Posts Tagged ‘Commercial Real Estate’
You Can Get a Commercial Mortgage Loan From a Hedge Fund – Here’s How – A Wall Street Pro Explains
Corey Beasley asked:
Most stockholders know that hedge funds make business loan loans, but few know how to approach a fund or exactly how secure an approval.
the 1st and most critical thing to keep in mind about hedge fund executives is that they have a Wall Street mindset ; they are 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 perspective of the choice maker on the loan board is no different from an affiliate of the stock selection committee.
It is vital that you present your loan as a chance for them to make good cash, quickly and safely, not as a method for you to reach your goals. do not talk about your issues ; money executives will be empathetic but may not be sympathetic. Emphasize the powerful points of your deal, your past successes and your strengths as the deal’s sponsor. Keep the conversation hopeful. We all know it’s tough out-there ; complex hedge funds want to fund people who are capable of beating obstacles.
The large majority of non-public lenders, including hedge funds and private equity firms are equity banks. Hard equity in the property is the banks disadvantage risk protection. This is extremely necessary to big money hedge funds because they usually don’t recover their capital by selling their loans to the governing body or to the bond market. Hedge funds are generally’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 doesn’t meet this criterion, be prepared to inject more of your own cash or find a partner who can bring cash to the closing table.
Your exit method is a supreme concern to hedge fund managers. Funds make’bridge’ loans ; short term, interim financing. They will need to learn how you may pay them back and will need to be convinced that your exit will work. You’ve got to have a detailed, reasonable and credible exit plan worked out before you approach a personal funding source. It helps a-lot if you have an’in’. For good or for unwell, Wall Street works like a private club. They have their own language, their own practices and their own ceremony’s. If you are not member of the club getting their attention is way more tricky. For those on the exterior of this specialized niche, it may be necessary to retain the services of a professional intermediary with the Street experience to get you in the door.
The banks, insurance corporations and brokers aren’t lending like they used to. For many top quality business mortgage loans, non-public money is the only-game-in-town. Hedge funds are flush with money and are hungry to make deals. If a real estate investor can develop a relationship with these unique lenders they’ll enjoy a seemingly never-ending source of funds.
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Get Business Loans Now
Most stockholders know that hedge funds make business loan loans, but few know how to approach a fund or exactly how secure an approval.
the 1st and most critical thing to keep in mind about hedge fund executives is that they have a Wall Street mindset ; they are 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 perspective of the choice maker on the loan board is no different from an affiliate of the stock selection committee.
It is vital that you present your loan as a chance for them to make good cash, quickly and safely, not as a method for you to reach your goals. do not talk about your issues ; money executives will be empathetic but may not be sympathetic. Emphasize the powerful points of your deal, your past successes and your strengths as the deal’s sponsor. Keep the conversation hopeful. We all know it’s tough out-there ; complex hedge funds want to fund people who are capable of beating obstacles.
The large majority of non-public lenders, including hedge funds and private equity firms are equity banks. Hard equity in the property is the banks disadvantage risk protection. This is extremely necessary to big money hedge funds because they usually don’t recover their capital by selling their loans to the governing body or to the bond market. Hedge funds are generally’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 doesn’t meet this criterion, be prepared to inject more of your own cash or find a partner who can bring cash to the closing table.
Your exit method is a supreme concern to hedge fund managers. Funds make’bridge’ loans ; short term, interim financing. They will need to learn how you may pay them back and will need to be convinced that your exit will work. You’ve got to have a detailed, reasonable and credible exit plan worked out before you approach a personal funding source. It helps a-lot if you have an’in’. For good or for unwell, Wall Street works like a private club. They have their own language, their own practices and their own ceremony’s. If you are not member of the club getting their attention is way more tricky. For those on the exterior of this specialized niche, it may be necessary to retain the services of a professional intermediary with the Street experience to get you in the door.
The banks, insurance corporations and brokers aren’t lending like they used to. For many top quality business mortgage loans, non-public money is the only-game-in-town. Hedge funds are flush with money and are hungry to make deals. If a real estate investor can develop a relationship with these unique lenders they’ll enjoy a seemingly never-ending source of funds.
.
