Parkview Financial, a Los Angeles alternative lender that specializes in providing construction financing for a variety of property types, funded a record $600 million of loans in 2020.
Roughly $330 million of that volume was done during the year's final quarter. That heady volume - the company had projected funding $500 million for the year - was despite Parkview sitting out roughly four months of the year after the coronavirus pandemic started. The company had funded $160 million of loans in the first quarter.
Like other construction lenders, Parkview gauges the market's health by the volume of pay-offs it receives. If borrowers - its loans typically have two- to three-year terms, with potential extension options - aren't paying off their loans early, they might be having difficulty lining up cheaper take-out financing. As the pandemic took hold and most alternative lenders pulled back sharply, the thinking was that pay-offs would plunge.
That's exactly what happened initially. But soon after, "they were paying off," explained Paul Rahimian, the company's founder and chief executive. "We re-opened in July when we saw there was liquidity." That liquidity was coming from non-construction lenders - those providing take-out financing.
While Parkview lends against all property types, its portfolio has a roughly 80 percent concentration of loans against apartment properties. Those benefited from the continued lending by Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development, each of which reached record lending levels last year. It also has a smattering of loans against industrial and other property types in its portfolio, but has no exposure to the hotel sector.
Rahimian said his company re-underwrote all its loans to make sure they were performing as expected. Only one loan defaulted as a result of the pandemic, and that since has paid off.
Parkview funds its originations through an open-end fund capitalized by high net-worth investors, institutions and feeder funds. Because it continued to raise capital and had only 2 percent of redemptions last year, it's assets under management increased by more than 40 percent last year.
It expects that this year it'll lend at least as much as it did in 2020. It expects to receive $150 million of pay-offs next month, so that'll have to be put to work again.
It has a very healthy pipeline of deals, which Rahimian estimated at roughly $900 million. Its pipeline includes only loans for which signed term sheets are out and deposits have been received. Of course, not all will close as underwriting gets underway. Even if one-third of that closes, the company could see $300 million of volume within the next three or four months.
The demand continues to come from developers of apartment properties. "They're still playing catch-up," Rahimian said. Indeed, only 283,000 units were expected to be developed last year, according to Yardi Matrix. That's a level not seen since 2015, when 278,000 units were built and compares with the expectation for more than 371,000 units early in the year. What's more, some high-growth markets, like Phoenix, Denver, Miami and Charlotte, N.C., saw substantial drops - as much as 53 percent - in the number of units that were built last year.
Construction activity plunged partly as a result of shutdowns ordered in most areas early during the pandemic. Yardi previously had estimated that the country would need an average of 373,000 units annually to maintain equilibrium between tenant demand and unit supply. That hasn't happened since at least 2008.
That bodes well for rents. So, while eviction moratoria have impacted properties' cash flow to a degree, the loans that Parkview is writing are typically for properties that won't be completed for two to three years. At that point, those moratoria will have expired and things should be back to a more normal level.
Parkview designs its loans so they remain outstanding until the property they're funding qualify for certificates of occupancy. But it has found that its loans have been getting paid off well before then - that's a testament to the liquidity in the lending market. Its loans have no prepayment penalties.
While the company pursues loans on properties being built in major markets, it's turning its attention to secondary markets such as Birmingham, Ala., Charlotte and Atlanta, which are growing in terms of population and jobs.
The company late last year funded an $80 million loan for the 66-unit Uptown Newport residential condominium project in Newport Beach, Calif., whose units are expected to sell for as much as $4.3 million each.
Commercial Real Estate Direct Staff Report