fill up because you’ll capture 40% to 60% of the market that is unserved, plus you’re going to get the baby boomers that don’t want to spend their fortunes.”

Cohen agreed that there is significant opportunity to acquire older distressed assets, not only from REITs but from private equity investors or mom-and-pop owners.

“That is exactly the type of business plan that we’re looking at and financing through our bridge product,” Cohen said. “Between now and the end of the year, I would anticipate doing somewhere in the neighborhood of $102 million to $150 million in core lending.”

Lloyd Jones is looking to meet the middle market in a few ways. The company is buying distressed hotels and converting them into senior living as well as picking up distressed and even Class A senior housing assets at a good price. Lloyd Jones is also developing ground-up “independent living light” communities where residents can age in place through the use of technology and partnerships with service providers.

Petty stressed that being vertically integrated is a big advantage for serving the middle market, and that operators need to be “lean and mean” when it comes to operations. He compares a middle-market senior living community to a boutique bed-and-breakfast — not as fancy as the Ritz-Carlton, but still charming in its own way.

While some newer communities have dropped their rates closer to the middle market to compete in the Covid recovery period, Petty believes those rates will rise again as capital providers seek to meet debt service ratios. And that will leave middle-market communities at an advantage.

“This product will be in a great position to thrive, because it will be affordable,” Petty said.

Petty expects Lloyd Jones will close on four acquisitions and start work on two ground-up developments by the year’s end, with a goal of adding about 1,000 units to its portfolio each year.

Innovation Senior Living takes a similar approach as Lloyd Jones by acquiring “tired, 20- to 30-year-old properties,” CEO Pilar Carvajal said. Currently, the company owns and operates three communities, with two more communities likely to come online by the end of the year. But CEO Pilar Carvajal would like to grow the operator to about 12 to 15 communities in about five years’ time, with the middle market as a specialization.

Carvajal comes from the subsidized housing world — and she sees some overlap between housing meant for low- and middle-income seniors.

“It’s very heavy on the operations, very strict expense control,” Carvajal said during the webinar.

Indeed — echoing Petty’s point that “we’ve been doing it all along” — she emphasized that her career has been focused largely on serving the middle-market, and that foundational operational approaches and financing structures to grow this sector of the industry are already in place.

Underpinning the company’s middle-market model are universal workers who can do many tasks in a community. Carvajal added that the operator is constantly negotiating its prices with vendors for goods and services, such as payroll, food and medical supplies. Using those strategies, the company can achieve “pretty good operating margins,” although not to the level of other high-end properties. Still, that can be enough for capital providers to get on board with a project.

“You can be profitable, and you can serve a population that has been largely neglected, that needs our help and that hasn’t seen their place in our industry — ever,” Carvajal said.

What lenders want

As a non-bank lender, Cohen said Liberty is more open now to “business-plan focused financing opportunities,” such as middle-market conversions or ground-up construction projects, with one opportunity being its small business administration loan product. The firm is also again underwriting conventional loans and bridge transactions outside of SBA.

When looking at operators to partner with, Liberty’s preference lies in those who come to the table with a few projects under their belt.

“We’re going to want to make sure that there’s operating experience in executing specific type of business plans that the borrower is currently seeking,” he explained. “As well as the … net worth and liquidity that are going to support that type of project.”

When underwriting new financing, Cohen said Liberty examines how a property or operator performed before the pandemic, and whether they can see a clear trajectory to return to those conditions in the months ahead.

“It really comes down to, what did the census look like before Covid and what is the trajectory in the last six to nine months?” Cohen added. “Savvy operators are figuring out ways to mitigate downside risk as waves continue to hit … and we’re excited to partner with folks who have been able to do that.”

Liberty is currently lending up to 85% of cost for SBA loans, including on ground-up construction deals. On the conventional side, the company is a little more cautious, with loans at about 65% to 70% loan-to-value, depending on the operator and product type.

Most of the deals that Liberty is looking at today are opportunistic acquisitions of distressed senior housing assets, as well as refinancings. And looking ahead, Cohen believes the market will continue to stay choppy and therefore that banks will continue to be cautious in looking for new projects to partner on.

In the meantime, he sees a lot of capital sitting on the sidelines, and lenders and equity investors are looking to deploy it where they can.

“We didn’t see the same types of underwriting miscalculations that occurred during the last recession, and we don’t see the same kind of oversupply of inventory,” Cohen said. “We think now is a good time to be investing in the sector.”


Just Closed: $3.67M SBA 504 Loan for Two-Story Industrial Building

Liberty SBF just closed a $3.67 million loan for the acquisition of an industrial warehouse in Fort Lauderdale, FL. The Sponsors were approved for an SBA 504 loan broken up into a $2.04 million first lien mortgage and a $1.6 million interim second lien mortgage. 

The two-story, 20,035 SF structure was originally built in 1988 and will serve as a distribution center. The Sponsors operate a wholesale and distribution company for baby items, outdoor products, health and beauty, pet supplies, sports and fitness, office supplies, and medical supplies. The company experienced solid revenue growth throughout 2020 and 2021. 

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $2.8M SBA 504 Retail Acquisition

Liberty SBF closed a $2.8 million SBA 504 loan for the acquisition of a gas station and convenience store in late January 2022. The borrowers received 85% LTC for the 6,674 square foot property, located in High Point, NC. 

The two borrowers were under contract to purchase the gas station for $3.2 million and required financing to complete the investment. The partners already own and operate an existing convenience store brand with four locations across New Jersey and North Carolina. They also have a partnership with a major oil company that will provide the gas for the station. 

