WHEN IT’S TIME TO STEP AWAY FROM TRADITIONAL ASSET-BASED LENDING FACILITIES
Tired of trying to stand out in a crowded ABL market, Briar Capital chose to move in a different
direction. The company had always offered ABL real estate-based loans. Now Briar is exclusively
lending against owner-occupied commercial real estate. Jeff Van Sickle explains how Briar arrived at this decision and shows how the company is able to work with asset-based lenders who previously viewed it with suspicion.
BY JEFF VAN SICKLE
It’s no secret the world of supplying asset-based revolving lines of credit has become very crowded. With new companies flooding the space, margins have compressed and structures have loosened as competition over deals has intensified. Risk is up, and pricing continues to fall.
Those providing traditional asset-based lending facilities secured by accounts receivable and inventory have a choice – either slug it out in an ever-crowded space or pivot to another business model.
Briar Capital chose the latter.
Rather than compete with other ABL shops, we are utilizing our real estate lending expertise to partner with them and provide financing on an asset class most prefer to stay away from. As Briar Capital Real Estate Fund, we now focus exclusively on owner-occupied, commercial real estate financing to asset-based borrowers anywhere in the country.
Real Estate is Different
Why is real estate a differentiated asset class from all others, and why do most in the commercial finance industry shy away from it? Real estate is differentiated for the same reasons that banks have two distinct and different lending groups, one for commercial real estate and another commercial and industrial (C&I).
It’s also why law firms have different commercial real estate lawyers from those who handle commercial and industrial loans. The rules, laws, regulations and terminology are completely different.
Real estate laws are geographic specific and differ from state to state and county to county. Usury, environmental concerns, zoning, foreclosure, title, easements, liens, leases, roadways, areas and boundaries, subordinations, taxes and the resulting liens are all unique to real estate.
Furthermore, not all geographic markets are the same. Some properties are in cities considered much more liquid markets than others. Some buildings may be out of place in a certain part of town, whereas in other areas they may be considered well suited. Some properties are in markets where values are appreciating, while others are falling.
Our work in the real estate space isn’t entirely new. Since 2003, Briar Capital has made hundreds of millions of dollars in owner-occupied commercial real estate loans. During that time, we experienced only one foreclosure — an accomplishment even more remarkable considering our standard customer profile consists of companies that often lack profitability and fall well short of traditional bank debt service requirements.
By providing reasonably priced, long-term amortization and covenant-free real estate loan facilities to companies that own their real estate, Briar Capital Real Estate Fund is filling a tremendous gap in the ABL marketplace.
To understand our decision to transition from the accounts receivable and inventory lending space to the Briar Capital Real Estate Fund, one must first consider our unique history.
Briar’s Unique History
Briar Capital was founded and began operation as an independent asset-based lender at the beginning of 2003. It was the collective brainchild of veterans of the commercial finance space and the real estate finance and development industries.
From the beginning, we were uniquely positioned in a crowded commercial finance space as one of only a handful of asset-based lenders providing both real estate term debt financing and accounts receivable and inventory revolving lines of credit. Offering these financing options on either a stand-alone basis or as part of a total financing package, Briar Capital met the needs of companies that owned their real estate and were seeking financing on all their asset classes.
For the next 16 years, Briar Capital experienced success financing a variety of asset classes for businesses in our home state of Texas and other parts of the southwestern U.S. During this time, we built a strong reputation as a boutique ABL shop and, perhaps more importantly, laid the foundation for what was to become our business today.
While Briar Capital has always offered our real estate financing product to other asset-based lenders as an accompaniment to their own working capital offerings, competitors were hesitant to bring us into transactions.
Fearing an introduction to their customers and referral sources could possibly lead to fewer future business opportunities, given our competing accounts receivable and inventory financing product, some ABLs opted to not call us at all. In most cases, it was only when it became clear our real estate financing product was their only option to plug the hole in their transaction that we received a call.
The situation left us with many questions. Could we share the same success lending only against a single asset class? Were there companies that offered financing on a single asset class that traditional asset-based lenders mostly would shy away from? Do those lenders receive calls and referrals from the asset-based lending community because they are viewed as complimentary and not competitive?
Equipment Finance as a Model
Equipment finance companies were the answer and our inspiration. Big Shoulders Capital, Utica LeaseCo, and Nations Equipment Finance are perfect examples of companies within the commercial finance space that leverage their expertise in a single asset class and market to traditional asset-based lending shops.
Would financing only real estate for asset-based borrowers work the same way? If the past six months is any indication, the answer is a resounding “yes.”
No longer viewed as competition, we now receive an overwhelming majority of referrals from asset-based lenders and factors who just over six months ago were our direct competitors. The most surprising aspect of our new business model is that given our long history and well-established relationships, we still receive calls about transactions requiring accounts receivable and inventory finance. This welcomed side effect allows us to reciprocate and refer those opportunities to ABL shops that send business our way.
Making a real estate loan on a working capital borrower’s property can be a significant benefit to the overall transaction. Almost all asset-based borrowers that occupy their own real estate have owned it for several years and, as a result, may have substantial equity in the property.
Our advance against real estate can generate liquidity over and above the borrower’s current loan. This new liquidity can be used for working capital in the borrower’s business or by the partner ABL shop to fill a gap in its refinancing to take out the incumbent asset-based lender. Stress is taken off the borrowing base, and the working capital lender’s excess availability requirement at closing can be also satisfied.
Throughout its history, Briar Capital has done things differently, and our shift to focus exclusively on real estate should come as no surprise. In the short time since our business model change, Briar Capital Real Estate Fund has received numerous referrals from ABL shops across the country who prefer to rely on our expertise and successful track record financing real estate assets.
With our reasonable pricing, long-term amortizations and covenant-free structures, Briar Capital Real Estate fund is well positioned to become the go-to source for real estate financing in the asset-based lending community. •