Buying Borrowers Some Extra Time: Condo Inventory Lending
Northwind Group's Ran Eliasaf talks about this financing tool and its potential for one dynamic Texas market.
As traditional financing avenues continue to face challenges from commercial real estate exposure and valuation hurdles, private lenders keep stepping in to address market dislocations. The ever-evolving economic landscape has profoundly impacted various segments of the real estate market, including the condo inventory lending space.
Enter Northwind Group, a private equity firm that has an extensive portfolio of loans backed by condominium projects. The company has originated more than $1.1 billion in real estate financing this year, in markets such as New York City, Houston, Miami and the San Francisco Bay Area, among others.
In this interview, Founder & Managing Partner Ran Eliasaf delves into key trends shaping condo inventory financing. He also touches on emerging markets such as Austin, Texas, where the firm recently provided a $77.2 million loan backed by the 167 remaining units at Vesper, a newly completed condo tower.
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How has the current economic environment influenced the condo inventory lending scene?
Eliasaf: We have seen many banks, especially local or regional banks, scale back their financing activity due to their over exposure in commercial real estate.
Additionally, many fixed-rate loans that were given in the last 5 to 7 years, in which the property value dropped, are unable to refinance or sell in an amount that would pay off the loan. This has created dislocation in the capital markets specifically for condo inventory loans which private lenders, such as debt funds like Northwind, have been able to capitalize on.
Condo inventory loans provide additional time for borrowers to sell units at competitive prices, albeit at a slower selling pace. Although condo sales in New York City have slowed—2.5 percent decline in sales year-over-year—pricing has remained stable—0.3 percent decline in average price per square foot year-over-year.
Additionally, inventory remains low—0.6 percent decline in listings year-over-year—suggesting a demand for new residential projects, according to the a third-quarter Elliman report on Manhattan sales.
What’s your take on Austin’s condo market, considering the city’s rapid demographic growth?
Eliasaf: Austin’s condo market is in a unique growth phase compared to other major U.S. cities. Its rapid population increase, driven by tech, is fueling strong demand for residential units and we feel this market is premature with room for more growth. However, we do identify pockets of oversupply and there is some decreased sale momentum, fueling the need for inventory loans.
And how do you evaluate Austin’s risk profile for such financing when put against other major cities?
Eliasaf: Austin’s risk profile for condo inventory loans is strong, supported by steady population growth and a thriving tech industry that offers high wages to sustain housing demand. The city’s lower tax burden compared to major hubs like New York and Los Angeles further enhances its appeal for relocations.
Which city areas are you considering for future investments and why?
Eliasaf: Downtown Austin, especially the Rainey Street District and West Downtown, offers prime investment opportunities driven by rapid growth, modern developments and appeal to professionals drawn to the city’s tech and cultural expansion. These areas blend high-rise projects, key amenities and urban charm, anchoring Austin’s economic and residential growth.
Considering the downward trajectory of interest rates, do you foresee a shift in the condo lending landscape, potentially driving demand for high-end properties like Vesper?
Eliasaf: Vesper’s units, priced between some $650,000 and $1.9 million for penthouses, cater to a buyer demographic that primarily relies on mortgages. With interest rates trending downward, we anticipate renewed activity in the market.
Currently, Vesper is the only new inventory offering sponsor units in the Rainey Street submarket, as competing buildings sold out during construction in the 2019-2021 low-rate environment. Notably, during construction in 2022, Vesper achieved 40 percent presales when rates were lower, underscoring the strong link between interest rates and buyer demand.
How do you expect the Austin condo market to evolve over the next few years?
Eliasaf: We anticipate growth … over the coming years. Large tech companies continue to relocate offices to Austin and other parts of Texas, driving significant job relocations and increasing demand for residential housing. While several downtown developments have been completed or are under construction to accommodate this growth, we still expect strong interest in condominiums.
This demand is fueled by the amenities and convenience they offer, appealing to both in-office and remote workers. With hiring on the rise and interest rates trending downward, we believe professionals are likely to transition from renting to homeownership gradually as interest rates eventually taper down.
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You’ve also closed deals in Houston. What has been your experience with the Texas market so far, and how does it differ from other regions you invest in?
Eliasaf: We have seen increasingly interesting opportunities within the Texas market and have provided three loans there which are performing well. The state’s business-friendly policies, expanding tech presence and steady population inflow create a favorable environment for both residential and commercial projects. Compared to other regions, Texas offers fewer regulatory challenges and a clearer path to execution, making it a highly attractive place for investment.
Do you see more growth potential in Texas? Do you have any plans to expand your capital deployment in the state?
Eliasaf: Texas, particularly Austin, shows strong growth potential, bolstered by significant investments from major tech companies. Samsung’s recently announced $45 billion expansion in Austin underscores the city’s trajectory, following Tesla’s headquarters relocation and Apple’s new campus development. These projects are expected to generate tens of thousands of jobs across various sectors. While the high-interest rate environment temporarily slowed market activity and relocation plans, the recent downward trend in rates provides a clear path for recovery and renewed growth.
