Snap.Build, a Palm Valley, Florida-based alternative lender and fintech firm specialising in construction financing, is set to expand its platform this year as it aims to be the largest single-family residential lender in the country.
The goal comes about after recent months of banking turbulence, and an ongoing US housing shortage that has contributed to a void in residential lending, executive vice-president Brad David told Real Estate Capital USA.
“Community and regional banks are almost in the business begrudgingly and it takes them longer to process financing,” David said. “Instead of relying on the bank with a slow process, we are giving [borrowers and investors] the tool to help them grow.”
The company has completed more than 1,000 loans totaling more than $250 million since inception. As part of the firm’s expansion, Snap.Build hopes to build its geographic footprint and anticipates completing originations in the mid-nine figure range this year, a spokesman said. He declined to elaborate.
The platform has a significant technology component and can be used for a range of investor types, including family offices and large institutional funds, as well as other smaller lenders.
“We have been able to partner with various sources of capital,” said David. “[Our strategy] enables smaller builders to be able to compete – this could be the silver bullet in mitigating a lot of risk involved with construction lending.”
David described what he sees as a unique angle for the firm’s business. “When we go out and find builder clients, we vet them and their business, but when it comes to funding their project, the thing we do that is different is we analyse the deal and we control the flow of money through our technology.”
He continued: “We don’t release funds to the builder, we built a platform that does that [which] protects the capital and the builders.”
The firm typically looks for a builder business that need additional capital to build homes, with David believing it could take seven to 10 years for supply to catch up with the US demand for residential units.
The National Low Income Housing Coalition says the US has a shortage of 7.3 million units; Realtor.com says it needs 6.5 million; mortgage-finance company Fannie Mae says 4.4 million; and Up for Growth, a policy group focused on the housing shortage, says 3.8 million unit, according to an April-published Wall Street Journal article. While the numbers vary, there is no denying there is a severe housing shortage in the country.
The fact that some $30 billion of loans are coming due in the next year or so is another key consideration, noted David, since many were originated at much higher values.
“We’ve seen a lot of the multifamily players come into the single family, build-to-rent, ground up construction [space] and lots of institutional players are buying up all the inventory,” said David. “I think a lot of that debt that was underwritten 10 years ago was done so with an unrealistic expectation of where cost of capital would be now.”
The firm is seeing a direct, real impact from banking volatility. “We have a vivid memory of the last crash,” David noted, adding that there was a much higher level of housing inventory across the country at a time when rates were much lower.
A key challenge today is balancing the housing shortage with prudent underwriting. “We concentrate in the Sun Belt, where there have been inventory issues,” David said. “A lot of lenders have pulled back but because we are private, we are still lending in a market that historically has been a great market. We have a housing shortage in this country and we watch all the factors and our capital partners are taking the same prudent approach.”
The firm has sought to mitigate overbuilding via the checks and balances built into its system. “We have such control overflow of funds, we can’t get out of balance. Builders can’t draw more than houses being built, so from a leverage standpoint we are always ahead,” he added.