New York's private lending market is undergoing a significant shift as investors move away from traditional fix-and-flip projects toward larger construction loans. Ruben Izgelov, CEO and Founder of We Lend, reports that a growing portion of the company's loan volume now funds ground-up construction, condo conversions, and building extensions, a trend he expects to continue through the rest of the year.
We Lend, a private direct lender historically known for quick-turnaround fix-and-flip loans in New York and New Jersey, is now seeing its borrowers pursue more ambitious projects. According to Izgelov, the standard fix-and-flip model—buying a property, investing $50,000 to $100,000 in cosmetic improvements, and reselling—no longer delivers the returns it once did. "Our borrowers' returns have been compressing," Izgelov said. "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."
The shift is evident in the numbers. Construction budgets on deals coming through We Lend have grown from the $100,000 to $200,000 range to $1 million to $2 million, and in some cases the construction budget now exceeds the property's purchase price. These larger projects carry more risk, which We Lend manages by focusing on familiar markets and requiring documentation often overlooked by other lenders. Before financing a conversion or extension, the firm demands an architect's letter confirming the work can proceed as of right, without rezoning or variance applications. 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. "That keeps the playing field level between the borrower and the GC, especially when the borrower hasn't worked at this scale before."
Two recent deals illustrate the range of projects We Lend now finances. In one, a borrower purchased a bank-owned eight-unit building that the previous lender refused to fund improvements on. We Lend financed the conversion into 16 fully leased units, and the borrower is now in discussions with banks for a refinance that would return original 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, providing the payoff and a small cash infusion to complete construction.
Izgelov warns that the biggest miscalculation for investors transitioning from fix-and-flips is underestimating the timeline. While fix-and-flip loans typically run six to eight months, ground-up construction and major conversions often take much longer. "Budget carefully for the interest that has to be paid over that term," he advised. "Built-in extension options with your lender help, or better yet, start with a term longer than 12 months. We offer 18-month terms, and we've done at least one loan at 24 months." He also cautioned against building to trends rather than demand: "If there's demand for a project of that size or caliber, great. But don't build a mega mansion in a neighborhood that can't support it just because that's the trend."
For more details on how We Lend structures its loans, visit the company's How It Works page.
