In Episode 33 of Private Lending Insights, host Rocky Butani speaks with Boris Dorfman, fund manager and partner at LBC Capital, about the state of private lending and real estate investing in 2026. The conversation explores why transaction volume has slowed in 2026, how elevated interest rates are affecting residential and commercial real estate, and how private lenders are adapting their underwriting and lending strategies. They also discuss LBC Capital’s lending activity in 2026, geographic expansion beyond California, leverage and credit requirements, construction completion financing, second mortgages, and the evolution of the company and its mortgage fund.
Watch short clips from this interview
Interview Summary
A Slower Real Estate and Private Lending Market
Dorfman describes a real estate market where the primary problem is not necessarily falling values or widespread defaults, but a lack of transactions. He attributes the slowdown to several factors, including elevated interest rates, political and economic uncertainty, competition from non-QM lending, and tighter economics for real estate investors.
For private lenders, that environment means generating business requires more effort. Dorfman says lenders may need to spend more on marketing, compete more aggressively, and occasionally become more flexible either on pricing or lending guidelines—but not necessarily both at the same time.
One issue affecting commercial real estate is the relationship between capitalization rates and interest rates. Dorfman notes that cap rates have not always moved upward proportionately with borrowing costs. Sellers may still expect pricing based on lower cap rates, while buyers want higher cap rates to compensate for today’s financing costs.
At the same time, many investors had anticipated that inflation would subside and interest rates would decline. With that adjustment taking longer than expected, uncertainty has become an important factor in investment decisions.
Dorfman does not expect that uncertainty to disappear quickly. At the time of the interview, he said he did not expect much certainty over the following 12 months and viewed interest rates as one of the biggest factors determining when real estate transaction volume could improve.
The Lock-In Effect in Residential Real Estate
The residential market faces an additional constraint: many homeowners still have mortgages with rates around 3% or 4%.
Even homeowners who can afford to move may hesitate to replace a low-rate mortgage with financing at substantially higher rates. Some affluent property owners may instead purchase another property while retaining the existing home as a rental, particularly when the economics of the low-rate mortgage are attractive.
Dorfman believes those legacy mortgages will need time to cycle through the market before residential activity fully normalizes.
Commercial real estate is somewhat different because many commercial loans have five- or seven-year structures that eventually mature or adjust. Nevertheless, higher financing costs continue to affect valuations, leverage, and transaction economics.
Commercial Real Estate and California’s Regulatory Environment
Dorfman sees commercial real estate becoming increasingly dependent on asset quality and location. Rather than capital flowing broadly across property types, investors are returning to fundamentals, particularly location.
He points to office properties as an example. After significant distress in the office sector, investors can now evaluate specific locations and opportunities with greater clarity. That does not necessarily mean transaction volume has returned to previous levels.
California presents additional challenges. Dorfman believes increasing tenant protections and other regulatory changes have made owning investment real estate less attractive for some landlords, particularly in Los Angeles County.
In his view, some long-time California investors are considering gradually reducing their exposure and moving capital into other asset classes or geographic markets. However, he has not seen this translate into a sudden wave of property sales. Owners with large portfolios may divest gradually, and they still have to determine where to reinvest the proceeds.
Better Borrower Quality in Today’s Market
One positive trend Dorfman sees is an improvement in borrower quality.
When real estate prices were rising rapidly and investment margins were wider, relatively inexperienced investors could enter development or fix-and-flip projects and still make money. Today’s tighter margins make that considerably more difficult.
As a result, LBC Capital is seeing borrowers with stronger experience, expertise, and credit profiles. Dorfman emphasized that construction experience alone does not necessarily make someone an experienced developer; development requires a different skill set that extends beyond the physical construction of a project.
For LBC, borrower quality has become an increasingly important part of underwriting.
Private Lenders Are Becoming More Flexible With Extensions
Another notable change is the reduced urgency surrounding many transactions.
During highly competitive periods, borrowers might have faced multiple offers on a property and very little flexibility on closing deadlines. Today, buyers may be able to negotiate longer extensions and have more time to pursue alternative financing.
Dorfman also sees some lenders becoming more accommodating when existing loans mature. With lenders holding substantial amounts of capital and fewer new transactions available, paying off a performing loan creates another problem: the lender has to redeploy the money.
That can create an incentive to extend an existing borrower rather than force a payoff.
LBC has encountered situations where it issued an LOI to refinance a borrower facing pressure from an existing lender, only for that lender to reconsider after seeing that the borrower had another financing option. The existing lender then offered an extension instead.
Dorfman cautions borrowers against assuming this flexibility will last indefinitely or building a business strategy around repeatedly extending short-term debt.
