Private Commercial Mortgage Lenders are Thriving During Credit Crunch

Today, it’s not hard to find a good deal in commercial real estate; the hard part is getting the deal financed. And securing a commercial mortgage is even more difficult for newer or younger investors.

Traditional funding sources such as banks, Wall Street brokers and Hartford insurance companies have largely taken themselves out of the lending picture. In simple terms; banks just are not lending they way they should be. And any loans they are making are being underwritten much more conservatively. Loan-to-value ratios are much higher and lending parameters are much tighter.

Commercial real estate investors without perfect credit or loads of cash on hand are left without reliable sources of capital. Thousands of good borrowers with excellent loan proposals have been rejected by their regular lenders and are desperately seeking funding.

For a growing number of these frustrated borrowers the answer is private commercial mortgage lenders, often called “hard money” lenders. Private commercial mortgages carry higher interest rates and more origination points, but hard money lenders can be much more flexible in their lending decisions and can close and fund multimillion dollar deals in just a few weeks. Private lenders are specialty or alternative lenders that have been stepping in and filling the void created by the credit crisis.

Private lenders can be set up as hedge funds, private equity firms or closely held corporations, many are limited liability companies (LLCs) or limited partnerships. (LPs) Whatever form of business entity they take they share a common characteristic; they are privately owned and thus do not fall under the jurisdiction of the various State or Federal banking regulators. Private lenders are free to be flexible with their lending standards and are able to make quick decisions. Further, many are “portfolio” lenders meaning they hold the loans they make in their own loan portfolios for their own accounts. This unique feature of hard money lenders means that they are not dependant on the secondary mortgage bond market for liquidity. Private lenders remain largely unaffected by the credit squeeze.

The private lending sector is thriving today, while institutional lenders are just hoping to survive. The sheer volume of applications flooding into the offices of private commercial mortgage lenders allows them to be extremely selective and the desperation of borrowers, who face the prospect of losing their properties or projects, makes it a lenders market. Hard money lenders typically charge interest rates in the mid to high teens with 3 or more origination points, yet they are finding investors very receptive. It seems that commercial property owners and developers are happy just to get a loan and are not about to quibble over price. And as the credit market continues to stagnate the growth in private lending is projected to continue to grow.

Not long ago private lenders had a poor reputation as shady operators. They were called “hard money” lenders because the loans they made were against real estate, a “hard asset”. Today private lending is a thriving and very well respected business. Without oversight or interference form government regulators, private lenders are fulfilling an important role. Without the lending being done by private sources the liquidity crisis and our economic problems would almost certainly be much worse.

Until things significantly improve in the institutional credit markets, good borrowers with good loans will continue to turn to private funding sources, and the private commercial mortgage lending industry will continue to thrive

MasterPlan Capital LLCCommercial Mortgage Loans – Private (Hard Money) as-well-as Institutionally Funded (Conventional)- Equity Financing – Asset Management – Simple, 1 Page Commercial Mortgage Application – Quick Answers – Private Loans Can Close in 10 Days – The author, Glenn Fydenkevez is President of MasterPlan Capital, he has more than 20 years experience in the financial industry and has been a officer at one of the world’s largest investment banks. He uses his financial resources, banking contacts and extensive industry knowledge to finance commercial real estate deals quickly and efficiently.

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