Get Business Loans Now
Motel And Hotel Commercial Loans – Great Options
Karen Benjamin asked:
rking Capital Journal and elsewhere, there have been many reports so far indicating that only a small number of financial companies appear to be acting as if they truly understand that “We`re all in this together”. A special concern by many observers is that the largest banks (essentially those receiving federal funds recently to assist with their troubled financial operations) are not acting in this manner at all. Two major problems are becoming more obvious for business borrowers as a result: (1) Even though the funds have supposedly been provided to do just, banks receiving bailout funds have failed to resume a normal lending pattern for commercial finance funding. These same banks also seem to be unable to report to anyone how they are in fact spending billions of dollars. (2) Many banks are decreasing their commercial loans and commercial real estate loans by recalling outstanding loans or cancelling business lines of credit. There has already been much public backlash in reaction to inappropriate banking bonuses and spending. So far that has primarily taken the form of criticism and questions about how banks are allocating the financial resources largely subsidized by the taxpayers providing bailout funding. As it becomes more obvious that the action of many banks is impeding the recovery from economic chaos, it is likely that most business owners will choose to obtain their business finance funding from a lending source that has helped rather than hindered financial recovery efforts. As always, business owners cannot typically afford to wait for government and external action to resolve problems like those described above. Given the facts that many banks have exited or reduced commercial lending activities, business owners should attempt to find alternative sources for working capital loans and commercial loans. With appropriate help from a commercial financing expert, commercial borrowers will be able to identify which commercial lenders have been acting like responsible corporate citizens and business neighbors. It is unfortunately common to find that most bigger banks have eliminated new working capital financing and commercial mortgage loans. Although they are proving to somewhat difficult to identify and locate, there are commercial lenders actively making new commercial loans. In addition to the larger banks reducing most lending programs, another difficult commercial financing situation is that very few of the smaller local banks have resumed prior business loan activities. A previously familiar and reliable source for working capital loans might not continue to be a viable business funding choice. For the most part, local and regional banks simply do not have sufficient capital for new commercial loans. In addition to business owners seeking alternative commercial funding sources, many commercial borrowers will now discover new financing choices such as business cash advance programs. Under most circumstances, business cash advances are provided by business lenders other than commercial banks. Such a working capital funding source might increasingly prove to be more reliable than traditional banks of any size in providing commercial financing effectively. By looking for lenders displaying an appropriate attitude of “We`re all in this together”, business owners should hopefully find that their business financing circumstances will improve.
rking Capital Journal and elsewhere, there have been many reports so far indicating that only a small number of financial companies appear to be acting as if they truly understand that “We`re all in this together”. A special concern by many observers is that the largest banks (essentially those receiving federal funds recently to assist with their troubled financial operations) are not acting in this manner at all. Two major problems are becoming more obvious for business borrowers as a result: (1) Even though the funds have supposedly been provided to do just, banks receiving bailout funds have failed to resume a normal lending pattern for commercial finance funding. These same banks also seem to be unable to report to anyone how they are in fact spending billions of dollars. (2) Many banks are decreasing their commercial loans and commercial real estate loans by recalling outstanding loans or cancelling business lines of credit. There has already been much public backlash in reaction to inappropriate banking bonuses and spending. So far that has primarily taken the form of criticism and questions about how banks are allocating the financial resources largely subsidized by the taxpayers providing bailout funding. As it becomes more obvious that the action of many banks is impeding the recovery from economic chaos, it is likely that most business owners will choose to obtain their business finance funding from a lending source that has helped rather than hindered financial recovery efforts. As always, business owners cannot typically afford to wait for government and external action to resolve problems like those described above. Given the facts that many banks have exited or reduced commercial lending activities, business owners should attempt to find alternative sources for working capital loans and commercial loans. With appropriate help from a commercial financing expert, commercial borrowers will be able to identify which commercial lenders have been acting like responsible corporate citizens and business neighbors. It is unfortunately common to find that most bigger banks have eliminated new working capital financing and commercial mortgage loans. Although they are proving to somewhat difficult to identify and locate, there are commercial lenders actively making new commercial loans. In addition to the larger banks reducing most lending programs, another difficult commercial financing situation is that very few of the smaller local banks have resumed prior business loan activities. A previously familiar and reliable source for working capital loans might not continue to be a viable business funding choice. For the most part, local and regional banks simply do not have sufficient capital for new commercial loans. In addition to business owners seeking alternative commercial funding sources, many commercial borrowers will now discover new financing choices such as business cash advance programs. Under most circumstances, business cash advances are provided by business lenders other than commercial banks. Such a working capital funding source might increasingly prove to be more reliable than traditional banks of any size in providing commercial financing effectively. By looking for lenders displaying an appropriate attitude of “We`re all in this together”, business owners should hopefully find that their business financing circumstances will improve.
