Spring Garden Lending, the provider of bridge financing to local real estate developers led by former Valley Green Bank CEO Jay Goldstein, has raised nearly $5 million more from its original investors in a second round of funding that will allow the company to increase its work.
Formed in 2016, Spring Garden Lending initially raised $15 million in equity. Investors had a right to put more money into the business and they did in the form of $4.85 million — paying a 20% premium over the original purchase price. Goldstein said the company had almost 100% participation.
The raise leaves Spring Garden with about $20 million in total equity and will allow the company to expand its lending. Spring Garden has a credit facility for projects in Pennsylvania with OceanFirst Bank and similar ones in the Baltimore and Washington markets.
“This allows us to increase borrowing capacity, which means we can increase lending capacity in all of our markets,” Goldstein said. “We won’t necessarily be doing larger loans. We are not as concerned about the size of the loan but the number of loans.”
In Philadelphia, loan size can expand to $3 million, though Goldstein said the average is about $300,000. The average sized deal in Baltimore is slightly lower at $200,000 but in Washington, where real estate is much more expensive, that average is $750,000.
Once the projects are completed, borrowers either sell or rent the properties. Most local projects are in growing city neighborhoods like Fishtown, Fairmount, Brewerytown and Passyunk.
When Philadelphia construction projects stopped in April and May because of the Covid-19 pandemic, Spring Garden was forced to rely on its Baltimore and Washington markets that did not have such restrictions. As projects resumed in June, pricing for residential real estate hit historically high prices, despite the extraordinary low interest rates created by the pandemic.
“Buyers don’t look so much at the actual price but rather the monthly expense,” Goldstein said. “And that has been reasonable because of the low rates.”
Goldstein said loan volume is almost at pre-pandemic levels in Philadelphia and above that in Baltimore and Washington. He said Covid-19 had a short-term impact on business but long-term impact will depend on the length and severity of the pandemic moving forward.
Headquartered at 9th and Spring Garden streets in Philadelphia, the company caters to local developers who need short lead-times to take advantage of investment opportunities but do not want to turn to expensive non-bank lenders. Spring Garden Lending creates its profit by charging about 9% interest — higher than the 4% to 6% charged by banks, though much lower than the 12% to 15% at alternative lenders.
It expanded into Baltimore in 2018, Washington, D.C., in 2019 and Lancaster earlier this year.
Spring Garden Lending originated about $75 million in loans last year, and Goldstein expects that number to be between $100 million and $125 million in 2020. The company has earned roughly $1.5 million each in 2018 and 2019, and Goldstein said it will be profitable once again despite Covid-19.
“During difficult times like this, traditional bank lenders tend to pull back,” Goldstein said. “We will be in a position to continue to grow.”