Private Commercial Mortgage Loans – Four Things Hedge Funds Will Ask for Before Approving a Loan

Hedge funds and other private lenders do make commercial mortgage loans. The key to securing a loan approval is knowing what these unique lenders are looking for. This interesting and informative article by the President of MasterPlan Capital LLC gives commercial real estate investors 4 keys to getting funded.

Private Commercial Mortgage Loans – 4 Things Hedge Funds Require Before Approving a Loan

Hedge funds, mortgage pools, private equity firms and even wealthy individual investors all make private commercial mortgage loans against income producing real estate. While these loans are not inexpensive, they can be a valuable resource to a property owner or commercial real estate investor who needs to close a deal fast or has credit or documentation issues.

Private lenders can close loans fast and with much less bureaucratic red tape and paperwork than institutions require. Securing a private loan can sometimes be the difference between making a huge profit and losing large amounts of money.

Almost all successful real estate investors have at least one reliable source of short-term private capital available to them so they can jump on opportunities when they pop-up or get them out of trouble when cash becomes tight. The key to getting a loan from a hedge fund or other private commercial mortgage lender, is knowing exactly what these savvy investors look for in a deal.

When evaluating a loan application for private funding there are several key factors that hedge fund managers, private equity executives and other lenders look for before they agree to fund a deal.

• Exit Strategy

Private commercial mortgage lenders are, first and foremost, opportunistic investors. Before they will even consider getting into a deal they will demand to know how they are going to be able to get out. A borrower’s exit strategy must be well thought out and must be realistic. Be prepared to demonstrate the viability of the exit. If you are planning on refinancing into a permanent, conventional loan it will help to have lenders already lined up. If you are planning to sell the deal, you will need to have a well researched marketing plan. To get a loan closed, it is imperative that you prove to the lender that they will get their money back, with interest and on time.

• Equity

Hedge funds do not exist to make you money; they exist to make themselves money. Loan-to-value (LTV) ratios in the private money industry are much lower than you will find in institutional lending. The best you can expect from a private lender is 65% LTV, and that is only for properties with sufficient cash-flow. <For loans on underperforming assets LTV ratios will be around 50%-60%. Protective equity must be present or private lenders will simply not be interested. Attempting to talk a private lender into relaxing their LTV requirements is a fool’s errand.

Further, it is important to note that private lenders base their valuations on their own assessment of what a building is worth. They are not required to accept or rely on any third party opinions or appraisals. The guy with the check book is the guy who gets to assign value, borrowers can take-it or leave it.

• Cash in the Deal

The days of 100% financing (or anything close to it) are long over. No responsible private lender will do business with a sponsor who does not have a substantial hard equity (cash) investment in the deal.

Most private mortgage originators today will look for borrowers and sponsors to have at least a 20% cash stake in any deal they fund and will never agree to be the sole financial contributor. They will sometimes allow a reasonable second mortgage but won’t allow borrowing to account for more than 80% of a deal’s capitalization.

Don’t ask a hedge fund for a loan when you are really looking for a well heeled partner.

• Experience

Hedge fund managers and executives at private lending firms are real estate finance professionals and will only work with other professionals. They are in business to make money not to give anyone a shot at the big-time. Investors, developers and deal sponsors will need to be able to demonstrate a track record of success in commercial real estate if they expect to get a loan approval.

Entrepreneurs with less than the requisite experience level, but with desire, ambition and a great deal, are advised to partner with a proven commercial real estate pro before submitting a loan proposal to a hedge fund.

Private lenders can be a very valuable capital resource for real estate investors, but their lending standards are fairly strict and they are not prone to deviate from their protocols.

The key to doing business with these unique lenders is to know in advance what they are looking for and to structure your deal to meet their criteria. Bring them deals they already want; don’t waste your time and effort trying to sell them a deal they are not inclined to accept.

About the Author: The author, Glenn Fydenkevez, is President of MasterPlan Capital LLC, a privately held commercial real estate investment banking firm. About MasterPlan Capital: MasterPlan offers private and institutionally funded commercial mortgage loans, credit tenant lease financing, equity financing and asset management services to property owners and investors in the lower 48 states. Borrowers can apply on-line using the firm’s simple, 1 page commercial mortgage application and will receive prompt, professional service.

