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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CRE Pros Use Commercial Mortgage Brokers; Here’s Why

When a commercial real estate investor needs a mortgage he might be tempted to submit his application directly to a lender rather than pay a commercial mortgage broker to source the loan. The potential advantage of going direct is, of course, the borrower can avoid paying the broker a commission. But there are some good reasons to use a good broker.

Lenders Give Brokers Preferential Treatment

Established commercial mortgage finance professionals can easily receive 100 financing requests a month. While a single borrower might submit a few applications a year to any given lender, a single broker has the potential to submit several dozen applications in the same year. Lenders will give deference to powerful brokers because a good broker is a much better client to them than a good borrower is.

Brokers Know how to Package a Deal

Commercial mortgage brokers are professionals. They know exactly what lenders need to see in-order for them to make a decision. Lenders are busy; they don’t appreciate loan packages that have too much or too little information. The best brokers give lenders the right information in the right format. Successful brokers have experience writing executive summaries that get the attention of funding sources, and they know how to present an application for the best chance of approval.

Brokers Know Who’s Closing Deals (And Who’s Not)

Keeping in mind that intermediaries, like brokers and agents, don’t get paid anything unless a loan closes, it follows that brokers monitor the various lending policies of banks and other institutions. They know which lenders are funding loans and which ones are not, and they won’t waste time submitting a deal to a lender they know won’t close it. Further, they know the specific property type each lender prefers or specializes in. Brokers submit hotel loans to specialty hospitality lenders and apartment house loans to firms that are proficient in the multi-family niche. Many lenders won’t even consider gas stations or dry cleaners, some won’t do restaurant loans. Some lenders hate small balance loans other lenders love small loans. It really pays to know just where to apply, tremendous amounts of time, money and emotional energy can be saved.

Brokers Vouch for the Borrower

It takes significant amounts of time for a loan agent to review a deal, collect information, prepare an application, submit the package to lenders and then do the necessary follow up. Busy commercial mortgage brokers simply don’t have time to accept and originate every loan request that comes across their desk. They understand that weak deals will be rejected and time spent on them will have been wasted. When a lender receives an application from a trusted broker they realize that the deal has already been scrutinized by a pro. When a good broker takes your loan to a bank he is, in effect, vouching for you, he’s already screened your credit worthiness and crunched the numbers. Lenders look at brokered loans as having the implied endorsement of the broker, if the broker is well respected that can be a powerful influence.

Brokers Provide an Advisory Role

Like any professional providing business services, a commercial mortgage broker wants repeat business and wants client referrals. They have every incentive to, not just find you a loan, but find you the best rates and terms from a lender that will treat you with respect. The best loan agents are really trusted advisors, advocating for you and advising you so you’ll get the best possible loan for your building or project. If they are successful and you become a satisfied customer, you are likely to return to them for your next loan or refer them to your friends.

Brokers Advocate for Their Clients

To be successful in the high stakes world of commercial real estate finance mortgage brokers do more than just submit loan applications, they sell deals to lenders. They emphasize a file’s strong points and downplay its weak points. They talk up the borrower and highlight past successes. They can give well reasoned, professional answers to the lenders objections. The broker sits on the same side of the table as the borrower and is an authoritative advocate for his client.

In Short; Commercial Mortgage Brokers add Value

The true professional in commercial real estate finance is an expert who has valuable relationship with quality funding sources that include banks, Wall Street investment houses, insurance companies and private lenders. They know the right place to send the loan. The broker speaks the same language as the lender and has a great depth of industry knowledge. Good brokers catch mistakes before lenders see them and clean up potential messes that could, otherwise, kill a loan. Billions of dollars worth of commercial real estate loans are brokered each year. Some of the most sophisticated investors and developers in the world routinely retain brokers to secure financing for them, even on deals measuring in the hundreds of millions. In simple terms; commercial mortgage brokers add value to a deal because they increase the chances of actually getting it closed. That’s worth a point or two.

MasterPlan Capital L.L.C. – Apply For a Commercial Mortgage Loan Online at: www.masterplancapital.com – Simple (1 page) Commercial Mortgage Application. Get an Answer the Next Business Day. All Inquires Receive Prompt, Professional and Courteous Service.

