New York’s private lending market is undergoing a significant shift as investors move away from traditional fix-and-flip projects toward larger, more complex construction loans. Ruben Izgelov, CEO and Founder of We Lend, reports that construction budgets on deals have swelled from the $100,000 to $200,000 range into the $1 million to $2 million range, with some projects now requiring more capital for construction than for the purchase itself.
"The general fix and flip model doesn't work as much as it used to, so investors have had to get creative, and that requires heavier, more substantial construction and rehab work," Izgelov said. This shift reflects tightening margins in the fix-and-flip sector, where rising costs have eroded returns. We Lend, historically known for financing quick-turnaround fix-and-flip loans in New York, now devotes a growing share of its loan volume to ground-up construction, condo conversions, and vertical and horizontal building extensions.
To manage the increased risk of larger projects, We Lend requires documentation many lenders skip, including an architect's letter confirming the work can proceed as of right—without rezoning or variances. On larger jobs, general contractors must sign completion guarantees. "We want GCs committed to the project just as much as the borrower is, without having to personally guarantee the loan. They're guaranteeing that the project gets completed," Izgelov said.
Two recent deals illustrate the range of projects We Lend now finances. In one, a borrower purchased an eight-unit bank-owned building and converted it into 16 fully leased units, with We Lend providing the construction financing. The borrower is now in discussions with banks for a refinance that would return equity for the next project. In another deal in an affluent New Jersey suburb, a borrower was 85 percent finished building a 22,000-square-foot spec home when a lot line sale required paying off an existing private loan. We Lend restructured and refinanced the loan, providing the payoff and additional funds to complete construction.
Izgelov advises investors moving into larger projects to carefully plan for longer timelines. "Budget carefully for the interest that has to be paid over that term," he said. "Built-in extension options with your lender help, or better yet, start with a term longer than 12 months." He also cautions against building to trends rather than demand. "Don't build a mega mansion in a neighborhood that can't support it just because that's the trend."
More information on how We Lend structures its loans is available on the company’s How It Works page.
