How Are You Approaching Private Lending in This Market?

[Ellisa Riddick]

With higher interest rates, shifting property values, and tighter deal flow in some markets are you being more conservative with your LTV requirements? Are you prioritizing experience, geography, or deal structure more heavily now?

Also wondering:

Are you actively lending right now?

What types of deals still catch your attention?

Any red flags you’ve become more sensitive to this year?

Would love to hear how other private lenders are navigating 2024–2025 so far. I’m in the lending space myself and always looking to learn from others doing this seriously.

Let’s compare notes!

[Doug Smith]

We really haven't deviated from our LTVs. I've been a lender for 34 years and have a formal commercial credit background with banks before heading into this, so I think we're more formal and process oriented than most. I've seen multiple boom markets and crashes and many studies that let us know what lending practices get you in trouble. The money we're lending out is not our own...it's investor money...so we have to protect it. We don't get overly aggressive with LTVs on deals we portfolio. High LTVs default expontionally more than lower LTVs. We look at statistics like industries. I remember a study done by Norwest Bank back in the late 1980s where the best paying profile was a Registered Nurse with the worst paying profile, and it wasn't close...clergy! I know...it sounds odd, but seasoned lenders will nod their head reading that. That does change with the evolution of society. For instance retail centers were a great investment in the 1980s, but after Amazon came along you have to be more wary of them. Office buildings are not an en vogue as they were not that many work from home. There can be subtle changes, but you shouldn't alter what you consider to be sound underwriting principals because of market conditions. Now to Red Flags - I'm Florida, we're more wary of residential apartment buildings as operating costs are increasing faster than rents (thank you taxes, insurance, regulatory requirements, etc). I'm concerned that a property that is cash flowing today might not in a couple of years if we get another hurricane that further pushes insurance costs up. That's not something that would make me kill a deal, but I'm going to be mindful of it. That being said, the big one is not to overextend on your LTVs just because you have capital to deploy. Most of what we lend out is investor money where they trust our expertise to protect their money. You can't take that lightly. Good luck to you!