What LBC Capital Is Financing in California
LBC Capital remains active despite the slower market. Dorfman described several types of transactions the company has recently considered or funded, including:
- First and second mortgages
- Owner-user commercial properties
- Commercial refinances
- Construction completion loans
- Acquisition financing
- Multifamily properties
- Situations involving maturing or adjusting bank loans
One example on his desk at the time of the interview was a roughly $150,000 second mortgage for an investor selling a condominium who wanted short-term liquidity before completing a 1031 exchange.
LBC has also financed construction completion on high-end residential projects. Dorfman stresses that the company is not attempting to compete with large construction lenders on full ground-up construction financing. Instead, LBC prefers projects that are substantially complete and where the developer has already invested significant equity.
He generally wants a construction completion project to be weather-tight and relatively close to completion, sometimes with only a few months of work remaining.
Distressed Development Deals and Excessive Leverage
Dorfman expressed considerable caution toward development projects that began with very high leverage.
He sees borrowers who financed 80% or 90% of a residential development or rehabilitation project and later encounter problems with their existing lender, construction draws, or project economics.
By contrast, LBC is more comfortable with developers who have already invested several million dollars of their own capital and brought a project to an advanced stage before seeking bridge financing.
The distinction is important because LBC views construction completion primarily as a short-term bridge rather than traditional construction lending.
Lending Beyond California
LBC Capital has expanded geographically as the firm has grown. Dorfman says diversification and differing regulatory environments are among the reasons California lenders increasingly look outside their home state.
LBC’s largest concentration outside California is Florida. The company also does meaningful business in Texas and has boots on the ground in the Carolinas.
Other markets discussed during the interview include:
- Tennessee
- Washington
- Washington, D.C.
- Colorado
- Utah
- Illinois
Dorfman is particularly positive about the Carolinas, Tennessee, and parts of Florida such as Tampa and Sarasota.
LBC recently financed a 64-unit multifamily property in Chicago despite Dorfman’s historical reluctance to lend in Illinois. The building had established rents and several years of operating history, making the transaction compelling enough to consider despite concerns about the state’s lender environment.
The firm has also financed properties in Georgetown in Washington, D.C., including an unusual mortuary property. Dorfman initially rejected the deal based on the property type, but reconsidered after evaluating its prime location, newly constructed building, established business history, and alternative uses.
More Conservative Underwriting Outside California
LBC does not apply identical underwriting standards in every state.
Dorfman is generally more conservative outside California, where he has less familiarity with local markets. He said LBC typically reduces its maximum LTV by approximately 5 to 10 percentage points outside California.
He is also less likely to finance construction completion or second mortgages outside the state and prefers to see stronger property cash flow.
Borrower quality can offset some concerns. For example, LBC financed a contractor showroom and warehouse in Sarasota relatively aggressively because the borrower had multiple locations and a strong profile.
Dorfman’s philosophy is that problems ultimately come from people rather than the real estate itself, making the sponsor an important part of the credit decision.
Current Leverage Guidelines
LBC’s leverage varies substantially based on location, transaction type, borrower quality, and cash flow.
Dorfman described the following general parameters:
- California purchases: Up to approximately 75% LTV for strong transactions.
- California refinances: Generally up to approximately 65%–70% LTV, depending on the situation and location.
- Owner-user commercial refinances: Approximately 60%–65% LTV, although Dorfman said he is more comfortable around 50%.
- Out-of-state loans: Generally 5–10 percentage points lower in LTV than comparable California transactions.
- Second mortgages: Approximately 60%–65% combined LTV.
- Construction completion: Approximately 50% of current as-is value in the scenarios discussed.
For refinance transactions, Dorfman generally does not want borrowers taking additional cash out merely because equity is available. He prefers borrowers to contribute enough money to cover closing costs and focuses heavily on whether the proposed exit strategy is realistic.
LBC tries to underwrite the exit internally rather than simply accepting a borrower’s statement that the property will eventually be sold or refinanced.
Construction Completion and As-Is Value
LBC takes a particularly conservative approach to construction completion.
Rather than focusing primarily on projected ARV, Dorfman evaluates what the property could be sold for in its current condition if LBC had to take control immediately.
His approach is essentially to determine what the property could realistically bring if it had to be marketed and sold very quickly in its current condition.
That approach is one reason LBC typically enters projects relatively late in the construction cycle. The company does not want to manage an entire construction process and generally wants the remaining work limited enough that the borrower can reach completion within a short period.
The final construction draw may be tied to receiving the certificate of occupancy.
Second Mortgages
Second mortgages remain a meaningful part of LBC’s business.
