Improving Your Leverage: Moinian’s Jonathan Chassin Delves Into Alternative Lending

Commercial Observer’s Partner Insights team recently hosted Jonathan Chassin, Managing Director of Moinian Capital Partners, for a discussion about new trends in investments and lending including preparing for a possible recession, and how owners are entering the lending space. Here is an overview of that discussion.

Talking about how developers are diversifying their investments, Chassin mentioned that some, unable to buy assets in major cities because asset values have risen too high, are branching into CRE lending, which provides a solid cash-on-cash return. Then, they use the capital from those profits to purchase new assets. Moinian Capital partners recently provided Zom Living, a Florida-based developer, a construction loan for $19.5 million to construct a 434-unit apartment tower in the upcoming Miami Worldcenter.

While GDP is posting high, Chassin noted that “we are long in the tooth for this expansion,” so a global recession, followed by one here in the U.S., is a real possibility. To prepare, Chassin advises developers to utilize the boom to lease buildings with the highest rents, but also to take advantage of the capital markets. “The debt markets are extremely competitive,” he said, “enabling sponsors and developers to take out debt that hasn’t been seen for a long time.”

Chassin said that the most significant trend in lending today has been the entrance of new competitors into the lending space. “I think there are more lenders in the market today than there has been since 2007,” he said. “Alternative lenders or debt funds are able to do things structurally that traditional banks or older alternative lenders generally won’t do.”

As such, Chassin talked about how Moinian recently entered the competitive lending space as a lender. He believes some owners-turned-lenders will leave lending once the market turns, as they won’t be able to compete with banks and large debt funds.

In 2017 Moinian Capital Partners provided a $160 million construction loan to Bushburg Properties, a Brooklyn-based developer constructing a 467-unit rental tower in Prospect Lefferts Gardens. Moinian is co-developing the property for what will be the company’s first dive into Brooklyn.

For potential borrowers deciding between banks and alternative lenders, such as owners, he notes that, “the only thing that links the two together these days is that a lot of banks will have owners, operators or well-heeled mezzanine funds at the bottom of the capital structure, to provide a layer of security and operational expertise.” Banks will always have significantly more regulatory oversight, he notes, which means that owner-lenders like Moinian have greater flexibility. “We’re also developers and owners ourselves,” he said, “so we’re able to let go of some of these requirements. We go through those things on the equity side as well, so we don’t necessarily require as much paperwork as banks do.”

When determining which way to go for a loan, if you seek higher leverage, then you’re a top candidate to use an alternative lender. If you’re simply refinancing or financing an acquisition for stabilized property, then alternative lenders might not provide an advantage. “We’re not gonna be competitive on pricing, where the banks are able to do longer-term debt,” he said. “But also, they’re able to decrease their pricing where that’s not something we do. Owners need to keep in mind exactly what they want, and focus on the lenders that will provide them the most efficient execution.”