The author, Glenn Fydenkevez is President of MasterPlan Capital, a commercial real estate investment banking firm providing debt placement, credit tenant lease (CTL) financing, equity financing and asset management services to commercial property owners, investors and developers, nationwide. Mr. Fydenkevez has more than 20 years experience in finance and has been an officer at one of Wall Streets largest investment banks.

This Commercial Mortgage Lender has Money to Lend!

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We can make private (hard money) as-well-as institutional loans against income producing commercial real estate. We also have liquidity for credit tenant lease loans against NNN leased, single tenant retail and light industrial buildings. Click our logo and get in touch.

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AAOA Warns Apartment Owners to Avoid Common Mistakes

Multi-family (apartment) owners; protect your investment! Avoid these 10 common mistakes that landlords make.   (Thanks to the AAOA for the tips)

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Commercial Mortgage Lender; MasterPlan Capital LLC

Two Successful CMBS Deals does not mean the Liquidity Crisis is Over

Last month Goldman Sachs (GS) broke the ice by successfully printing a $400mm CMBS (commercial mortgage backed security) offering for Developers Diversified Realty (DDR). The sale was bolstered the fact that it was eligible for the Government’s Term Asset-Backed Loan Facility (TALF), but the credit markets were heartened as they watched the first CMBS deal in over a year cross the wire. In-fact, demand for the DDR mortgage bonds was so good that Goldman was able to lower the yield premium and sell the deal for more than they had originally anticipated.

Encouraged by Goldman’s success, Bank of America (BAC) brought a deal to market last Thursday (12/3/09) without the benefit of TALF eligibility. The $460mm B of A deal, secured by 44 Florida office and industrial properties that are owned by Fortress Investment Group (FIG), sold at a higher premium than the DDR deal, but it did sell.

Does this mean that the CMBS market is back and the commercial real estate liquidity crisis is over? No. $860mm in new issuance is nice to see, but let’s not forget that the commercial mortgage problem is a multi-trillion dollar problem. These recent successes amount to mere drops in a very large bucket. In-fact, to cover its upcoming, (next three year) maturing commercial real estate debt by issuing CMBS bonds, DDR would have to sell $119mm in CMBS every month for the next 36 months. And DDR is just one of many struggling REITs.

At the very best these two deals, the only CMBS deals done in more than 12 months, can only represent the meager beginning of a subdued CMBS resurgence. A healthy market could handle billion dollar plus deals involving mortgage paper owned by multiple borrowers and it wouldn’t need TALF to keep yield premiums low.

The recession, even if it’s technically over, still rages in the hearts and minds of bond traders as-well-as the American consumer. Unemployment, though stabilizing, remains historically high and disturbingly persistent. And commercial real estate, beaten down 40% from its peak, may yet have room to fall as apartment, office and retail vacancies continue to creep ever higher. Our problems have not gone away.

The CMBS market is not coming back, not like it was, not in the professional lifetimes of any bankers working on Wall Street today. The world of commercial real estate finance must be reordered on a wholesale scale. Equity holders must realize that they have no equity and they must step aside or be forced aside. Debt holders must give up on the futile dream of being paid back and must take equity ownership in the faltering properties they were foolish enough to lend against.

We are happy that any CMBS deal can get done in this environment; something is better than nothing. We are not, however, willing to give more credence to these deals than they deserve.
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Commercial Mortgage Lender, MasterPlan Capital LLC – Lending ($1mm and up) against all types of commercial real estate. Easy, 1 page commercial mortgage application form; online. Quick responses, fast closings.

Yes You Can Get a Commercial Mortgage Loan From a Hedge Fund – Here’s How – A Wall Street Pro Explains

Most investors know that hedge funds make commercial mortgage loans, but few know how to approach a fund or exactly how secure an approval.

The first and most important thing to remember about hedge fund managers is that they have a Wall Street mentality; they are stock traders at heart. A trader wants to get into a trade at the right price, see results quickly and exit the trade at a profit. Hedge funds that commit capital to commercial real estate lending are no different. They want to lend at a low LTV (loan-to-value) and get out quickly. Profit takes the form of interest and points, but the general mindset of the decision maker on the loan committee is no different from a member of the stock selection committee.

