September 21, 2014 at 3:00 AM
Triple Play is a weekly NJBIZ feature that asks top executives in New Jersey to talk about three things related to their industry.
Billy Procida, the CEO at Procida Funding, has been a leader in the real estate market for more than 30 years, building more than $1 billion dollars in projects and financing more than $2 billion dollars.
We asked him to define what we’re doing when we finance real estate.
1. A loan is just another name for “strike price.” If I finance your real estate, I’m really just saying that I am willing to own it for the initial amount that I provided. You get to utilize the property, but I hold a lien against it, so you don’t really own it.
2. As a middle-market lender, I make more originating debt than I do servicing it. After the loan is originated, its value is a function of the interest rate the borrower is charged and its value is immediately commoditized against other lending vehicles, such as the prime rate.
3. My loans allow borrowers to quickly add significant value to properties so they can conventionally finance with banks. Banks used to do the same, but now they only look for secure cash flow. Banks are averse to the excitement of creating value because it entails risk that regulators prohibit. For basic commercial real estate development to occur, the essential step is for financial institutions to put money in the hands of entrepreneurs. The real estate community could save America, if only banks were encouraged to fund worthy projects — we’re approached with three to four times the amount of deals than we have the capital to fund.