Private lending is becoming a relationship business again

[Michael Manchester]

Yes, it's always been a relationship business - but it feels like the last couple of years there was a shift. The relationship was less important, and I have a theory as to why. 

Private lending has traditionally been something of special niche in finance. Most traditional banks and even non-qm shops have a hard time wrapping their head around it. However, that did not stop the market from getting flooded with lenders. With that amount of choice, many investors and even brokers just started chasing the best term sheets they could. Of course, as we all know, a lender saying YES up front doesn't really mean much. What matters is when they actually deliver on what they promised, when they promised it. What ended up happening was new investors never built the kind of relationships that are really beneficial in private lending. They went for something shiny - then got put through the ringer, lost deals, had leverage cut etc... and then went to find a new lender and repeated the process. That is no way to operate. 

Speaking from personal experience, building a relationship with a lender that has proven they will execute, get exceptions approved, move heaven and earth to get you closed on time is worth so much more than an attractive rate or additional leverage. When private lending tries to model itself after traditional finance - essentially a race to the bottom - it loses the attractiveness of private lending altogether. Why would anyone pay extra for a process that doesn't seem any better than a bank?

In order to really scale and move the way you want, you have to have reliable capital. That means finding a broker who truly understands the space and can navigate all the challenges that come with it. OR you have to build your own network. You need some redundancy and you need you to maintain relationships with people who you may not give business to today, but will come in handy as a backstop or creative solution when you need them. 

From my seat, I'm seeing more investors, new and seasoned, return to the folks who may not have the cheapest product, but get the job done when it matters. When private lenders know that you are loyal to them, they will be loyal to you in return. I'm sure most of you reading this have seen how much easier the second, third and fourth deals are once you've done your part on the first deals. 

The cheapest lenders can end up being the most expensive. Thing long term, and nurture those relationships every chance you get. 

[Chris Seveney]

The entire world of real estate is a relationship business. Unfortunately, many people look at it as transaction-based, but those who focus on the long term in building relationships are the ones who end up doing the best and are also the happiest.