| The health of the economy has improved over the | | | | lending. Privately funded, often called "hard money" |
| last several months. Technically speaking the recession | | | | commercial mortgage loans are funded by private |
| may be over; we may be growing GDP (gross | | | | individuals or privately held companies. |
| domestic product) once again. But, unfortunately, the | | | | These unique lenders often hold the loans they write in |
| credit crunch continues. | | | | their own portfolios rather than sell them to the |
| Many banks are very worried about further | | | | secondary mortgage bond market. Private lenders are |
| deterioration commercial real estate values and | | | | not regulated by the State or Federal Government so |
| growing commercial mortgage delinquencies. They | | | | they enjoy much more flexibility and can fund loans |
| fear that more large percentage write downs of their | | | | much faster than banks can. Multi-million dollar loans |
| CRE portfolios may be necessary threatening their | | | | can close in less than 10 days if the deal works for the |
| statutory solvency. Banks on the edge are very wary | | | | hard money lender. |
| about lending. | | | | The downside to private lending is that rates and |
| Other banks, even healthy ones, along with insurance | | | | points are significantly higher than bank interest rates |
| companies are sitting on their capital as they await the | | | | and that much more equity is requires. Private loans |
| coming wave of new regulations out of Washington. | | | | almost always top 10% with at least 3 origination points |
| Regulators are enforcing current rules more strictly | | | | and loan-to-value ratios rarely exceed 65%. |
| than ever while promising even tougher lending laws | | | | The credit crisis has caused many good loans to be |
| are on the way. Lenders won't lend in earnest until | | | | rejected by banks. Further, falling property values |
| they understand what the regulatory environment is | | | | make it even more difficult to qualify for traditional |
| going to look like. While the administration encourages | | | | financing. Hard money lenders are often able to fund |
| lending with their words they are discouraging it with | | | | deals that banks are being forced to turn away. |
| their heavy handed actions. | | | | Private lending has become a vital part of commercial |
| The traditional, money center lenders just aren't lending | | | | real estate finance. |
| the way they should be. The commercial mortgage | | | | Private lenders tend to make short term "bridge" loans |
| backed securities (CMBS) markets, formally a huge | | | | that run for 12-36 months. Payments are usually |
| provider of liquidity, are, likewise, dysfunctional. We are | | | | interest only and are sometimes held in reserve to |
| still in the midst of a serious credit crisis. | | | | guarantee payment. For some commercial real estate |
| Eventually the credit mess will be sorted out. The new | | | | property owners this bridge loan is just what they |
| regulations will be negotiated down to manageability | | | | need to fix their credit situation or simply wait out the |
| and, as the economy continues to get better; lending | | | | credit squeeze. |
| will again become a profitable enterprise for banks, | | | | Borrowers would rather get a nice, low interest bank |
| Hartford insurance concerns and Wall Street | | | | loan with good terms and conditions, but that kind of |
| investment houses. But what does a commercial real | | | | financing is just not readily available today. Private |
| estate investor do in the mean-time? | | | | lending is now main-stream finance and, for many |
| For many borrowers the answer has been private | | | | struggling investors, may be the only-game-in-town. |