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Private Commercial Mortgage Loans – Hedge Funds Embrace Commercial Mortgage Lending

High flying hedge funds and sophisticated private equity companies are known for playing the capital market fast and loose. They pile on leverage and make big bets on stocks, bonds, options and futures, or, at-least they used to.

Over the course of the last 24 months the traditional equity and debt markets have been crushed. Money managers all across Wall Street have lost billions for their wealthy clients. The markets are showing signs of recovery but hard, costly lessons have been learned.

Even big money hedge fund investors hate to lose money and many are seeking a more conservative way to make high returns on their capital.

Money managers are increasingly embracing private commercial mortgage lending as a way to enhance yield and decrease the overall risk of a portfolio. The credit crisis has greatly reduced the availability of commercial mortgage capital and, at-the-same-time, made it harder for borrowers and buildings to qualify for financing. The result is a glut of good deals that should be funded but can’t be funded.

Some hedge funds are stepping in and helping fill this “funding gap”. This unprecedented move by private investment funds into commercial real estate finance was prompted by the demands of unhappy investors. When wealthy business people put several hundred thousand in a fund and pay a hefty management fee, they have the right to expect results. After being promised double digit yields, many investors lost large amounts of money and actually had trouble accessing the money they had invested.

Faced with disgruntled and disenchanted clients, fund managers were desperate for a high return investment that offered at least some measure of real security. For many, private commercial mortgage loans have proved to be the answer. Unlike residential lending, commercial mortgage banking is largely unregulated and posed no barrier to entry for private investment funds. The credit crunch was (and is) keeping real estate investors, large and small, from obtaining the capital they needed to refinance their buildings or buy any new ones. Thousands of excellent deals with very reasonable risk parameters were (and are) going unfunded and the lack of institutional credit drove private lending rates high enough to pique the interest of even the most sophisticated and return hungry fund managers.

Hedge funds and private equity firms are finding that they can charge annual rates of 12% or more on the money they lend while their investment capital is fully secured by valuable commercial real estate. Most private lenders require a direct 1st mortgage lien on any property they lend against allowing them to take possession of an asset if the borrower defaults. They can then sell the real estate on the open market to recover some or all of their principle. Very few hedge funds will lend more than 65% of the value of the target property, so their capital is very well collateralized.

Commercial mortgage lending will never replace traditional stock market investing by hedge funds or leveraged-buy-out strategies by private equity companies; lending money just does not offer the incredible upside potential that is possible in the capital markets. However, money mangers are finding that they can earn very respectable, double digit returns with much more security.

If a public company goes out of business its stock can go to zero; an equity investor can be wiped out. A lender, on-the-other-hand, will always have the ability to repossess the real property and recover at least some of their investment.

In recent months hundreds of millions of dollars have been committed to commercial real estate lending by private hedge funds and private equity firms. This trend should continue as the credit crunch drags on and borrowers search for alternative sources to refinance or purchase commercial buildings.

MasterPlan Capital LLC – Commercial Mortgage Loans, Privately Funded – Equity Financing – Asset Management –EZ Online Application – Quick Answers – 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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Privately and Institutionally Funded Commercial Mortgage Loans, Online at MasterPlan Capital LLC

Commercial Mortgage Loans – What Rates Do Hedge Funds Charge For Commercial Mortgages?

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

MasterPlan Capital LLC – Commercial Mortgage Loans – Privately Funded – Equity Financing – Asset Management – Simple, 1 Page Commercial Mortgage Application Online – Quick Answers – Quick Close- The author, Vincent Remealto, is a commercial real estate valuation and underwriting analyst for MasterPlan Capital.

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Commercial Mortgage Loans Through Hedge Funds? – Yes, Hedge Funds Make Loans

Do hedge funds make commercial mortgage loans? The answer is unequivocally yes. Hedge funds lend billions to commercial real estate property owners, investors and developers every year. In-fact, during this credit crisis, hedge funds filled an important role by funding deals the banks couldn’t. Many, many properties were saved from financial disaster last year because they secured funding from a hedge fund.

 

A hedge fund is an investment company set up and managed by Wall Street bankers and funded by wealthy individuals or other cash rich entities, such-as trusts, endowments and corporations small and large. Originally hedge funds were created to “hedge” risks associated with more traditional investing, but today hedge funds are a form or high return investing unto themselves.