Commercial Real Estate Loans – Overcoming Rejections
Stephen Bush asked:
One of the most frustrating and confusing situations for a business owner occurs when lenders disapprove commercial real estate loans. Since rejected business loans are quite common, it is advisable for commercial borrowers to have a contingency plan in place for commercial loans.
Business owners are likely to be distressed when a commercial loan application is turned down and will be unsure as to why it took place and how to avoid a similar problem again. For each of the five primary reasons that a commercial lender might decline commercial real estate loans, a practical solution is suggested for transforming the rejected commercial funding into approved business loans.
Two reasons (tax returns and business plan requirements) could impact virtually all commercial loans. Many loan officers will begin their review of potential commercial real estate loans by stating “We will need to see at least three years of tax returns” and “Can you show me your business plan?” before proceeding.
Small business mortgage requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for business loans by a traditional commercial bank.
The reasons provided below do not represent obscure issues. It is likely that two or three of the reasons described will be important for typical commercial real estate loans.
(1) Commercial Real Estate That is Used for Special Purposes. Reason number one for business loan rejections is that the lender does not make commercial mortgage loans for the type of business involved. In a typical example, fewer commercial banks are offering financing for bar and restaurant properties. In a similar fashion, an auto service business is often given expensive and unnecessary environmental stipulations. There are many special purpose commercial properties such as campgrounds, churches, funeral homes and gas stations that most traditional lenders have eliminated from their commercial lending program.
Strategy number one for converting the disapproved business loan into an approved commercial mortgage loan is realizing that there are reasonable options beyond traditional commercial lenders. There are capable lenders that are interested in special purpose properties. The best loan might be available only from a non-traditional commercial lender when traditional banks won’t make the requested commercial loan.
(2) Tax Returns. Reason number two for commercial loan disapprovals is when loan officers find a problem on an income tax return that disqualifies a commercial borrower under the bank’s loan guidelines. This “problem” will typically be related to net income after business deductions, but when loan officers review tax returns, there are many possibilities which will result in the same outcome.
Strategy number two for converting the declined commercial mortgage into an approved commercial real estate loan is to apply for a “Stated Income” commercial loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for business loans. Borrowers should search for commercial lenders using Stated Income commercial financing. Unfortunately, this suggested solution will not work for all loans because of a normal maximum loan amount of about $2-3 million for a Stated Income loan.
(3) Cash Out Limitations. The third reason for rejection of business loans will be seen frequently during refinancing attempts which involve a need to obtain cash by the borrower. It is common for a traditional commercial lender to limit what the funds are used for and to restrict the amount of cash to as little as $100,000. Even though the bank will provide the commercial loan, if they won’t offer the amount of cash requested by the borrower, this is equivalent to a loan disapproval.
Strategy number three for converting the declined commercial mortgage into an approved commercial real estate loan is to seek alternative business financing. An important goal for a commercial borrower is to find a lender that will not impose unfair restrictions in how refinancing cash is to be used.
(4) Collateral Required. Reason number four for commercial mortgage loan disapprovals is that the bank will not make a commercial loan without sufficient collateral such as a lien on personal assets.
Strategy number four for converting the declined commercial mortgage into an approved commercial real estate loan is for commercial borrowers to seek out lenders that do not “cross collateralize” assets as a condition for obtaining a business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal and business assets.
(5) Required Business Plan. 0Reason number five for commercial mortgage disapprovals is when a bank’s loan officer determines that the business plan does not support the needed commercial loan.
The fifth strategy is to avoid lenders which require a business plan, and this approach can save both time and money. This can result in several primary advantages:
(A) Decrease commercial mortgage costs by several thousand dollars. A typical business plan (prepared to normal bank specifications) costs $5,000 to $10,000.
(B) Reduce the period needed to complete business financing. A typical time for a business plan to be prepared is one to two months.
(C) Commercial financing approvals will involve fewer requirements when a business plan is not mandatory.
Unfortunately, the circumstances described in this article are responsible for many commercial finance difficulties. However, as noted above, the five key reasons for loan officers rejecting business loans can be overcome by most business owners. Similarly, with proper advice and strategies for small business mortgages, commercial real estate loans that are disapproved for other reasons (beyond the five issues described here) can also result in successful and effective commercial loans.
