With the rapid growth of South Florida’s real estate market has come a flurry of lending activity in the region. One of more marked trends in the current investment cycle has been the increasing prominence of non-traditional lenders fueling local deals and driving development. In this interview, Jake Greenberg, an attorney in Bilzin Sumberg’s Litigation Group, sits down with Camilo Niño, CEO and founding partner of Linkvest Capital and LV Lending, to discuss the recent lending activity of non-traditional lenders and how they are shaping the development of South Florida. For more thought-provoking interviews on Florida’s rapid growth, please visit Florida Is The Future.
GREENBERG: Hello, I'm Jake Greenberg, an attorney with Bilzin Sumberg's litigation group. I'm here today with Camilo Niño to discuss the rapidly growing South Florida real estate market. Camilo is the CEO and founding partner of Linkvest Capital and LV Lending, one of the leading private and non-traditional commercial lenders in the South Florida market.Recently there's been a large entry of both the traditional lenders and non-traditional lenders in the South Florida market, which has become one of the hottest markets since the COVID-19 pandemic. Today Camilo and I are going to discuss some of the challenges that face lenders and borrowers, as well as developers in this market.
Camilo, thank you for being here today. Let's dive right in. The first question we have is that the rising volume of financing hitting the South Florida market has been matched with a rising diversity of financiers and I'm sure you've seen that competition with new lenders entering the South Florida market.
Can you speak to how non-traditional lenders such as LV lending compete with both the traditional lenders and other non-traditional lenders?
NIÑO: I feel like right now, everybody wants to be here in South Florida. From New York, from California, from Chicago money out of the U.S., everybody wants to have a part of the market and it looks like everybody is a private lender or hard money lender or whatever you want to call it.
GREENBERG: Well let's stop there. Can you explain really what differentiates a non-traditional lender, such as LV lending from the traditional lenders, the big banks that most people are familiar with?
NIÑO: Sure. First, normally the rich lenders or private lenders like us, we do non-recourse loans where the only collateral and the only warranty for us is the asset. We are really asset-based lenders.
GREENBERG: And does that change how you underwrite or view a deal?
NIÑO: Yes, it changes. We really need to understand the market. We really need to understand the property. We really need to understand the business plan that the developer, or the sponsors, will have because we are not counting on the personal assets or the cash flow from the borrower, the developer to pay for the loan. We need the property to be able to support the transaction. And normally the banks don't do that. The banks focus on the cash flow.
GREENBERG: So this would allow a borrower with perhaps a lower credit score to be able to get a loan provided that there's sufficient equity in the property that's backing the loan, is that right?
NIÑO: That's correct. Theoretically, yes. We try to focus on good quality sponsors but good quality sponsors normally have 2, 3, 5 projects at the same time. So they will not have enough liquidity or enough assets to cover all the covenants, all the financial covenants on the five transactions.
So as long as the person is a quality sponsor, experienced developer and the property is a good collateral, we can work it out really fast and really flexible, which is the main difference with the banks. Banks are really slow, a lot of regulations and focus on the ability to repay from the borrower.
GREENBERG: Okay. And do you focus more on commercial or do you ever do any residential lending?
NIÑO: We started doing private lending in 2010 so it's been an interesting journey. Back in 2010, nobody was lending. I remember that after the crisis, the banks went from lending to anybody and to make it really difficult to lend to even with people on good projects.
We started doing a lot of residential finance because in the crisis, a lot of people was buying just bulk of condos, 10 houses at really discount prices. But over the years we start going more into the commercial, into the construction side, into the land development, finance and right now, 95% of our transactions are commercial, including land development.
GREENBERG: Now did you see a shift during the pandemic? Can you say, was there a pre-pandemic focus and how has that really changed I guess since the beginning of 2020?NIÑO: I will say that after June, July 2020, there was a lot of liquidity coming into this market. When the pandemic started, March up to June, July, everybody was scared. Nobody knew what was happening, what to expect, and then the banks and even the private lenders stop financing or reduce the exposure just to understand what was going to be the result.
But then we really saw Florida boom and a lot of people and money coming into this market. So the banks, the debt funds, the private lenders, everybody became much more aggressive to finance and the market has been supporting that because the prices are growing a lot.
The question is, what is going to happen next? Can this continue to go up forever? Can the rates continue to go up or what is going to happen with this market?
GREENBERG: Well, you mentioned before that a lot of your underwriting is based on the value of assets. And I think as we all know, we've kind of hit the peak or we're close to the peak of values right now.
