It Will Take More Than A Vaccine for This Lender to Come Back In Full ForcePosted by: jhon | Posted on: August 7, 2020
As conventional lenders have cooled on the commercial real estate space during the COVID-19 downturn, Stan Bril, CEO of MCG, has been getting a lot more calls recently from people who need financing.
“I’ve had people come to me who have said that their credit line has either gotten cut, frozen or completely closed,” Bril says. “It seems as though the brick-and-mortar banks are watching everything and waiting for this to blow over.”
While MCG, which has facilitated nearly $30 billion in loans and has $200 million under management in its fund, is making loans, it is being careful.
“It [the commercial banks stopping lending] gives us a bigger opportunity, and it doesn’t at the same time,” Bril says. “Just because there are more potential clients does not mean that the actual deals are worth funding. We’re getting a lot more calls now, but I would not say that we’re closing a lot more business.”
When MCG does close loans, they’re usually for shorter-term projects. “Our credit underwriting guidelines have become a little more compact,” Bril says. “We’re more conservative in the sense that we’re doing things short term. We have shied away from projects that are four or five years in length just because we don’t know where the economy will stand at the end of the project.”
For MCG to make a longer-term loan, it takes a unique project. The company recently closed on a deal where a parking lot is being turned into luxury apartments. The lender provided $26 million towards the purchase of the land on the east side of Manhattan and another $25 million towards the construction of what could be 120 units.
“The land itself was worth much more than the actual purchase price,” Bril says. “It was a firesale.”
Ultimately, the project will require two loans, which gives MCG flexibility. “We can see how the project is coming along and how the economy’s coming along,” Bril says. “Then, we can see how much credit we want to extend based on this project.”
MCG has turned down other projects, such as a deal near the new hockey arena in Seattle. “We received the request around Thanksgiving of 2019,” Bril says. “We were working on it, but then when COVID hit a few months later, we decided to shy away from the project.”
What will need to happen for Bril to move forward with longer-term projects? He doesn’t think it will be a vaccine for COVID-19. Instead, it’s unemployment.
“If an individual doesn’t have a job or their pay has been cut, they’re not going to qualify for a residential loan,” Bril says. “The number of qualified buyers is going to diminish slowly. What would make us feel better as a lender is having the unemployment numbers go down a little more because that is the end consumer for a lot of our projects.”