 

Although many are registered with the SEC (Securities & Exchange Commission) they remain largely unregulated and are free to invest as they see fit. The bulk of hedge fund activity involves trading in the equity, debt and derivatives (options, futures, synthetic securities etc.) markets. However, a good number of hedge funds have a real estate component that seeks opportunity by investing in property. It is the funds that have an appetite for real estate that will consider lending against a quality building or a promising development.  

 

Hedge funds are opportunistic, high return investors; borrowers should not expect low rates and great terms. Commercial mortgage loans, when offered will be high interest, short term loans with significant points and fees attached. In some cases the hedge fund will provide all the funds necessary to close a deal but will insist on becoming an equity partner and will demand a percentage of any future profits.

 

The best way to approach a hedge fund is with a short, simple deal summary that highlights the strong points of the property or development. Don’t send a full business plan or loan package; hedge fund managers are traders at heart, they won’t take the time to read a large proposal unless they already have an interest in it. If they like your summary they will request more information.

 

Hedge funds make decisions quickly and don’t string people along. If they like a deal and can make good money on it they will fund it in a very fast and efficient manner. If they don’t like your deal they will let you know right away.

 

The world of Wall Street hedge funds is very private and very exclusive but once you’ve done a successful deal and made money for them, you will enjoy a reliable and dependable funding source.

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Did you know that the Founder and President of MasterPlan Capital LLC has more than 20 years of experiance working with Wall Street firms? In-fact he was an officer at one of the world’s largest investment banks.

MasterPlan Capital offers private and institutionally funded commercial mortgage loans for the purchase and refinance of all types of commercial real estate. (Minimum Loan $1MM)

 

 

CLICK HERE TO APPLY FOR A COMMERCIAL MORTGAGE LOAN

Alternative Commercial Mortgage Lenders – Hedge Funds & Private Equity

Hedge funds and private equity firms are investment companies set up by Wall Street investment banks and funded by wealthy individuals and cash rich corporate entities. Unlike standard, publicly traded mutual funds, hedge funds are largely unregulated and have much more leeway in their investment choices. Many of these funds have recognized the opportunity that’s emerged in commercial real estate lending, and have stepped in to fill the funding gap. The money managers in charge of these massive pools of capital are savvy investing pros, they know a good deal when they see it and can be very nimble. Hedge funds and private equity funds are not afraid of risk; in fact they thrive on it. If they like a deal, they make decisions quickly and can close loan or equity financing in just days.

There are many private funds that specialize in commercial real estate investing or have a commercial mortgage lending division. They are cash rich and actively seeking quality deals to fund. They can be an excellent alternative to banks and other traditional lenders.
But, be aware, they are very professional and highly sophisticated. Do not approach hedge funds with shoddy or incomplete packages. They’re pros and work exclusively with other pros.

Hedge fund and private equity people have a Wall Street mentality; they are traders art heart. When they look at a deal they want to be able to make decisions quickly.

When approaching a fund you’ll want to have a complete, well documented package ready to show them at a moments notice, but don’t give it to them all at once. Having worked for Wall Street firms for more than 20 years, I’ve determined that the best way to approach money mangers is with a concise, well written 1 page deal summary.

Sum-up the selling points of your deal on a single sheet of paper, stressing the profit potential, the investors level of experience, the strength of the location and some of the other strong points of the project. They’ll appreciate the fact that you respected their time by being brief. If they like what they see they will ask for more. Give them precisely what they ask for; don’t bog them down with documentation until they tell you they want to see it. Sell them the big story before you try to sell them the details.

If you want to secure funding from a big private equity shop or a hedge fund, I’d strongly suggest you utilize the services of a professional intermediary with Wall Street experience. They can speak the language of fund managers and know exactly what’s important to highlight about a particular deal. These funds tend to operate like private clubs, it helps a-lot if you have an “in”. If you are fortunate enough to develop a relationship with this unique type of lender, you will enjoy a seemingly endless source of capital.

MasterPlan Capital – Commercial Real Estate Investment Banking – Commercial Mortgage Loans – Equity Financing – Asset Management – Prompt, Professional Service – Quick Closings Available
The author, Glenn Fydenkevez, has more than 20 years experience working with Wall Street Investment brokerages firms. He is currently the President of MasterPlan Capital LLC.