As investor demand surges, the smart money is on hard money

COVID-19 may have temporarily slammed the brakes on lending, and the new rise in cases in almost every corner of the country is adding more kinks to America’s economic recovery, but there’s no shortage of demand among private investors for capital, says Sharestates CEO Allen Shayanfekr.

“The borrower demand is there,” Shayanfekr says. “Pre-COVID, we were processing $300-400 million in loan applications a month and closing $100 million a month.”

The company waded back into lending in June, racking up $40 million in applications, half of which is expected to will close in July.

“We expect that to tick back up but for us to get back up to $100 million a month in closing volume. It will be a question of how quickly institutional capital continues to re-enter the space,” he says, adding that he expects the re-entry to take three to six months, depending on the institutions involved. “My expectation is that we’re probably going to carry into next year before we’re back to pre-COVID volumes.”

Shayanfekr says he watched as COVID-19 hit the lending landscape hard. Both bank and non-bank lenders were impacted dramatically as both securitization and warehouse lending markets froze.

“There was a big period of uncertainty,” he says. “People did not know what was going to happen in the market and everybody pulled back – securitizations dried up or failed to happen, warehouse lenders started margin calling their borrowers who were essentially borrowing from the banks to then lend on these bridge assets, and, as a result of that, liquidity dried up over a three week period from mid-March to the first week of April. By the time we reached the first week of April most bank and non-bank lenders had decided to push pause on lending.”

Shayanfekr says Sharestates, his crowdfunding platform for private investors, has been seeing more demand from borrowers than before COVID-19 unleashed itself on the U.S. economy. That’s been challenging, since the company doesn’t currently have the capital to support the surge in demand.

“We came back to business in June and started to take applications,” he says. “That doesn’t mean all of our competitors have started to come back and take applications, so there’s a smaller pool of potential lenders.”  

There may be a smaller pool of potential borrowers using the platform, but Shayanfekr says it has been receiving a disproportionate share of borrower business because there still aren’t as many lenders providing funds.

“Not all institutional players are back in the space,” he says. “They will come back, but it’s a process, and could go on into next year.”

When Shayanfekr contemplates the industry as a whole, he draws attention to the fact that in the years leading up to 2020, the capital flowing into the space increased liquidity and led to a relaxation of certain guidelines due to the need to place the capital.

“Certain checks and balances started to go out the window,” he says.

If anything, the shutdown – the first one so far, anyway – served Sharestates well. Given that some competitors are still closed down, Sharestates can be even pickier than usual in choosing borrowers to lend to.

“We were already more conservative than the competition,” he says. “We have not had to change our leverage [ratios] because we were already at lower levels of leverage than the competition.”