Construction lending is a highly specialised field and is currently hard to obtain. Due to ongoing capitalisation requirements, the banks have either withdrawn or are only servicing their long term and well respected borrowers. Only a small number of banks are taking on new clients allowing those banks to set their own rules.
In the private lending arena there are only a limited number of operators who have both the skills and the proven track record of providing timely payment of progress draws. Unfortunately, I have heard too many stories of late of new entrants into the industry not showing up with the money.
Banks re-entering the market anytime soon appears remote due to their ongoing capitalisation battles with regulators and talk of apartment oversupply issues. Long established private lenders have no intention of filling the void, even if we had the capacity to do so. As an example, GPS runs around 24 loans in any point in time. This is a nice and manageable size. It is not a question of how many loans we can run when times are good, but how many we can run when conditions are more trying. It is in the trying times that both borrowers and investors need our full commitment to ensure timely funding and tight project management.
Private lenders like repeat borrowers as we know how they operate and they appeal to our investor base. Finance applications from repeat borrowers go to the top of the list.
Like the banks, private lenders generally have diversification of risk and exposure levels. As such we are limited to how many projects we can fund in any particular area at any point in time.
Borrowers who shop around looking to shave funding costs, or treat private lenders as either a last resort or a backup plan, will be allocated a low priority by private lenders.
My counsel to borrowers is to pick your financier and work with them to generate more value from the project. Running around 24 projects at any given time, as GPS does, provides us with a lot of valuable information which can benefit all of our borrowers. GPS encourages its borrowers to discuss with us the inevitable issues which will arise in a project. If we do not know the answer, then we generally know somebody who does. We want borrowers to be successful. We also want borrowers see the value in using GPS as it leads to long term and mutually beneficial relationships.
