Why Raw Land Is Experiencing a Liquidity Freeze and How Private Lenders Are Filling the Gap
Banks Pull Back as Land Becomes Harder to Underwrite
Ask any commercial loan officer working in California right now and they will tell you the same thing. Raw land has gone from a niche financing request to one of the most difficult categories to place. Deals that would have sailed through a few years ago are now sitting in limbo as banks and credit unions quietly pull back from land lending. What used to be an occasional exception has become a pattern. Committees are passing on deals that pencil. Borrowers who have long standing relationships are being turned away. And land values in coastal markets are being reevaluated in real time.
The shift is not imaginary. It is the result of a combination of factors that have collided all at once. Rising insurance costs, updated fire zone maps, environmental review delays, and longer entitlement timelines have made raw land far more unpredictable. Even when the borrower is experienced and well capitalized, the land itself carries risks that banks are increasingly unwilling to take. As a loan officer, you have probably felt this change firsthand. Submissions that would have once earned a quick green light now hit friction before they ever reach committee.
Coastal Markets Face the Sharpest Repricing
The problem is especially pronounced in coastal counties. Markets like San Diego, Orange County, Ventura, Santa Cruz, Sonoma, and the coastal pockets of Los Angeles are seeing a heavy repricing. Coastal land carries political risk, environmental sensitivity, and in many cases, complicated paths to final approval. With regulators emphasizing concentration risk and stress testing, many banks have chosen to sidestep land altogether. Land loans are being treated as luxury assets rather than core commercial credits. For borrowers, that shift feels sudden. For loan officers, it creates daily challenges as you look for solutions that do not put your client relationship at risk.
What often gets overlooked is how the liquidity freeze is altering behavior on both sides of the table. Developers with strong balance sheets are pausing acquisitions because they cannot secure predictable financing. Smaller builders who rely on leverage are being pushed out entirely. At the same time, sellers are clinging to pre 2022 pricing even as the market has already reset. The result is a widening gap between what buyers can pay and what lenders are willing to support. That gap is at the heart of today’s repricing.
Private Lenders Step In Where Institutions Cannot
This is where private lenders have become essential to the market. They are stepping into a space that traditional lenders have vacated, not because the deals lack merit, but because the risk profile no longer fits the constraints of regulated institutions. Private lenders can move quickly, structure around the real risk, and price the loan in a way that allows the deal to progress rather than stall. For many loan officers, this is no longer a secondary option. It is the only viable path for keeping the transaction alive.
What makes private capital effective right now is its flexibility. A bank may see an unentitled parcel as too speculative. A private lender can evaluate it based on the buyer’s track record, the path to entitlements, the zoning potential, and the current demand within that specific municipality. If a borrower needs a short-term bridge to secure the site while entitlements advance, private lenders can structure interest only loans that provide breathing room. If the buyer needs time to navigate coastal commission requirements or updated environmental conditions, private capital can stand in until the project is ready for conventional financing.
Why Loan Officers Must Leverage Private Capital to Preserve Relationships
Commercial loan officers understand better than anyone how important timing is for land transactions. A seller’s patience only lasts so long. Option periods expire. Competing buyers appear. When a file sits in underwriting for too long or gets pushed back for repeated reevaluation, the opportunity can evaporate. Partnering with a private lender who understands California’s land dynamics lets you offer a solution that protects your client relationship and positions you as the professional who can still deliver even when the bank cannot.
There is another reason private lenders have become critical. Entitlement windows in California have lengthened. Fire zone evaluations take longer. Infrastructure requirements have increased. Municipal approval pipelines are crowded. A borrower who needs a three-to-five-year window to move through the process may not fit inside a bank’s appetite, even if the project is strong and the borrower is experienced. Private lenders can design structures that reflect the project’s real timeline rather than forcing it inside a conventional credit box that was not built for land today.
For loan officers, incorporating private capital strategically is more than a workaround. It is a way to preserve trust with your clients during a period when banking regulations are limiting your ability to say yes. Developers and investors remember who solved problems for them during difficult cycles. They remember who offered a path forward instead of a hard stop. When the market normalizes, those relationships return stronger and more loyal.
The repricing of coastal California land is not a temporary blip. It is a recalibration driven by real changes in cost, risk, and regulation. As long as those pressures continue, raw land will remain one of the toughest asset classes for banks and credit unions to finance. That does not mean deals cannot be done. It simply means they need the right capital structure at the right stage.
Private lenders are filling the gap because the market needs them. They are giving borrowers the ability to acquire land, advance entitlements, and keep projects moving when institutional credit has stepped back. For commercial loan officers, understanding how and when to bring in private capital has become an essential part of serving clients in today’s environment.
Being the one who can still deliver in a frozen credit segment is powerful. It protects your relationships, strengthens your reputation, and positions you as a leader who understands both the pressures your bank faces and the opportunities your borrowers still want to pursue.