| The ongoing credit crisis has made it much more | | | | interest rates and origination points than a bank or Wall |
| difficult for investors to qualify for an institutionally | | | | Street broker would. Further, hedge funds will be very |
| funded (bank, broker, insurance company) commercial | | | | aggressive in foreclosure situations; they will take your |
| mortgage loan. Underwriting standards have become | | | | property if you fail to perform. |
| significantly tougher and loan parameters have | | | | Funds and private lenders that we work with are |
| tightened. Very few deals are being accepted by the | | | | currently charging 10%-15% annual interest with 3-4 |
| banks, and even fewer are actually closing. | | | | points. This means that borrowers can expect to pay |
| Many good loans that should receive financing are | | | | a 13%-19% APR. On top of that, borrowers are |
| being rejected out-of-hand. We call this situation the | | | | responsible for the cost of any third party reports that |
| "funding gap." | | | | may be required such as appraisals, environmental |
| Recently many hedge funds and private equity | | | | assessments and feasibility reports. |
| companies have recognized that opportunity exists for | | | | On the positive side, there is capital available for these |
| firms that can help fill the funding gap by offering | | | | private commercial mortgage loans and deals can be |
| private commercial mortgages to quality borrowers | | | | closed very quickly. Most funds prefer income |
| who have been shut out by their banks. Over the last | | | | producing, investor owned commercial buildings like |
| 18 months money managers have committed | | | | apartment complexes, office buildings or self storage |
| hundreds of millions of dollars to the commercial real | | | | facilities. They will generally lend up-to 65% of a |
| estate finance sector. They are buying distressed | | | | properties value and underwriting is equity based not |
| mortgage paper directly from troubled lenders and | | | | credit driven. They will lend for both purchase and |
| they are very willing to write new loans against | | | | refinance, but private loans are "bridge" loans and a |
| commercial buildings and development projects. | | | | viable, realistic exit strategy needs to be in-place. |
| But before commercial real estate investors seek a | | | | In-other-words they will need to know exactly how |
| loan from a hedge fund or other private lender there | | | | they are going to be paid back. |
| are some important things they should know. | | | | This credit squeeze has been devastating to the |
| Private commercial mortgage lenders are opportunistic | | | | commercial real estate industry and the problems are |
| investors; a hedge fund is in business to earn high | | | | not going away. As we all wait for the situation to |
| returns for its investors in a timely and efficient manner. | | | | improve private lenders, including Wall Street hedge |
| The loans they offer will be short term in nature (rarely | | | | funds and private equity firms, have cash and are |
| more than 36 months) and will carry significantly higher | | | | willing to lend it. |