Developer Asi Cymbal was looking for a real estate loan at a bad time.
After finishing a 341-unit apartment complex in Miami Gardens in the spring of 2024, he needed to pay off its $102.5 million construction debt and bolster the project’s cash reserves. But with the impending presidential election, elevated interest rates and slow multifamily lease-ups in South Florida, uncertainty loomed. Banks had little appetite to lend on multifamily at all, let alone give Cymbal the higher leverage he wanted for his refinancing.
“It was probably the most difficult time since the pandemic to get financing,” Cymbal, who runs Cymbal DLT, said.
Enter Apollo Global Management and RXR Realty Investments.
They loaned Cymbal $114 million, he said, about 20 percent more in proceeds than what banks were willing to offer, he said.
He is not the only one who thought that sounded like a pretty good deal. Over the past three years, as South Florida remained an outlier to a national real estate market slowdown, developers continued to start multifamily, condo and mixed-use projects. Construction loans and refinancings flowed, but the lenders weren’t usually banks. Instead, debt funds, wealth managers, real estate investment trusts and other alternative financiers were stepping up.
This shift didn’t happen just in South Florida — non-bank lenders are on the rise in New York and elsewhere. But because South Florida was booming as other regions struggled, private lending had a parallel upsurge, especially since banks were stepping back from risk even in regions that continued to prosper.
Banks’ pullback isn’t the only reason for alternative lenders’ rise. Local projects are ambitious, with large capital needs, and they sometimes need both the bank and the non-bank to close a deal. Many developers are discovering a bonus: that alternate lenders have useful real estate know-how, in addition to money.
The trend shows no sign of stopping, but taking private money isn’t risk-free for borrowers. Alternative financiers’ loans are more expensive than bank debt, and the lenders are savvy real estate investors with bigger appetites to take over real estate from borrowers who fall behind on payments.
Banks on the back burner
For years, many banks’ existing loans have been stuck in an “extend-and-pretend” scenario, allowing forbearance and pushing back maturities for borrowers struggling to refinance or meet debt obligations due to higher interest rates.
In the post-Great Financial Crisis world, regulators are watching banks to ensure they maintain minimum capital requirements and don’t overextend.
Until old loans come off their books, banks might not be able to underwrite anything new even if they wanted to.
“We need to see banks clean up their balance sheets with their existing assets, all the loans they extended. Is it time to work them out? What’s the deal?” Ben Jacobson of private lender Forman Capital said. “To continue to make the loans, they need to be in general compliance with the regulators, so that means fixing their problems. … That’s a real task.”
Alternative lenders don’t take customer deposits, so they’re subject to less regulation. But that’s not the only reason they have taken more market share.
“We need to see banks clean up their balance sheets with their existing assets, all the loans they extended. Is it time to work them out? What’s the deal?”
In the years since Covid’s onset, South Florida emerged as a magnet for out-of-state residents and companies, mainly hailing from the Northeast and the West Coast. Developers seized on the demand, starting ever bigger and more opulent projects. Their capital needs followed suit.
Take South Florida’s first supertall, the Waldorf Astoria Hotel & Residences in downtown Miami. PMG and its partners scored $668 million to build last year, the largest condo construction loan in the tri-county region. Though Bank OZK provided the $425 million senior financing, Related Companies’ investment management affiliate Related Fund Management, which operates independently, stepped in to cover the balance.
The Whitman family turned to Blackstone for a $740 million loan in December, mostly to refinance its high-end Bal Harbour Shops, with a portion of the debt for new construction. Witkoff and PPG Development scored the mezzanine piece of their $273 million construction loan for their buzzy Auberge-branded Shell Bay condo and hotel in Hallandale Beach from BDT & MSD Partners in November. In April, Terra and Turnberry landed $392 million from Adi Chugh’s Tyko Capital for their 800-key Miami Beach convention center hotel.
Deals of “$200 and $300 million … were quite the exception in South Florida five years ago,” said Faisal Ashraf of real estate capital adviser Lotus Capital Partners. “Now, it’s like every day.”
Debt funds get it, banks don’t
For Cymbal, it wasn’t just the lending environment that made his search for financing difficult. His Miami Gardens apartment complex was also half vacant. He was confident that a new property tax break would result in a quick lease-up that would increase the property’s value, but banks wouldn’t listen.
The break for his 11-building Laguna Gardens came from Florida’s Live Local Act, geared to developers of affordable rentals. The rule, approved in 2023 and tweaked in the subsequent two years, will give the complex’s value a boost. Its below-market rents also suggest leasing will happen faster, since South Florida has long been plagued by an affordable housing shortage.
With banks, “there were a lot of questions surrounding Live Local,” Cymbal said, and a financial partner had to be willing to look for the answers. “Many lenders don’t have that appetite,” he said.
His actual lenders, Marc Rowan’s Apollo and Scott Rechler’s RXR, did. They were open to taking into account the value Live Local adds, he said. Both also have investment and development divisions, and because they work in real estate, they understand real estate. This fact often clinches borrowers’ business.
