Executive Q&A: Managing Lender Risk in 2019
- Jan 30, 2019
Florida-based commercial lender Trez Forman Capital is entering its third year of existence, but the two entities in this joint venture have been around for much longer. Mortgage lending firm Forman Capital was founded by Brett Forman in 2004, while Vancouver-based Trez Capital Group has been in the business since 1997.
Recently, Trez Forman closed its first New York City deal—a $7 million construction loan for a 21-unit development in Queens—and now plans to further expand in New York City and the tri-state area. Actually, construction lending is a significant part of the organization’s portfolio. “A lot of the banks have begun to get back into construction lending along with debt funds, so there is a lot of competition,” Trez Forman Capital President & CEO Brett Forman told Multi-Housing News. He shares his views on the multifamily financing landscape and his expectations for the year ahead in the interview below.
What can you tell us about Florida’s multifamily markets from a lender’s perspective?
Forman: We are cautiously optimistic about job growth in the larger markets, such as Orlando, Tampa and Jacksonville. Miami is still strong for “affordable” market-rate units, but it is hard to buy land and construction costs are high. Miami also has a lot of condos being rented, which affects higher-end rentals.
Construction lending was under scrutiny in the last couple of years, due to possibly higher risks. Tell us about the current trends in this financing segment.
Forman: A lot of the banks have begun to get back into construction lending along with debt funds, so there is a lot of competition. Trez Forman continues to grow but is seriously assessing risk and reviewing downside scenarios before moving forward.
What are the main challenges in the business today? What are the factors behind these challenges?
Forman: There is a lot of new supply and sometimes it is hard to understand the demand side. Further, as interest rates rise or threaten to rise, the values are not going up as much as in the past. In my opinion, they can go down a lot faster than up from here.
How important is flexibility in the lending environment and what can you tell us about demand for such services?
Forman: Given the challenges the competitive real estate market presents, having a one-stop lender that will lend throughout the capital stack is very important. Trez Forman will lend up to 80 percent of the cost of a project, which eliminates the need for outside mezzanine financing and sometimes eliminates the need for preferred equity. This saves time, increases efficiencies and maximizes the chances for a seamless execution. Relying on a third party for the financing tranche, in addition to the senior lender, adds costs and complexities.
What is the main focus of your business strategy for the future?
Forman: Trez Forman continues to grow its business. However, we never lose sight that the funds deployed are not ours. The funds belong to our investors and it is most important that we do what is right for the investors, even if that means we don’t grow or give up some yield. We can’t afford to stretch on risk. We have a mantra: Always do the right thing. Always! It hangs on our wall in the office.
How do you see the multifamily financing sector going forward? What is your outlook for 2019?
Forman: 2019 will likely be slower than 2018 and, depending upon interest rates, there may be some construction loans that encounter headwinds or challenges in getting take-out financing depending upon lease-up assumptions versus lease up realities.
Image courtesy of Trez Forman Capital Group