One of the most frustrating and confusing situations for a business owner occurs when lenders disapprove commercial real estate loans. Since rejected business loans are quite common, it is advisable for commercial borrowers to have a contingency plan in place for commercial loans.
Business owners are likely to be distressed when a commercial loan application is turned down and will be unsure as to why it took place and how to avoid a similar problem again. For each of the five primary reasons that a commercial lender might decline commercial real estate loans, a practical solution is suggested for transforming the rejected commercial funding into approved business loans.
Two reasons (tax returns and business plan requirements) could impact virtually all commercial loans. Many loan officers will begin their review of potential commercial real estate loans by stating “We will need to see at least three years of tax returns” and “Can you show me your business plan?” before proceeding.
Small business mortgage requests are sometimes too unique for a traditional commercial lender. In these situations (even if a business owner has an adequate business plan and favorable tax returns), it is not unusual for commercial borrowers to be declined for business loans by a traditional commercial bank.
The reasons provided below do not represent obscure issues. It is likely that two or three of the reasons described will be important for typical commercial real estate loans.
(1) Commercial Real Estate That is Used for Special Purposes. Reason number one for business loan rejections is that the lender does not make commercial mortgage loans for the type of business involved. In a typical example, fewer commercial banks are offering financing for bar and restaurant properties. In a similar fashion, an auto service business is often given expensive and unnecessary environmental stipulations. There are many special purpose commercial properties such as campgrounds, churches, funeral homes and gas stations that most traditional lenders have eliminated from their commercial lending program.
Strategy number one for converting the disapproved business loan into an approved commercial mortgage loan is realizing that there are reasonable options beyond traditional commercial lenders. There are capable lenders that are interested in special purpose properties. The best loan might be available only from a non-traditional commercial lender when traditional banks won’t make the requested commercial loan.
(2) Tax Returns. Reason number two for commercial loan disapprovals is when loan officers find a problem on an income tax return that disqualifies a commercial borrower under the bank’s loan guidelines. This “problem” will typically be related to net income after business deductions, but when loan officers review tax returns, there are many possibilities which will result in the same outcome.
Strategy number two for converting the declined commercial mortgage into an approved commercial real estate loan is to apply for a “Stated Income” commercial loan. Very few traditional banks use Stated Income (no tax returns, no income verification, no IRS Form 4506) for business loans. Borrowers should search for commercial lenders using Stated Income commercial financing. Unfortunately, this suggested solution will not work for all loans because of a normal maximum loan amount of about $2-3 million for a Stated Income loan.
(3) Cash Out Limitations. The third reason for rejection of business loans will be seen frequently during refinancing attempts which involve a need to obtain cash by the borrower. It is common for a traditional commercial lender to limit what the funds are used for and to restrict the amount of cash to as little as $100,000. Even though the bank will provide the commercial loan, if they won’t offer the amount of cash requested by the borrower, this is equivalent to a loan disapproval.
Strategy number three for converting the declined commercial mortgage into an approved commercial real estate loan is to seek alternative business financing. An important goal for a commercial borrower is to find a lender that will not impose unfair restrictions in how refinancing cash is to be used.
(4) Collateral Required. Reason number four for commercial mortgage loan disapprovals is that the bank will not make a commercial loan without sufficient collateral such as a lien on personal assets.
Strategy number four for converting the declined commercial mortgage into an approved commercial real estate loan is for commercial borrowers to seek out lenders that do not “cross collateralize” assets as a condition for obtaining a business loan. This will provide greater flexibility for the commercial borrower and avoid unnecessary (and unwise) connections between personal and business assets.
(5) Required Business Plan. 0Reason number five for commercial mortgage disapprovals is when a bank’s loan officer determines that the business plan does not support the needed commercial loan.
The fifth strategy is to avoid lenders which require a business plan, and this approach can save both time and money. This can result in several primary advantages:
(A) Decrease commercial mortgage costs by several thousand dollars. A typical business plan (prepared to normal bank specifications) costs $5,000 to $10,000.
(B) Reduce the period needed to complete business financing. A typical time for a business plan to be prepared is one to two months.
(C) Commercial financing approvals will involve fewer requirements when a business plan is not mandatory.
Unfortunately, the circumstances described in this article are responsible for many commercial finance difficulties. However, as noted above, the five key reasons for loan officers rejecting business loans can be overcome by most business owners. Similarly, with proper advice and strategies for small business mortgages, commercial real estate loans that are disapproved for other reasons (beyond the five issues described here) can also result in successful and effective commercial loans.
