Pat Vassar, Ignite Funding’s Director of Underwriting, has over 15 years of experience in real estate analysis and underwriting. Most of that time has been dedicated to identifying quality borrowing entities and underwriting real estate development projects in regions like Ignite Funding’s hometown, the Las Vegas Valley.
Since 2011, Mr. Vassar has helped Ignite Funding garner respect as a timely and dependable lender in the Vegas Valley. This has put Ignite Funding in a position to work with various notable developers on a regular basis, including Harmony Homes, Blue Heron, Edward Homes, and Dapper Companies. To date, Ignite Funding has financed over 550 real estate investments funded with over $400 million in investor capital in Nevada alone.
Today we share an exclusive interview with Mr. Vassar where he provides his outlook on real estate development and trends he is seeing in financing throughout the U.S and the Vegas Valley.
Q: Are we seeing an impact on financing real estate development due to increased inflation and interest rates?
A: While the inflation rate is extremely high and the Fed continues to raise interest rates, in theory, this would increase borrowing costs. However, in practice we are not seeing this have any effect on the rates for commercial lending, yet. Developers that are looking for financing can still find affordable rates. That’s why we haven’t seen a dramatic shift in developers slowing down on the acquisition, horizontal development, or construction side of things.
Q: What segments of the real estate market are being impacted by increased inflation and interest rates?
A: The segment of real estate market that has really been hampered is the residential market for entry-level housing and the major construction projects, which is anything over $200 million dollars.
The entry-level homebuyer is very rate sensitive because they must be able to afford the monthly payment. They are also affected by increasing house prices. When rates and/or housing prices go up, it is no longer affordable for the entry-level homebuyer to finance a home.
If we see another .5% increase in the interest rates or another 5% increase in home prices on a national level, we will be at the most unaffordable home price on record in U.S. history that we know of since they didn’t start tracking these statistics until around the 1950s.
On the other end of the spectrum, the higher-end or luxury home market has been minimally affected because those homebuyers are less reliant on financing and can typically purchase with cash.
Q: How have these trends affected Ignite Funding’s lending strategy throughout the Western U.S., including the Las Vegas Valley?
A: We foresee that these impacts to the entry-level homebuyer are not going to be alleviated anytime soon, which has led us to not lend as much or at all to entry-level homebuilders. These obstacles are going to be a very hard hill for them to overcome and unfortunately there are some rough waters ahead for those builders.
This has caused us to increase our shift away from residential home development to commercial development projects.
Q: How does Ignite Funding maintain its competitive edge in financing projects for reputable borrowers?
A: Ignite Funding looks to position itself in markets that don’t have as much capital available from both traditional bank and private lender financing. This gap in capital is for the types of projects that those lenders view as more speculative assets, like undervalued retail/industrial centers or land acquisition and horizontal development because they are so far removed from the finished product.
We believe that this is creating a real niche in the market for lenders like Ignite Funding and is why we have been shifting into the commercial project type. This is why you have seen Ignite Funding get involved in financing projects like the acquisition of the Huntridge Theater or the construction of a new retail center on the corner of Centennial and Durango by Dapper Companies. We are funding projects for the zoning of a new industrial center in “West Henderson” with borrowers that have been essential in shaping the Las Vegas Valley for the past 20 years with their prowess in land acquisition and understanding what’s needed for our city to continue to thrive.
Despite what we see trending with the residential market, there has not been a huge influx of lenders seeking out this niche market like Ignite Funding. That is not to say we are the only ones doing it, but the main competition, other private and hard lenders, tend to be much more rigid than we are. We are very dynamic and forward thinking when it comes to where we are deploying every additional dollar. This makes us one of the nimblest lenders, the ability to move into different asset classes with what we see coming.
Q: Are we still seeing a large influx of people moving to the Vegas Valley despite rising home prices and interest rates?
A: Absolutely. The home price that we have seen locally is not much different than what we are seeing nationally. What it really comes down to is supply and demand, and how it affects price. We are currently experiencing an imbalance - less supply of homes and the same, if not more demand. If you look at the active listings and compare it to a two to three years ago, you will see that inventory is down dramatically.
Typically, what the real estate market considers to be equilibrium is 4 – 6 months of inventory. For example, if you have 10,000 buyers every month, that means you want to have 40,000 to 60,000 worth of active inventory ready to go, which would be 4 – 6 months’ worth of inventory. For the past year, we have only had 2 months’ worth of inventory, while experiencing the same demand which is causing the home prices to continue its climb-up.
Once we get back to that equilibrium of inventory, then we will see fewer big fluctuations in price than we have over the past year. Over the past 3 months, we are already seeing month-over-month increases in inventory.
Check to see if we are funding a project in your local area! Ignite Funding releases several new available investments on a monthly basis so clients can easily implement portfolio diversification into their strategy. If you’re interested in learning more, text “Investments” to 844-552-7022 to schedule a 15-minute no obligation consultation.