Learn some insights about ground-up construction projects for residential properties in North Carolina. Rocky Butani, CEO of Lender Link, interviewed Erik Eichinger from i Fund Cities, a direct lender for home builders. Watch the video or read the transcript below.
Rocky Butani:
So let’s talk about North Carolina and ground-up construction projects. Eric, you’re based in North Carolina and it seems like your state’s been kind of the darling of, you know, home building and every lender wants to lend there. There’s been a lot of activity there. What’s happening now in North Carolina? Is it still booming with construction? Has it slowed down from last year? Tell us what’s happening there.
Erik Eichinger:
Absolutely. And thanks again for having me, Rocky. And it’s funny, I’ll start off with a, with a quick story. When you first moved down here, we’re looking at all these markets that might be good for new construction. Where do we want to expand i Fund Cities? And we’ve always been very bullish on the southeast. So Charlotte, let’s choose that. We go down there thinking, you know, Hey, this is a great real estate market. We’ll do a lot of loans, not realizing how extremely competitive is down here, you know, from a lending and funding perspective too. So, you know, with all of the deals and the new construction comes all the money also. So it’s an extremely competitive space that we’re in. I’d say, you know, I was talking to one of our respected investors and developers that we work with often down here in Charlotte yesterday about this. We, it slowed down, obviously the, the pace that we were on was unsustainable, you know what I mean? Back with like the hedge funds buying 50k over, asking before the project was finished, closing three days, all cash, things like that. We’re seeing a correction now, and what I think every investor, developer, and lender is trying to figure out is if we were over here, we pulled really far in this direction back to like, slower market and is it an overcorrection or is that the new normal? Right. And that’s what we’re trying to figure out with our investors and partners down here. I think it’s a healthy market for houses to, you know, sit on the market for a little while, allow multiple showings, have different financing offers. So our houses that used to be selling in four hours are now taking 30 to 60 days. And it’s like, Hey, is this what we need to start underwriting when it comes to holding costs and things like that moving forward? Or is it just everyone’s kind of spooked still and we’re gonna get back and fall into somewhere in between the media? So I’d say in a bubble, yes, it’s slowed down. It’s almost overcorrected too much that I anticipated to come back to the shorter days on market-time period sooner rather than later. It’s just when that actually happens is if someone had the crystal ball, they could tell you.
Rocky Butani:
Nice. And are you seeing any differences in the markets throughout North Carolina? It seems like there’s Charlotte all the way to Raleigh Durham. Are there differences in the different markets within the state?
Erik Eichinger:
There absolutely is. I think Charlotte and Raleigh are very comparable markets when it comes to price points and neighborhoods and gentrifying areas and development and things like that. And then you’ve kind of got the Greensboro and Fayetteville area if you want to just kind of build an imaginary square that are like still early in developments and have great submarkets. But Charlotte, you haven’t lost here in a long time and, and you know what I mean, and people are starting with this slowdown coming. It’s just different price points, Rocky, right? So you have production builders that their strategy is to build in a tertiary market, whether it be Gastonia, Hickory, Statesville and do 50 houses a year at one time or something like that, or do you have the price points and the, we’ll call it like sexy ARV’s in Charlotte areas and Raleigh areas that are you know, the luxury spec that we call it. So it hasn’t changed much outside, like people are still investing here. I we’re still very confident in this area. We love these markets, but it’s been the exit, that’s been changing. It’s been either days on market longer or, you know, renter or build to rent, investors having to sell because they can’t find out a cash flow way exit with interest rates and things like that. So they’re forced to just get their money outta the project, any they can and sell. So that’s been some of the major changes.
Rocky Butani:
And is Charlotte your primary market within the state?
Erik Eichinger:
Charlotte and Raleigh both equally. You know, we’ve got an office in Charlotte and Raleigh, but we love both of those markets.And you know, I’m always in the car, Rocky, so I’m, I’m somewhere different part of the state every other day. I was in Benson, North Carolina two days ago, which is about an hour south in Raleigh. Has a bunch of development going on out there. And I’ll be in Rock Hill, South Carolina after this phone call too. So, but Charlotte and Raleigh is where we have the offices, but as long as it’s not too rural, we can get Bri to approve it. And we’re all over the state. So if you check where we’ve done loans, the map is scattered across North and South Carolina.