The Potential for Malpractice With Commercial Loans
Stephen Bush asked:
Malpractice in any activity typically occurs when there is a serious failure of professional duty. With borrowers seeking small business loans and commercial real estate financing, malpractice can occur with both commercial lenders and brokers for commercial loans.
During the opening segment of the television series Hill Street Blues, Sergeant Phil Esterhaus usually ended with a suggestion (let’s be careful out there) that will also be helpful in avoiding malpractice situations involving working capital financing. Although that is a worthy goal, the actual practice of avoiding problems with business loans is somewhat difficult and complex. One of our most effective solutions for this dilemma has been to openly acknowledge that such difficulties exist and simultaneously provide detailed advice and strategies.
We have published a special report addressing one of the biggest recent causes of malpractice involving business financing and commercial real estate loans. Most commercial borrowers are probably aware that chaotic conditions started impacting residential real estate beginning about 12 months ago. Because their accustomed level of residential financing activities have all but disappeared, former residential brokers and lenders are in many cases now executing business loans. As you might imagine, this can result in problems for commercial borrowers.
Inexperience involving commercial loans is never a good thing when you are describing a commercial lender or broker. In almost all cases the complexity of business loans combined with inexperience by their financing advisors can result in a formula for malpractice.
Even though a broker or lender was superb at executing residential mortgage financing, please do not assume that they will also be good (or even marginally capable) when it comes to commercial mortgages, working capital financing or small business loans. We have prepared a series of reports which focus on over twenty critical differences between residential financing and business financing. It really does take several years to be effective in finalizing commercial loans.
Another common source of malpractice with working capital financing is currently seen with many agents for business cash advance programs. The typical agent acts as a representative of a credit card receivables financing provider and does not comprehend the complexities of business loans. They are focused on only the narrow but important service that they provide and are not capable of assisting with other forms of business financing.
Although it might not be obvious to most business owners, the malpractice potential with business cash advances is also directly related to the first example described above involving inexperienced brokers and lenders. Throughout the U.S. we have seen call centers switching from a focus on residential financing to merchant cash advances. Once again inexperience is never a good thing when complicated working capital management services are involved.
Specialized commercial real estate loans and SBA loans represent the final example of malpractice potential. Although many commercial lenders seem to suggest that they can do SBA financing, in reality very few do what they claim. One major business financing lender ceased most business operations during the past year because of apparently fraudulent SBA loan activities.
Specialized commercial property such as funeral homes, gas stations, bowling alleys and golf courses have always been recognized as problematic for commercial loans. As a relevant example, a national lender for funeral home loans is now the target of litigation due to commercial funding activities that almost anyone would view as irresponsible.
Commercial borrowers should rightfully conclude that an important step in avoiding potential malpractice circumstances might simply be to avoid certain lenders and brokers. We would agree wholeheartedly, and in fact published a special report some time ago dealing with the need to avoid problem brokers and commercial lenders.
No matter how serious the three malpractice examples might be, they should be considered as the tip of the iceberg when looking at the overall obstacles for working capital loans and business loans. Our advice is meant to reinforce the importance and value of being prudent in pursuing commercial loans.
Malpractice in any activity typically occurs when there is a serious failure of professional duty. With borrowers seeking small business loans and commercial real estate financing, malpractice can occur with both commercial lenders and brokers for commercial loans.
During the opening segment of the television series Hill Street Blues, Sergeant Phil Esterhaus usually ended with a suggestion (let’s be careful out there) that will also be helpful in avoiding malpractice situations involving working capital financing. Although that is a worthy goal, the actual practice of avoiding problems with business loans is somewhat difficult and complex. One of our most effective solutions for this dilemma has been to openly acknowledge that such difficulties exist and simultaneously provide detailed advice and strategies.
We have published a special report addressing one of the biggest recent causes of malpractice involving business financing and commercial real estate loans. Most commercial borrowers are probably aware that chaotic conditions started impacting residential real estate beginning about 12 months ago. Because their accustomed level of residential financing activities have all but disappeared, former residential brokers and lenders are in many cases now executing business loans. As you might imagine, this can result in problems for commercial borrowers.
Inexperience involving commercial loans is never a good thing when you are describing a commercial lender or broker. In almost all cases the complexity of business loans combined with inexperience by their financing advisors can result in a formula for malpractice.