Our underwriting team structured the deal and valuation with the borrowers’ four existing entities as corporate guarantors. This acquisition will expand the company to five total locations. 

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $2.4M Conventional Loan for Daycare Property

Daycare property - Mesquite, TX

Liberty SBF closed a $2.4 million conventional loan in January on an 11,073 square foot daycare center in Mesquite, TX. The loan will provide funds for the acquisition of the property, which comprises one 8,928 square foot building and one 2,145 square foot building. Originally built in 2000, the property was expanded in 2004 and 2013 and features multiple classrooms, offices, kitchen and break area with pantry, storage, laundry facilities, numerous restrooms, and an indoor multi-purpose room. 

Established in 2000, the private daycare center provides early academic development for children from infancy to kindergarten. The business has shown rapid revenue growth over the last 3 years; although the center took a hit in 2020 due to COVID-related closures, the business bounced back in 2021 and is on track for an increasing revenue trajectory. 

Situated on a main thoroughfare with superior exposure, the property’s prime location contributed to an as-is valuation of $3.52 million. The Dallas MSA’s demographic trends will continue to drive growth in the market, allowing the property valuation to increase over the next few years. 

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $14M Non-Recourse Bridge Loan for Multifamily

In late December 2021, Liberty SBF closed a $14 million non-recourse bridge loan at 70% LTV for two Class B multifamily properties in Dublin, GA. The Sponsor plans to use the loan proceeds to renovate and restore the 202 units across the two properties, with the goal of increasing cash flow and overall value.

Once renovations are complete, the borrower plans to raise rents by 25-30% to be in line with the local market. Located along the second-busiest and fastest-growing seaport on the East Coast, the asset also includes sufficient land to build 60 or more units. The Sponsor plans to refinance out of the bridge loan to a long-term Agency loan after executing the business plan.

The Sponsor is an experienced multifamily property owner with over a decade of experience. Investing their own capital alongside that of their investors, the Sponsor seeks out properties that are undervalued due to poor management and/or design.

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $5.1M Bridge-to-504 Loan for Industrial Property

Liberty closed a $5.1 million bridge loan for the acquisition of an industrial building in Las Vegas, NV. The Sponsor required interim bridge financing for a quick close and will refinance to a low-cost, high-leverage SBA 504 loan in the spring of 2022. Our team is currently working on SBA approval.

Currently valued at $7.5 million, the Subject is a 61,400 SF industrial building situated on a 4.84-acre site. The property comprises a large warehouse space with 26-foot ceilings, several offices, and 42 parking spaces.

The borrower is an industrial packing materials company offering supplies such as moving boxes, packing foam, moving kits, printing labels, poly bags, and more. With 95% of sales coming from e-commerce, the business grew nearly 40% from 2019 to 2021. The acquisition allows the owners to increase warehouse space by 15,000 SF and gain greater control over operating costs.

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $1.1M SBA 504 Loan for Multi-Tenant Office Building

Liberty SBF closed a $1.1 million SBA 504 loan at 90% LTV for a multi-tenant office building acquisition in Poway, CA. The borrower acquired the building for $1.2 million.

Located 30 minutes north of San Diego, this two-story, Class C office building will be owned and partially occupied by the Sponsor. The business owners, who operate a full-service boutique real estate firm, will occupy three of the six total units in the building and lease out the remaining three. The building was constructed in 1975 and is 4,400 SF.

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Commercial Mortgage Alert Features Liberty SBF Bridge Loans

Non-recourse bridge loans now available to middle-market CRE investors seeking financing from $5-15M

In response to strong borrower and investor demand, we recently announced a new bridge loan product for middle-market CRE investors, a group which previously had few quick-close financing options to choose from.

Our non-recourse bridge loan product provides 2- to 3-year financing terms for multifamily and commercial properties from $5-15 million, advancing up to 80% loan-to-cost with pricing starting at L+450. The Senior financing product enables investors to close more quickly on a new acquisition than with permanent financing. To qualify for a non-recourse bridge loan, which is akin to larger collateralized loan obligation (CLO) offerings, borrowers must meet an in-place cash-flow requirement.

Read the feature in Commercial Mortgage Alert or on Globe St.

“With increasing competition for assets and a need for financing opportunities for the middle market, our new bridge loan product presents CRE investors with a remarkable opportunity to secure short-term financing and seize opportunities fast,” says Alex Cohen, CEO & Co-Founder. “There has been growing interest from our broker and borrower community in this product, as there are very few non-recourse bridge options available at this price point for loans between $5-15 million. We’re proud to make this available to borrowers and brokers and help fill a void in the market.”

In November 2021, we provided a $5.2 million first-mortgage bridge loan for the acquisition of an industrial property in Las Vegas, Nevada. The borrowers had to close the acquisition financing quickly to take advantage of a below-market price on the asset. At the time of the acquisition, the property was 45% occupied.

With a best-in-class sourcing and loan servicing platform, we’ve closed over $750 million in commercial loans in 2021 to date, providing loans to middle market and emerging institutional borrowers at competitive rates and leverage.

Through our broker incentive program, we partner with brokers to facilitate bridge loans for their clients and earn referral fees. We close deals in 45 – 60 days after receiving a signed term sheet and deposit. For a premium, we can close loans in as few as three weeks.

Learn more about our middle-market bridge loan platform by clicking below.

Learn More About Bridge Lending