Rocky Butani:
Is there a particular area or submarket where you’ve found that you really like lending there? You like the dynamics happening there? And you wanna do more loans there?
Erik Eichinger:
Yeah, Gastonia is a huge market for us. We love its proximity to Charlotte. Salisbury and Statesville we’re big fans of Concord, Kannapolis. Again, these are all areas where people want to live and have backyards and single-family houses and still be close to that Charlotte Metroplex, right? So all of these are 30 minutes from Charlotte in every single different direction. So we love all those markets, but like still closing a loan a day in Charlotte proper, you know what I mean? So there’s still deals to be had in this city. So we’re not shying away from that. And then Raleigh, you’ve got like your North Hills area, which has been, you know, developed, which we like a lot. Smithfield, Clayton and Garner are two suburbs, you know, east of Raleigh that we like a lot. But Gastonia, Hickory, Salisbury, Statesville, Concord and Kannapolis that ring right around Charlotte, we’re very bullish on. And, and we’ll continue to, you know, be very aggressive with our lending out there.
Rocky Butani:
Awesome. And how about the inventory of vacant land? Are your builders finding that it’s fairly easy to pick up land and get them ready for build?
Erik Eichinger:
So that’s the million dollar question. I did wanna bring this up. You know, the price points of the lots has, you know, 300% increased between Covid, where you could pick up a lot in Gastonia for 8,000 to 12,000 two or three years ago. If you’re a member of the Charlotte Facebook real estate group, you’ve got 30 people a day looking for infill city sewer and water ready to go, you know what I mean? So there’s never, competition as an all time high for these lots. So that’s driving price points up, which a lot of our more savvy investors have pivoted. Gotta drop some value and, and some knowledge here for these guys that are looking for these lots tear downs. We’ve been doing a ton of tear downs where we’re, you know, re-entitling, rezoning, finding highest and best use where on a single-family tear down and rebuild. It might not make sense for the numbers, but they’re, you know, getting the zoning codes, right, talking to the county, seeing what they can do and buying single-family houses, tearing them down. And then I’ll do three unit townhouses or small, you know, one to four unit stuff. So we’re doing a ton of those projects where the infill land is just getting pretty expensive to make the numbers work that we’ve just been doing a massive amount of tear downs, re-entitlement, rezoning, and then building, you know, multiple structures to make the price points work.
Rocky Butani:
Cool. And then how about the strategy for mostof your clientsor all of your builders selling the property,or are you finding a bunch of them that are holding them,with a DSCR 30 year loan?
Erik Eichinger:
It depends, you know, every investor’s got a different strategy. I’d say. I alluded to earlier, the build to rent builders are sometimes selling out of necessity, but a lot of the, we’re finding the fix and flips a little bit harder to pencil out. So you’ve got a lot of those. We’re transitioning a lot of borrowers that have extensive fix and flip experience that haven’t done new bills before. We’re able to lend to them for first time ground-up construction given, you know, the loan profile and credit profile makes sense. So those burr fix and flip investors are trying to translate that model into a new build burr strategy. So we’re seeing that on the rental side. But it all depends, you know what I mean? Like a lot of builders have ties with end-home buyer mortgage companies that are offering, you know, fantastic lender credits right now and buy-downs and things like that make a ton of sense to sell. And you’re opening up your buyer pool a lot more. But, I can’t really speak to one set of strategy. We like to actually see multiple exit strategies with our loans here when we do underwriting. So most of the borrowers and investors we take on, we make sure that they’re gonna have two great avenues to exit the property no matter what. So I’d say the biggest transition was some of those build-to-rent builders are selling just to keep the wheels moving and keep projects going. And a lot of those fix and flip burr investors are turning into new construction burr investors.
Rocky Butani:
Tell us about some of the projects you funded in the first, second quarter of 2024. Any particular projects you wanna highlight?