Even though a broker or lender was superb at executing residential mortgage financing, please do not assume that they will also be good (or even marginally capable) when it comes to commercial mortgages, working capital financing or small business loans. We have prepared a series of reports which focus on over twenty critical differences between residential financing and business financing. It really does take several years to be effective in finalizing commercial loans.
Another common source of malpractice with working capital financing is currently seen with many agents for business cash advance programs. The typical agent acts as a representative of a credit card receivables financing provider and does not comprehend the complexities of business loans. They are focused on only the narrow but important service that they provide and are not capable of assisting with other forms of business financing.
Although it might not be obvious to most business owners, the malpractice potential with business cash advances is also directly related to the first example described above involving inexperienced brokers and lenders. Throughout the U.S. we have seen call centers switching from a focus on residential financing to merchant cash advances. Once again inexperience is never a good thing when complicated working capital management services are involved.
Specialized commercial real estate loans and SBA loans represent the final example of malpractice potential. Although many commercial lenders seem to suggest that they can do SBA financing, in reality very few do what they claim. One major business financing lender ceased most business operations during the past year because of apparently fraudulent SBA loan activities.
Specialized commercial property such as funeral homes, gas stations, bowling alleys and golf courses have always been recognized as problematic for commercial loans. As a relevant example, a national lender for funeral home loans is now the target of litigation due to commercial funding activities that almost anyone would view as irresponsible.
Commercial borrowers should rightfully conclude that an important step in avoiding potential malpractice circumstances might simply be to avoid certain lenders and brokers. We would agree wholeheartedly, and in fact published a special report some time ago dealing with the need to avoid problem brokers and commercial lenders.
No matter how serious the three malpractice examples might be, they should be considered as the tip of the iceberg when looking at the overall obstacles for working capital loans and business loans. Our advice is meant to reinforce the importance and value of being prudent in pursuing commercial loans.
Hard Money Loans – Commercial Real Estate Financing
mqnwbe73 asked:
www.CashMoneyQuick.com FREE Ebook – “How To Find MILLIONS in Private Money”. Perfect for those needing Hard Money Loans FAST! Once you can find money, deals come to you! Mark~ http
Commercial Real Estate Values After the Bubble – The Word on the Street
Dominic Mazzone asked:
This article was written in December 2008
Recently I spoke with my co-managing partner Michael Facchini, of Regent Global Funds, an alternative investment fund, at an Institutional Investor conference on Distressed Real Estate in New York City. The folks at Institutional Investor did a fantastic job putting it together and assembled a group of very knowledgeable and informed speakers from the industry. Usually when you put together people in the upper echelons of the industry, you find that they are out of touch with the reality on the streets. However, what I found to be incredibly interesting about this event and a bit scary at the same time, was that reality has hit all levels of this market and the individuals that are in charge of pulling the trigger on other people’s money are paying attention.
Of particular note was the general consensus that commercial real estate is going back to realistic levels and maybe just a bit below as a result of the real estate bubble being popped. We all know that residential has popped and crashed, but commercial has always been a question. I have written several times about valuations on commercial real estate getting back to reality instead of popping, and in my reality I never liked to buy anything less than a 10 cap. So for conservative investors, the bubble popping is just getting back to reality.
What really turned my head was that everyone else at the conference was now living in a 10 CAP reality (for more information on CAP rates see “The Golden Rule of Lending: How Banks Got it Wrong”). In fact, for this group of professionals a 10 CAP was the new norm. What does it all mean for the average commercial real estate investor? It means that if you are holding commercial real estate, it’s probably not worth what it was 6 months ago and it probably won’t be worth what it is today 6 months from now. The usual suspects that get hit during a downturn are things like office and retail, but this time around due to the overbuilding in some markets, properties like multi-family are also getting hit. For example, rental absorption is pretty devastating in places like San Diego and Las Vegas where there was so much overbuilding, and now the supply of rentals looks never ending. This all goes back to the basic fundamentals of knowing your market and using your head instead of just a spreadsheet.
The general consensus at the conference about the potential collapse of the Manhattan real estate market is another example. Consider that Wall Street is NYC and NYC is Wall Street. The bitter reality is that people from all the big financial names both solvent and insolvent, that no longer have a job, are not finding any work in the city. These jobs just cease to exist. Their only choice is to move out, or look for another line of work. Without all of that money pumping into the local economy, there are going to be a lot of people having to move, and a barrage of properties for sale. Now consider that the general forecast of 250,000 financial services people being out of work in the city has not completely hit just yet. Taking into account further lay-offs in the financial industry and other industries that were employing a lot of individuals at higher-end salaries, that is going to translate into a lot of properties for sale. Big supply, no demand, and you have a potential crash in the Manhattan real estate market that so far has weathered the storm pretty well.