It is imperative that you present your loan as an opportunity for them to make good money, quickly and safely, not as a way for you to reach your goals. Do not talk about your problems; money managers will be empathetic but will not be sympathetic. Emphasize the strong points of your deal, your past successes and your strengths as the deal’s sponsor. Keep the conversation optimistic. We all know it’s tough out-there; sophisticated hedge funds want to fund people who are capable of overcoming obstacles.

The large majority of private lenders, including hedge funds and private equity firms are equity lenders. Hard equity in the real estate is the lenders downside risk protection. This is extremely important to big money hedge funds because they generally do not recover their capital by selling their loans to the government or to the bond market. Hedge funds are usually “portfolio lenders”, meaning they use their own money to finance deals and hold the mortgage paper until it matures. Do not expect any loan offers from private funds to come in over 65% LTV (loan-to-value). If your deal does not meet this criterion, be prepared to inject more of your own cash or find a partner who can bring money to the closing table.

Your exit strategy is a paramount concern to hedge fund managers. Funds make “bridge” loans; short term, interim financing. They will need to know how you will pay them back and will need to be convinced that your exit will work. You must have a detailed, viable and credible exit strategy worked out before you approach a private funding source. It helps a-lot if you have an “in”. For good or for ill, Wall Street works like a private club. They have their own language, their own traditions and their own ceremony’s. If you are not member of the club getting their attention is much more difficult. For those on the outside of this specialized niche, it may be necessary to retain the services of a professional intermediary with Wall Street experience to get you in the door.

The banks, insurance companies and brokers are not lending like they used to. For many good quality commercial mortgage loans, private money is the only-game-in-town. Hedge funds are flush with cash and are hungry to make deals. If a real estate investor can develop a relationship with these unique lenders they will enjoy a seemingly endless source of funds.
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MasterPlan Capital LLC – Commercial Mortgage Lender, Private and Institutionally Funded Commercial Mortgages- Equity Financing – Asset Management – EZ Online Commercial Mortgage 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.

Commercial Mortgage Loans – Institutional Funding vs. Private Funding (Banks vs. Hard Money)

It is more difficult to get a commercial mortgage loan today than it was two years ago. The credit crisis has prompted many commercial real estate investors to look into alternative sources of capital. Private lenders, often called hard money lenders, have gained popularity recently as banks and Wall Street brokers have refused to make loans. It is true that privately funded commercial mortgage lenders can be more flexible and can close loans in just days, but that does not mean they are easy to get. Before a property owner applies to a hard money lender they should understand the differences between institutional funding and private funding.

Regulation

Traditional lenders like banks, insurance companies and Wall Street investment houses are all highly regulated. Banks carry FDIC or other government insurance, insurance companies are watched over by each State Insurance Commission and Wall Street is governed by the Securities & Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FIRA). There is a tremendous amount of bureaucracy, red-tape and rules involved in originating conventional, institutional loans. All this regulation means that bank loans are slow, banks are not flexible and there are loads of paperwork and documentation involved.

Private lenders are, by definition, private entities. They might be organized as LLCs or Limited Partnerships (LPs) or they might be a single, wealthy individual who makes money by making loans, but they do not fall under the prevue of banking regulation. They must, of course, adhere to all anti-fraud laws as-well-as all laws against un-fair and deceptive business practices, but they don’t have to report their specific lending activity to Government Agencies and are not subject to Government licensing or chartering. Hard money lenders can be highly flexible in their underwriting criteria; they can change their own lending policies as they wish for their own reasons. They don’t have to require large amounts of documents if they don’t want to and they can move very quickly if they like a deal.

