SAN FRANCISCO—The capital flight, if not flood, into primary markets such as San Francisco and Los Angeles is having interesting effects on the rest of borrowers, as Michael Burwell, CEO of Redwood Mortgage, tells GlobeSt.com in this EXCLUSIVE.
GlobeSt.com: Volatile global markets are one reason capital continues rushing into California, but not all golden-state markets are equal. What's happening in the second tier?
Michael Burwell: Redwood Mortgage is a situation and entrepreneurial-opportunity lender, meaning we provide capital where institutional bank money doesn't fit. And we're finding a significant rise in demand in markets just outside the institutional-grade sectors such as SOMA, Mission Bay and the Financial District of San Francisco, or core markets in Los Angeles and Orange County. Real estate owners and investors who see property opportunity outside the core are very active in positioning their real estate for growth, but traditional lenders are operating under tighter lending parameters and restrictions launched by the Great Recession. That's the new reality. But second-tier is a broad swath where growth is occurring or headed next, everything from close-in markets such as South San Francisco, Burlingame, CA and the I-80 corridor of the East Bay up to Sacramento, to Southern California markets such as Glendale, CA; North Los Angeles and even parts of Orange County and Riverside, CA. In essence, California job growth in desired urban markets is boosting housing and commercial demand at the next level.
GlobeSt.com: What are some of the changes you've seen among borrowers?
Burwell: We've been surprised to see very strong packages that have just one twist—perhaps needing a quick turnaround or requires disparate collateral sources or there's a lease expiration in the year ahead—and the borrower's been stumped by traditional lenders. We're used to solving multiple, complex headaches so in that respect, we're often the ones seeing challenges for borrowers out there. A borrower in Sacramento, for example, had a very strong balance sheet from co-founding a Silicon Valley tech firm, but could not get an appropriate loan for a well-positioned office building. We funded the renovations that were needed and the property has already started raising occupancy.
GlobeSt.com: What about the multifamily market? The lack of housing would indicate funding is easier there.
Burwell: Multifamily is a darling asset-class of late, especially large new developments. However, small and mid-sized investors seeking non-core-market properties have to be very aggressive to capture opportunities these days. One of our repeat borrowers invests in San Francisco and Peninsula housing requiring cosmetic changes or improvements to meet today's homebuyer expectations, and he's had to move to all-cash buying in order to execute transactions. Loans like that aren't run-of-the-mill, but once a borrower has established a relationship and a well-collateralized track record, it's easier to get additional loans done.
As previously reported, Redwood Mortgage weighed in on lending at a RealShare conference earlier this year.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