The firm will generally consider seconds up to approximately 60%–65% combined LTV, but Dorfman said LBC will not go behind another hard money lender. The first mortgage generally needs to be institutional financing.
LBC also considers business-purpose second mortgages on owner-occupied properties, an area that some private lenders avoid.
Dorfman views a properly structured second mortgage as a useful bridge product. A business owner, for example, might need short-term working capital or inventory financing while having substantial equity tied up in real estate.
Credit Requirements
Credit quality matters to LBC even when the loan has substantial equity protection.
Dorfman generally likes to see FICO scores in the 640–660 range or higher, although lower-leverage transactions can justify exceptions.
More importantly, he reviews the history behind the score. A temporary credit event can be very different from a long-term pattern of failing to meet financial obligations.
Even at very low LTVs, Dorfman can be reluctant to lend to borrowers whose credit history demonstrates a persistent pattern of nonpayment.
Loan Amounts and LBC’s Sweet Spot
LBC’s average loan is approximately $1 million.
The firm does not have a strict minimum, although Dorfman generally prefers not to originate loans below approximately $150,000. Relationships can justify smaller transactions because a broker or borrower bringing a small deal today may bring a much larger opportunity later.
LBC’s preferred range is approximately:
- $500,000 to $5 million: Primary sweet spot
- Approximately $1 million: Current average loan size
- $5 million: A size Dorfman said he is very comfortable funding
- $6–$7 million: Larger transactions LBC has completed
- Above that range: Potentially possible by assembling additional capital alongside LBC’s own funds
Luxury Residential Real Estate in Los Angeles
Dorfman also discussed the challenges of valuing ultra-luxury homes in Beverly Hills and Bel Air.
For these properties, he relies heavily on local real estate professionals with detailed knowledge of specific neighborhoods rather than relying exclusively on traditional appraisals.
As a general rule of thumb, Dorfman has historically viewed approximately $1,500 per square foot as a reasonable upper-end valuation benchmark for many high-end properties, although certain homes can reach higher figures depending on layout, views, and other factors.
Construction quality is also critical. A developer cannot begin a project with true luxury finishes and then reduce quality midway through construction simply because costs have increased.
LBC recently financed the acquisition of a high-end property where a bank had lost the project during construction and LBC’s client purchased it at a significant discount. The planned exit from LBC’s acquisition financing was a construction loan.
The Evolution of LBC Capital
Dorfman’s path into private lending began in 2003.
He initially worked as an analyst for a real estate developer and later obtained his real estate broker’s license. The business started in conventional mortgage brokerage rather than hard money lending.
The 2008 financial crisis changed the company’s direction. As conventional mortgage lending became subject to new regulations, audits, and repurchase requirements, Dorfman and his partners began making small hard money loans using their own balance sheet.
Early transactions included relatively small construction completion and real estate loans, such as $90,000 or $300,000 financings.
The progression was roughly:
- 2003: Entered conventional mortgage lending.
- 2008: Began making hard money loans from the company’s balance sheet.
- 2011: Established a mortgage fund, initially pooling internal capital and raising money from friends and family.
- Around 2015–2016: Began focusing more heavily on growing the private lending business.
- More recently: Added leverage and expanded lending into additional states.
LBC Capital Today
Dorfman operates LBC Capital with two business partners, Alex and Vladimir. He described an organization of approximately 15 people, excluding some outsourced resources.
The operation includes loan originators, underwriters, processing, compliance, marketing, and support functions. Dorfman emphasized that LBC is heavily focused on systems and also has an in-house architect.
The mortgage fund established in 2011 has grown to approximately $100 million under management.
Dorfman said the fund pays approximately 8% annually, with an additional 0.5% for investments of $1 million or more. He characterized the strategy as focused more on capital preservation and income than opportunistic returns.
Key Takeaways
- Real estate transaction volume has slowed considerably even without a widespread collapse in property values or defaults.
- Elevated interest rates, uncertainty, and tighter investment margins are making both investors and lenders more selective.
- LBC is seeing stronger borrower quality as inexperienced investors have become less active in today’s more difficult market.
- Lenders may currently have greater incentive to extend performing loans because replacing paid-off loans is harder in a low-volume environment.
- LBC generally lends up to approximately 75% LTV on strong California purchases but takes a more conservative approach to refinances and out-of-state transactions.
- Borrower credit, experience, location, cash flow, and a realistic exit strategy all play significant roles in LBC’s underwriting.
- LBC’s preferred loan size is approximately $500,000 to $5 million, with an average loan of around $1 million.
- LBC has expanded beyond California, with Florida representing its largest concentration outside the state and additional activity in Texas and the Carolinas.