Where do we go from here? Well, there is something interesting to ponder for a moment. Economists get paid to analyze the economy, and in more recent years, to predict its direction. It is disturbing to note that many economists are now starting to agree on one thing? The agreement is that there is no precedent to look back on, and because there is no precedent they have no idea where we go from here. No precedent means there is no known direction and it is one of those peculiar times in recent history when using the word, unprecedented, is actually not sensationalism.
Even with all of this said, investing in something like commercial real estate where you can get your mind and your hands around an actual asset, looks pretty good compared to the alternatives like equity based hedge funds. Hedge fund strategists that had their heads in a Quant Screen found out that it might have been a good idea to put some practicality in their strategies. Hedge funds are closing weekly and one that comes to particular note was the closure of Citigroup’s Corporate Special Opportunities Fund after its value declined 53% in October. To make it worse, it is said that investors are likely to only get about 10 cents on the dollar when they liquidate. If that doesn’t make us a believer in alternative investments based on tangible assets like real estate, I don’t know what will.
With all of the pain and uncertainty in the markets life will go on. Though it sometimes seems as if commerce has grown to a halt, there are still ways to profit just as long as you know what you are doing. Which leads me to the broken record that plays in the halls of our fund. When investing in any kind of investment whether it is traditional or an alternative investment, you have to understand your investment, the market, and everything that comes along with it. Our markets are too volatile and moving too fast to be deriving strategy by sitting around with your head in a pile of spreadsheets and not knowing what is happening out in the streets. That’s like thinking it’s safe to run through a minefield with a metal detector. Unfortunately at that kind of speed, it warns you a moment too late before it kills you.
Copyright: Dominic Mazzone, Regent Global Funds 2008
This article was written by Dominic Mazzone, Managing Partner and Fund Manager of Regent Global Funds.
This article and other like it can be viewed at www.investingsymposium.com which is part of the Regent Global Funds Network.
Regent Global Funds, rgfunds.com, is an alternative investment fund that offers its participating investors and asset backed investment through asset based lending.
The Fund Managers of Regent Global Funds have an expertise in commercial real estate lending and have created a successful alternative investment vehicle that is diversified through this structure. They separate themselves from other fund mangers by personally investing their own money side-by-side with their investors in the fund, creating an absolute structure of accountability. Dominic Mazzone has written about the need for this type of accountability in an article titled “Fund Managers Need to be Accessible and Personally Invested.”
This article was written in December 2008
Recently I spoke with my co-managing partner Michael Facchini, of Regent Global Funds, an alternative investment fund, at an Institutional Investor conference on Distressed Real Estate in New York City. The folks at Institutional Investor did a fantastic job putting it together and assembled a group of very knowledgeable and informed speakers from the industry. Usually when you put together people in the upper echelons of the industry, you find that they are out of touch with the reality on the streets. However, what I found to be incredibly interesting about this event and a bit scary at the same time, was that reality has hit all levels of this market and the individuals that are in charge of pulling the trigger on other people’s money are paying attention.
Of particular note was the general consensus that commercial real estate is going back to realistic levels and maybe just a bit below as a result of the real estate bubble being popped. We all know that residential has popped and crashed, but commercial has always been a question. I have written several times about valuations on commercial real estate getting back to reality instead of popping, and in my reality I never liked to buy anything less than a 10 cap. So for conservative investors, the bubble popping is just getting back to reality.
What really turned my head was that everyone else at the conference was now living in a 10 CAP reality (for more information on CAP rates see “The Golden Rule of Lending: How Banks Got it Wrong”). In fact, for this group of professionals a 10 CAP was the new norm. What does it all mean for the average commercial real estate investor? It means that if you are holding commercial real estate, it’s probably not worth what it was 6 months ago and it probably won’t be worth what it is today 6 months from now. The usual suspects that get hit during a downturn are things like office and retail, but this time around due to the overbuilding in some markets, properties like multi-family are also getting hit. For example, rental absorption is pretty devastating in places like San Diego and Las Vegas where there was so much overbuilding, and now the supply of rentals looks never ending. This all goes back to the basic fundamentals of knowing your market and using your head instead of just a spreadsheet.
