Rising costs and tighter margins are pushing New York real estate investors away from traditional fix-and-flip projects and toward larger construction loans, according to Ruben Izgelov, CEO and Founder of We Lend, a private direct lender based in New York. Izgelov says that a growing share of the company’s loan volume now goes to ground-up construction, condo conversions, and building extensions, a shift he expects to continue through the rest of the year.
“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. He noted that construction budgets on deals have grown from $100,000 to $200,000 into the $1 million to $2 million range, and in some cases exceed the purchase price of the property itself. We Lend, historically known for quick-turnaround fix-and-flip loans, now funds a variety of projects due to its in-house underwriting and capital backing.
To manage the increased risk of larger projects, We Lend requires detailed documentation. Before financing a conversion or extension, the firm demands 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,” Izgelov said.
Two recent deals illustrate the range. In one, We Lend financed the conversion of an eight-unit bank-owned building into 16 fully leased units. In another, in an affluent New Jersey suburb, the company restructured a loan for a nearly completed 22,000-square-foot spec home to allow a lot line sale to a neighbor, providing a payoff and additional construction funds.
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. He recommends starting with terms longer than 12 months, such as the 18- or 24-month terms We Lend offers, and to build based on demand rather than trends.
More information on loan structuring is available on the company’s How It Works page. Learn more at welendllc.com.
