Since 2007, Don Faye, a 30-year industry veteran, has been a partner with Sunwood & Associates, a San Diego-based firm that specializes in acquiring real estate. He’s been buying distressed subdivisions—“smaller deals, under $10 million,” he says—with plans to sit on them until market conditions improve.
What Faye has noticed, though, is that a lot of other private equity and investment firms are doing the same thing. So last July, he launched Presidio Residential Capital, a construction lending company that focuses on providing short-term financing to builders in the western United States to complete projects.
On Oct. 30, Presidio closed its first deal when it agreed to provide $11 million to Cornerstone Communities to build out 45 homes at Cornerstone’s Andorra neighborhood in Chula Vista, Calif. Faye says Presidio should close its next deal by the end of this year or in early January. He wouldn’t provide details except to say that the loan would be either a little larger or smaller than Cornerstone’s.
Faye, whose background includes stints in the savings and loan sector, as well as being a senior vice president with The Corky McMillin Companies, sees an 18- to 30-month window of opportunity for Presidio to make loans before banks start getting back into the picture again as lenders. During this period, Presidio’s goal is to fund at least $250 million in construction loans.
“We’re looking for opportunities in Texas and [the] West,” Faye tells BUILDER. “I want people to start building again, and if I can help that a little bit, I will.”
Presidio, he says, is looking to work with “quality individuals or companies that are in need of money, but don’t have the capacity to offer personal guarantees.” (He said he’s known the principals at Cornerstone for many years.) The loans Presidio wants to make would be for a minimum of $10 million that would in the form of a two-year revolver with extension options. While the loans will be non-recourse, they will be made as a first trust deed with a maximum loan-to-cost ratio of 75%.
Faye says he used his own money to get Presidio’s operations off the ground, and his lending capital is coming from a “boutique” hedge fund with which he’s been doing business for many years. (Faye says he is prohibited under a confidentiality agreement from disclosing the name of the fund. He notes, however, that this arrangement is beneficial because it “allows for quick decision-making.”)
While he’s wary of seeking too much publicity for Presidio, for fear that other non-bank firms will jump into AD&C financing, too, Faye notes that the competition remains relatively light so far because “lending is not an easy business. You have to know what you’re doing, funding the loan, doing the draws, arranging for the inspectors.”
He also thinks that “everyone is still a bit nervous” about the housing market, and with good reason. “I’m not seeing an uptick in the business,” says Faye, who continues to buy distressed assets through Sunwood. He observes that most of the people purchasing foreclosed homes “aren’t living in them; they are other investors.”
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: San Diego, CA.