Lenders already in the business are more willing to take into account projects’ nuances and upside, experts said. Where a bank may require at least 30 percent condo presales before it finances, an alternative lender may be more lenient, taking into account the market as a whole. Where a bank asks for a project’s cash flow to meet a 1.3 debt service coverage ratio (DSCR), an alternative lender can go down to a 1.2 ratio. (A DSCR signifies a borrower’s ability to meet loan payments based on its project’s income. A DSCR of 1 is breakeven.)
“Flexible.” “Entrepreneurial.”
And where a bank requires recourse, private credit doesn’t.
“Flexible” and “entrepreneurial” is how borrowers frequently described their alternative lenders, adding that they “think out of the box.” As for banks? “Rigid.”
To develop the 401-unit Villas at Tuttle Royale rental complex in Royal Palm Beach, David Lynd and his partners turned to S3 Capital, Spruce Capital’s lending arm, for a $126 million loan in 2023. The debt was at 70 percent loan-to-cost, with a spread of 6.5 percent over the Secured Overnight Financing Rate, according to Lynd, CEO of the firm, also called Lynd.
During construction, a shortage of electrical transformers was becoming a problem for projects nationwide. Lynd, wanting to avoid a slowdown in the timeline, planned to order the transformers earlier than usual.
S3 advanced the developers the funds to purchase them.
Would a bank have done that? Maybe, Lynd said. But it would have moved much more slowly, he believes.
“Banks have to go through a [much] more rigorous decisions process,” he said, referring to approvals that can only be done at regularly scheduled bank board meetings. With “debt funds, you are just talking to a few principals who are making a judgment call. It’s just a little faster. There are less layers.”
To foreclose or not to foreclose
There are risks to private credit. When a bank borrower falls behind on debt obligations, the lender is inclined to resort to forbearance, to avoid adding distressed debt to their financial books and seizing properties that they then have to sell, likely at a discount.
Alternative lenders have more of an incentive to take back a property that they know how to manage and develop.
Often, such lenders provide the mezzanine piece in the capital stack, allowing them to pursue Uniform Commercial Code foreclosures, a quicker process than judicial foreclosures that can drag through the courts.
Borrowers “know we are not a bank and we are not going to wait around for things to go off the rails,” said Greg Freedman of BH3 Management, a real estate developer and lender. “[We] understand that small problems become big problems.”
For borrowers, the risk is heightened because alternative lenders generally go for an internal rate of return in the low- to mid-teens.
They “are effectively double-digit yield lenders,” Ashraf said.
The high-risk, high-yield private credit industry tacks on spreads from 6 percent to as high as 8 percent, compared to banks’ usual spreads of 3 to 4 percent. And they are much more lenient with leverage. While banks generally have redrawn their lines on leverage down to about 50 percent loan-to-cost, alternative lenders can push this up to about 75 percent, sometimes even 80.
“Rigid.”
But on the flip side, the lack of bureaucracy at alternative lenders allows them to streamline forbearance if borrowers run into problems. Banks often have to run things through investment committees, causing months of delays.
“When it comes to forbearance, it means two parties getting in a room talking about a problem and figuring out a problem,” Freedman said. “Banks are typically handicapped. From a regulatory standpoint, they can’t think outside the box. The box is very clearly defined as to what they can or can’t do. … We have the latitude to work out situations in real time, face to face with borrowers, and us having an understanding of the business plan.”
After completing a 23-story, 367-unit apartment tower in North Miami Beach, Robert Suris’ Estate Companies refinanced the construction debt with a new $110 million loan from Ares Management. The financing is more expensive than it would be from a bank, with a higher spread and a shorter term, meant to carry Estate to a more stable market. But Suris isn’t worried Ares will come after the tower if Estate falls behind on payments.
“They can theoretically lend to own but that’s not their business,” Suris said. “We produce a lot of multifamily in the tri-county area; they are not going to do anything to upset us to get one asset. It’s not about creating one deal. It’s about creating a business platform. It’s about relationships.”
Private credit party won’t stop
Exactly how Trump’s tariff and immigration policies will affect South Florida real estate remains to manifest. The administration has imposed a 10 percent universal tariff, a 25 percent tariff on steel and aluminum imports and a 30 percent levy on all Chinese imports, which could increase to 145 percent.
Beyond tariffs, inflation, faltering consumer confidence and fears of a recession are making the future less certain for developers and their lenders. The Federal Reserve has lowered its projections for cuts to the benchmark interest rate, and long-term treasuries have settled after spiking in April.
In times like these, Jacobson of Forman Capital figures banks are probably evaluating the changing market climate. But generally, the more chaos, the more banks will retrench.
Although the headwinds could also hamper real estate development, so far in the tri-county region, developers have kept pursuing high-end projects, continuing the demand for big loans. Private credit is still supplying them, according to a steady flow of local deals.
Most recently, in April, PMG scored a $413 million construction loan from Ares Management and Monarch Alternative Capital for its two-tower Brickell project with 266 condos and 537 rentals.
“If the needs of borrowers are getting larger because real estate projects in South Florida are getting larger and banks are retrenching,” said Lotus Capital’s Ashraf, “it’s just a mathematical truism that alternative lenders need to fill in the vacuum.”