GREENBERG: Is there any cause for concern that perhaps lending at these values, that these might be inflated for a longer term loan?
NIÑO: I think with real estate, real estate is really local and depends a lot on the small market that you are in and the quality and experience of the developer that you are working with. So even in the same market, one developer can make it work and the other developer right next door could go broke.
I think it's not a time to be aggressive for sure. I think it's a time to understand the quality and experience of the sponsor and it's time to understand what is his plan. If he's planning just to create a building and sell it for 20% over the current market price, I think that's going to be difficult.
If you are counting more on rents like multi-family properties and the rents that you are underwriting and the performer that you are doing to analyze your project is not that aggressive or it's supported by demographics, supported by higher income, supported by new employers I think you can be okay.
But definitely it's not an easy time. Definitely, nobody knows what is going to happen. A lot of people are talking about recession. Some people say Florida will not suffer a recession because we have real input. A lot of new employers, a lot of cash, not only from the U.S., but from Latin America as always.
I do believe that the South Florida market will do better than other markets in the U.S. I do believe that it's a moment to focus on quality assets and quality sponsors because nobody knows what is going to happen.
GREENBERG: Now I know your Linkvest and LV lending are based in Miami but I know you lend throughout the state
GREENBERG: Have you noticed a difference between the South Florida market as opposed to other areas in Florida?
NIÑO: We are growing in other areas of Florida. We love Broward, Palm Beach, Orlando, Tampa, St. Pete, Naples and even Jacksonville markets. And also we are doing some transactions in North Carolina, South Carolina and Georgia.
We do believe that those states are the ones that are getting better demographics and better income at the cost of other states like California and New York, for example. And as long as we have people and as long as the demographics support, we believe in the real estate market. We are not focused on the luxury product. I think has been a really good market for the last two years for the luxury product.
We do believe more in rental properties, like multi-family. We do believe a lot in creating value through the land pre-development and development. There are some people that can do that, I know that you know this, but for example, we do the lending side, but if we find good developers and good sponsors, we also invest in the equity side with them as long as they demonstrate to us that they have the experience to do it.
GREENBERG: You've mentioned something really important about equity versus debt financing. And as you know, the fed has recently increased interest rates and there's, as you also mentioned, the possibility for a recession. Do you think that would have an impact on doing more equity investing as opposed to debt financing because of those interest rates and how do you think that would impact the market?
NIÑO: I think it will be better. When you analyze risk-return, at least we think we're going to focus more on the lending part because we also believe that we're going to get the quality of bank deals. Banks, as long as they hear the recession word, even if it's coming or not, they stop lending.
So there is a big space now that is going to be open, that's what we believe. The banks were filling those projects and their financing to sponsors. But now, because they are scared of recession because the interest rate is going up, I think they're going to delay the decisions and we will have better quality of lending opportunities. We do equity, but we will only focus on multi-family projects.
GREENBERG: Okay and you also mentioned money coming in from other states, other lenders. So what is LV lending done to distinguish itself from those other private lenders?
NIÑO: Relationships. We try to work with the same group of sponsors, developers, many times. Of course, everybody tries to get cheaper money and they try to go to the banks, but the flexibility execution, how fast can you close is really important to those people. And I think we can compete not in the cost of capital, but in the flexibility and the understanding of the situation, much better than the banks; we can move much faster.That's how we get the deals. We try to do more deals with the same people, so they know we can execute. Even though we are a little bit more expensive. It's just a bridge loan. It's just a short-term finance.
Nobody wants to do a 9% or 10% loan for five years. But if they need it for 6, 9, 12 months and they can create the value that they need, sometimes it's even cheaper than the banks when you consider the time that they took you and also the prepayment penalty that they have. I think we have a big opportunity in the next 12 to 24 months.
GREENBERG: Have you seen anything slow down since interest rate rises?
NIÑO: Not yet. But I hope it will slow down, but not yet. And I don't know if the recession is coming or not. I don't think it's going to be that hard in South Florida as it can be in other places. I hope it's not going to be a long recession, but the problem is that nobody knows. So what we can do is analyze good assets, good sponsors, good projects and work with them during the process.
GREENBERG: Alright, thank you for your time today. I think this was a very informative and helpful discussion.
NIÑO: Thank you for having me. A pleasure to be here.
GREENBERG: Thank you. To our audience, thank you for tuning in. We look forward to bringing you more information and additional podcasts regarding South Florida's real estate market. All of our podcasts can be found on Bilzin.com. Thank you again for tuning in.