The Houston Chronicle Interviews Liberty SBF CEO Alex Cohen

The Houston Chronicle invited Liberty SBF CEO, Alex Cohen, to their offices to talk about SBA 504 lending and the Texas market. Below you can read the full text of the Q&A. The original article ran on The Houston Chronicle website here.


Q&A: Lender enters Texas to work with small businesses

by Katherine Feser

Liberty SBF, a commercial real estate lender based in Philadelphia, is expanding in Texas, where it plans to open an office later this year.

Alex Cohen, CEO, founded the company in 2012 after spending most of his career at M&T Bank in the Northeast. The company has since made more than $250 million in loans.

Following the recession, Cohen saw an opportunity to make loans in the ballpark of $1 million to $10 million to small businesses, a market many lenders had left or restricted.

Liberty SBF works with banks that handle U.S. Small Business Administration loans, as well as lending its own funds backed by private equity investors. It also provides bridge loan financing, a short-term solution until a permanent loan is secured.

Cohen stopped by the Chronicle on a recent visit to Houston.

Q: What types of loans do you do?

A: We do a lot of owner-occupied real estate. We specifically participate in a program called SBA 504, which is a great program for borrowers because they are able to access up to 90 percent loan-to-cost financing in a combination of a Liberty loan and an SBA loan. Historically, other than for a very short period of time, that program was eligible for acquisitions only. Our industry was able to get some legislation passed through Congress which allows us to use the program for refinances as well. It’s low-cost, fixed-rate, long- term financing.

Q: Do companies want to own their own real estate?

A: There are a lot of benefits to owning it. You get the tax benefit of depreciating the real estate over a schedule. In many instances, the buy-versus-rent scenario makes a lot of sense. For small businesses, particularly for those that have been in business three years-plus, have established a track record, have positive cash flow trends and are in a position to make a cap ex investment like commercial real estate.

Q: How does the down payment compare with other loans?

A: Typically, conventional financing will provide between 65 percent and 75 percent, so a down payment on a property like that would be 25 percent to 30 percent. In an SBA 504 trans-action, the borrower is going to be putting down 10 percent to 15 percent.

Q: What are the interest rates like?

A: The interest rates are in the low fours.

Q: What do you have to do to qualify?

A: The business owner has to occupy at least 51 percent or more of the real estate that they’re purchasing. It has to be an eligible property type. There are certain excluded property types, like gambling establishments. There are some upper limits in terms of what is considered a small business.

Q: What types of properties are small businesses buying?

A: It’s owner user office, it’s owner user industrial, but it’s also hotels, self-storage, assisted living, day care centers, auto dealerships, gas stations.

Q: Do a lot of other lenders do this same type thing?

A: A lot of banks have SBA departments. There are two big SBA programs. One is called 7A and one is 504. 7A can also be used to finance real estate transactions, but it’s primarily focused on working capital for small businesses. The 504 program really is exclusively used for real estate and fixed assets.

Q: Are people concerned about lending in Houston with the slowdown?

A: What we’ve heard from most of the large capital markets folks … is that most of the larger properties where you are seeing some softening in price are very well capitalized from an equity standpoint. We haven’t seen a lot of forced selling here. Nationally, values have been increasing rapidly, particularly in tier one markets. When you look at markets like Houston, you still have population growth and job growth here. It could be an opportunity for us to partake in some of the lending here where it may be a little bit less competitive relative to some other markets.

Q: What other loans do you do?

A: We provide short-term bridge financing to real estate owners. Most of the type deals we do are focused on refi balloons. There’s a tremendous amount of debt that was extended at the height of the last real estate cycle from 2006 to 2008. Most of those were 10-year terms.