Homeowners use short-term financing to renovate empty assets

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The Peninsula Walk at Rolling Hills Estates, California (Google Maps, iStock)

Homeowners are increasingly taking on short-term debt to rehabilitate their empty shops, hotels and apartment buildings.

JPMorgan found that lenders had issued $ 4 billion in secured loan bonds this year – short-term financing popular with developers – through mid-February, a 46% increase from the same period last year, The New York Times reported.

Commercial mortgage-backed securities, which generally benefit from longer-term funding, declined 8% over this period.

For investors, the financing offers a higher return to reflect the risk they take – that buyers, tenants and travelers resume operations before the pandemic and that loans are repaid. For borrowers, the pandemic offers an opportunity to renovate, as social distancing keeps many empty assets.

In January, Philadelphia-based private equity firm Stoltz Real Estate Partners raised $ 45 million in secured loan bonds to repair a shopping mall in Long Beach, California. The property was 20% vacant and its two main tenants, Regal Cinemas and Equinox Fitness, had closed and stopped paying rent. The mall owners used $ 8 million to reallocate part of the property into offices and beautify common areas and retail spaces.

Jake Pine, director of development at L + M Development, said the funding made sense for those with vacancies. In a joint venture with other pre-pandemic developers, L + M is reallocating a former Winchester gun factory in New Haven, Connecticut, with three-year funding.

“If you can get a bridging lender that’s willing to take a little risk, stay with you for a period of two, three years, kind of get you out of Covid, or bounce back from Covid, that’s a lot. makes sense, ”Pine told The Times.

[NYT] – Georgia Kromrei


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