Erik Eichinger:
Yeah, I mean it’s hard to pick 0.1. I think what I’m most proud of and, and our market that we’ve developed down here is the range, right? Like we’re funding the, you know, 200k production starter home in Lexington, North Carolina, which is an hour south of Greensboro, and then we just closed on a $3 million seven unit in downtown Charlotte, right? So I think to me it’s the expansiveness of the products we offer and how because we’re so comfortable in this ground-up space and how we underwrite it, you know we can do that three month build, knock it out, and then that 18 month luxury on Lake Norman or something like that. So that’s something I’m really proud about. But I just say, you know, we just closed a deal where it was right outside of this really growing area and it, I have a personal connection to it. It’s a neighborhood called NoDa, which is short for North of Davidson right outside of Charlotte. And I’d walked by this lot since I moved in for a year and a half, and we’re trying to, you know, connect with the builder who’s doing this, and we ended up closing the loan and it was a $2.4 million loan for seven brand new townhouses coming in the NoDa area, which is just booming right now. And oftentimes when I close loans, I’ll put a funded by I Fund Cities signs. I’ll drive around in my car for that week and close or something. I was able to wake up, eat breakfast and walk over with my sign next door and plop it down. And that’s probably one of the ones I was most proud of and go right back home the next day. So that was a really special project that I’m looking to see. We’ve got some really tight builder connections and developers. Dapper Development is one of our most trusted partners and we love our relationship with them. So I’ll give them a quick shout-out, but they’re putting out some of the nicest luxury projects in Charlotte. So I always love to see how they keep up with the modern design ties while also making it feel homey, if that makes sense. I know that’s a difficult thing to do. So those are some of the highlighted projects we’ve done recently.
Rocky Butani:
Cool. And then for any builders out there that are interested in working with I Fund Cities, could you tell us how you typically structure deals or what are the requirements that you have to work with builders?
Erik Eichinger:
Right. So our bread and butter is vertical construction, right? So we don’t play too much in the land development space, so where we love to come in as we love to see projects that you’ve, you know, added value to, whether that was through land development as rezoning that I talked about earlier, and being able to give cash back at closing in addition to funding a hundred percent of the vertical construction. So if you’ve got projects where maybe you’ve got a different financing partner or something on the acquisition and development side, you won’t find a better fit to take your vertical than us. So that’s kind of the message that I like to put out there. Also just our network here down in Charlotte, you know what I mean? I like to be someone that’s something they just don’t call for money. I’m a second set of eyes on underwriting a deal. I’ve got, you know, hundreds of wholesale partnerships with land brokers that I’m able to piece people together. Hey, you’ve got some land I know who buys there. Hey, you need a good plumbing guy, yours is out sick for the week. Let me send over this guy that you use. So I think just the ecosystem and network we’ve built down here is second to none. And you know, for those builders that are looking out that want a true partnership, I wanna be clear, we’re looking for a partnership, right? We’re not looking directly for a transactional lender client type of, you know, that kind of thing. We wanna be partners with you and I want to be able to go out and visit the job site. I want to, you know, meet the team and the crews and stuff like that. So for anyone that’s looking for that kind of like family style partnership where we’re right there with you that, that’s our best fit.
Rocky Butani:
Nice. And you mentioned something about giving the builder cash back or cash out when you fund the loan. Could you elaborate on that a little bit?
Erik Eichinger:
I will. This is definitely a whiteboard exercise, so maybe there’ll be a part two of this rocky when we do it. But think about it this way. If you buy a lot for a hundred thousand dollars and simply subdivide it, most lending and banking institutions are just gonna say that your lot’s worth 50K, right? You bought it for a hundred, you got two out of it. We don’t believe that at I Fund Cities, we believe by taking it through entitlement, getting it rezoning, adding density, forcing that appreciation and making new like shovel-ready lots. We actually like basically reappraise the land. And those lots might each be worth a 100K after that. You know what I mean? So that’s a way to recapture all of your equity that you put into the purchase price of the lot in development. You did fund that back to you at closing to go run pursuit on another set of lots and then fund a hundred percent of your vertical. So again, easier sometimes with marker and whiteboard but basically just if you are adding value to your land, we’re more than willing to you know, recoup you for that.
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