Speed

Bank and other institutional loans typically take 90-180 days to close. Private loans can close in a matter of just days if they have to (a virtual impossibility when dealing with a bank) but generally take about 21 days. Rates Conventional loans are usually based on an established benchmark rate such-as the 10 year US Treasury Bond. The bank takes the base rate adds an index and comes up with a loan rate. Treasury and other rate indexes are historically low right now (Fall ’09) and commercial mortgage loans (for those who qualify) rates are being priced at between 5.5%-7.5%

Private lenders generally hold the loans they issue in their own portfolios as-opposed to institutions who generally sell their loans to Government Enterprises or the secondary market. Hard Money lenders make their profit on rate and points so they charge significantly more. Most private loans today are being quoted at between 10%-16%

Points

It is rare to see a bank charge more than 2 origination points on any loan.

Private lenders will typically charge at least 3 points and as many as 5.

Terms

Traditional lenders usually offer 3, 5, 7 or 10 year fixed terms on loans amortized over 10-25 years. A balloon payment or a refinance is usually necessary at the end of the term, although more and more banks are offering adjustable rate products that don’t require refinance.

Private loans are almost always short term, bridge type loans. Most charge interest only payments rather than amortize. The average private loan term is about 18 months and hard money lenders rarely write a loan for more than 36 months. The loan must be paid off in full at the end of the term.

Underwriting

Regulated institutions are now universally full documentation, full underwriting lenders. Every “I” must be dotted and every “T” must be crossed. They will fully underwrite the property first then the borrower. Both must pass muster or the loan will be denied.

Private lenders are equity lenders. They lend primarily based on the amount of equity in the target property. Investors will find hard money loans require much less paperwork and documentation. Private lenders will be careful and won’t lend to just anyone, but the underwriting is much more straight forward.

Loan-to-Value (LTV)

Banks used to lend up to 80% of a buildings value and allow a 10% second position loan, allowing sponsors to borrow as-much-as 90% of a deals value. Those days are gone. Now even the largest, strongest banks won’t lend more than 75% LTV and they discourage second loans. 65% is typical unless a borrower has a very strong balance sheet and a large liquidity position.

Private lender will not exceed 65% LTV even for properties that have excellent cash flow. Underperforming or vacant buildings will receive offers in the range of 50%-60% and land loans will come in at well under 50% LTV.

In a perfect credit environment bank loans or loans from other large money centers are the most desirable. They offer the best terms, lowest rate and fewest points. Any one who can qualify should seek funding from these powerful institutions. However, we are not in a perfect credit environment. We are in a mess.

Banks have tightened their standards, property values are dropping and the secondary mortgage bond market has completely collapsed. These circumstances have made it difficult or impossible for people to secure a conventional loan. Private lenders are more expensive and offer only short term financing, but they are filling a vital need and should be considered by borrowers if the bank has turned them away.

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Private and Institutionally Funded Commercial Mortgage Loans – Borrowers and Investors can Apply Online – Simple 1 Page Commercial Mortgage Loan Application – Answers in 1 Business Day – MasterPlan Capital LLC; Commercial Real Estate Investment Banking

New Commercial Real Estate Trade Rag From the Folks at the New York Observer

The newspaper business is faltering and the commercial real estate business is also fading fast. So why would the New York Observer be launching a new commercial real estate trade publication right now? I guess they figure they won’t have much competition.

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MasterPlan Capital LLC is lending and investing. Apply for a commercial mortgage loan online. Our simple, 1 page application is easy to complete and we will respond to you on the next business day.

Commercial Real Estate: Billionaire Real Estate Investor Sam Zell Claims Talk of CRE Collapse Overblown. Watch the Interview Here.

Sam Zell made himself a billionaire by investing in real estate and he thinks all the talk of a meltdown in commercial real estate is a bit overblown. Watch below as Betty Liu of Bloomberg interviews Mr. Zell. His insights are welcomed and valuable.

Click here to view the video.
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MasterPlan Capital LLC; Commercial Mortgage Lending – Private and Institutional Funding

CLICK HERE TO APPLY FOR A COMMERCIAL MORTGAGE ONLINE – EZ APP – QUICK RESPONSE

MasterPlan Capital is Funding Commercial Mortgage Loans With Private Money

MasterPlan Capital LLC – Still Funding Commercial Mortgage Loans – Click Our Logo to Apply Online

CLICK HERE TO APPLY FOR A COMMERCIAL MORTGAGE LOAN