New Western, which partners with investors in fix-up and flip properties, has transitioned its lending arm, Sherman Bridge, into its own marketplace to help owners find financing.
The majority of fix-it-and-flip properties, or the fix-it-and-rent alternative, are purchased by what the industry calls “mom-and-pop” investors.
But most deals are done all in cash: About 37.4% of its second-quarter sales involved some sort of financing, up from 34% in the first quarter, according to Atom Data Solutions.
“The decline in cash resales in the second quarter came at a time when mortgage rates were declining slightly after a sharp increase in the prior year,” Atom CEO Rob Barber said in a press release. “With interest rates rising again, investors will be under further pressure to use cash to fund their activities. We will see more clarity on this trend in the third quarter.”
But New Western president Kurt Carlton noted that interest rates in this market have always been higher than residential properties, and as a result, rates have not risen as much.
Kurt Carlton is president of New Western.
“In our world, interest rates have only moved 100 to 150 basis points,” Carlton said. “Interest rates have only fallen from 14 to 15 percent in 2008 to about 10 percent today.”
That's because most of the region's lenders are small subregional originators and are “fairly insulated from the mortgage debt market and all the things that are being driven by the Fed changes,” he added.
Moreover, many are funded by family offices that are happy with returns of at least 10% — an area that has been less disrupted by the Federal Reserve's quantitative tightening than traditional mortgage lending.
The marketplace has launched in 45 markets so far, Carlton said. Working primarily in three regions — the Carolinas, Tampa-St. Petersburg and Philadelphia — it has closed nearly 2,100 loans totaling more than $450 million. Currently, Sherman Bridge has 15 lenders participating.
For lenders looking for opportunities in 2024, fix-and-flip lending is a worthwhile market to enter, Carlton said, estimating that one-fifth of all transactions are currently with real estate investors.
While high interest rates are contributing to sellers' decisions not to put their property on the market, “in our industry, these properties generally have to be sold,” Carlton said, citing examples such as fire-damaged homes or inherited homes that need repairs to be able to be lived in again.
Longer term, New Western and Sherman Bridge are entering what he calls a “major overhaul” in which many of the 25 million homes built before 2008 are aging and in need of repair.
“A house that was built in 1993 is now 20 years old,” he says. And this isn't just natural aging; many property owners have deferred maintenance over the years they've lived in the place.
“More and more homes are reaching a stage where they need repairs that are beyond the ability or willingness of traditional homeowners, so they end up in the hands of investors, and this trend is becoming more pronounced,” Carlton said.
New Western/Sherman Bridge is not the only lender looking to bolster its support for this part of the investor market.
NewPoint Real Estate Capital has established a lending facility to support the single-family rental housing sector through short-term bridge financing.
Named NewPoint BTR, the loans support both purchases and refinances while property owners go through lease-up and stabilization periods. These non-recourse loans are structured to be borrowed with an agency or other permanent debt solution.
“The rent-to-buy community plays an increasingly important role in the housing market,” NewPoint CEO David Brickman said in a press release. “Our investment in the rent-to-buy financing platform demonstrates NewPoint's ongoing commitment to supporting all segments of the U.S. rental housing market.”
Loans range from $10 million to $50 million and are secured by exclusive communities of SFR properties, including townhomes, attached homes and single-family homes.
NewPoint managing directors Matthew Zall and Michael Golfman are co-heading the new lending platform.
Meanwhile, Lisum Capital's asset management business has partnered with Darwin Homes, a subsidiary of Pagaya Technologies, to form Adore Property Management LLC, which will manage Lisum's Adore LLC properties for rental and single-family rentals.
Lisum is shoring up its asset management business through a dispute over its acquisition of Sculptor Capital Management, which some industry analysts believe brings it one step closer to taking its mortgage business public.
APM will enable Rithm to focus on capital allocation and strategic decision-making.
“This partnership significantly strengthens our real estate investment platform by incorporating technology-driven property management capabilities,” Charles Sorrentino, managing director and head of investments at Rithm, said in a press release. “As we continue to develop Adoor into a vertically integrated platform, we will expand our portfolio of high-quality homes and be better positioned to meet the growing demand for accessible, affordable rental housing.”