The general consensus at the conference about the potential collapse of the Manhattan real estate market is another example. Consider that Wall Street is NYC and NYC is Wall Street. The bitter reality is that people from all the big financial names both solvent and insolvent, that no longer have a job, are not finding any work in the city. These jobs just cease to exist. Their only choice is to move out, or look for another line of work. Without all of that money pumping into the local economy, there are going to be a lot of people having to move, and a barrage of properties for sale. Now consider that the general forecast of 250,000 financial services people being out of work in the city has not completely hit just yet. Taking into account further lay-offs in the financial industry and other industries that were employing a lot of individuals at higher-end salaries, that is going to translate into a lot of properties for sale. Big supply, no demand, and you have a potential crash in the Manhattan real estate market that so far has weathered the storm pretty well.
Where do we go from here? Well, there is something interesting to ponder for a moment. Economists get paid to analyze the economy, and in more recent years, to predict its direction. It is disturbing to note that many economists are now starting to agree on one thing? The agreement is that there is no precedent to look back on, and because there is no precedent they have no idea where we go from here. No precedent means there is no known direction and it is one of those peculiar times in recent history when using the word, unprecedented, is actually not sensationalism.
Even with all of this said, investing in something like commercial real estate where you can get your mind and your hands around an actual asset, looks pretty good compared to the alternatives like equity based hedge funds. Hedge fund strategists that had their heads in a Quant Screen found out that it might have been a good idea to put some practicality in their strategies. Hedge funds are closing weekly and one that comes to particular note was the closure of Citigroup’s Corporate Special Opportunities Fund after its value declined 53% in October. To make it worse, it is said that investors are likely to only get about 10 cents on the dollar when they liquidate. If that doesn’t make us a believer in alternative investments based on tangible assets like real estate, I don’t know what will.
With all of the pain and uncertainty in the markets life will go on. Though it sometimes seems as if commerce has grown to a halt, there are still ways to profit just as long as you know what you are doing. Which leads me to the broken record that plays in the halls of our fund. When investing in any kind of investment whether it is traditional or an alternative investment, you have to understand your investment, the market, and everything that comes along with it. Our markets are too volatile and moving too fast to be deriving strategy by sitting around with your head in a pile of spreadsheets and not knowing what is happening out in the streets. That’s like thinking it’s safe to run through a minefield with a metal detector. Unfortunately at that kind of speed, it warns you a moment too late before it kills you.
Copyright: Dominic Mazzone, Regent Global Funds 2008
This article was written by Dominic Mazzone, Managing Partner and Fund Manager of Regent Global Funds.
This article and other like it can be viewed at www.investingsymposium.com which is part of the Regent Global Funds Network.
Regent Global Funds, rgfunds.com, is an alternative investment fund that offers its participating investors and asset backed investment through asset based lending.
The Fund Managers of Regent Global Funds have an expertise in commercial real estate lending and have created a successful alternative investment vehicle that is diversified through this structure. They separate themselves from other fund mangers by personally investing their own money side-by-side with their investors in the fund, creating an absolute structure of accountability. Dominic Mazzone has written about the need for this type of accountability in an article titled “Fund Managers Need to be Accessible and Personally Invested.”
Technology’s Effect on Commercial Real Estate in a Recession
Dominic Mazzone asked:
Though there seems to be an endless supply of other shoes to drop into the current economic chasm, there seems to be a general consensus that commercial real estate is going to take a significant hit. The shoe that could end up kicking commercial real estate down further and is relatively unknown or just not thought about is technology. Developed countries around the world, save a few, have never gone through such a potentially devastating economic cycle with the amount of technology we have at our disposal. What that technology allows for will greatly affect the length of the commercial real estate recession and its effects on the overall economy.
With our daily dose of eye popping layoffs, the top question on every company’s agenda is how to cut costs. When looking to cut costs the typical first question is how many people can be cut and how much of a cut in productivity can be tolerated. But with all of this technology, there is now the possibility to cut costs and keep the same amount of productivity. This wasn’t a viable option in previous recessions, but this time around companies can start sending people home to work, which is all made possible by the giant leaps in communication. People have been telecommuting for years, but with the great expansion of communications technology coupled with a downward economy, the cost cutting choice between cutting a group of employees and cutting out leased floors in a building has become a whole lot easier. The last time we saw a boom in telecommuting was the September, 11th attacks and the catalyst was the fear of travel and a shaky economy. Audio and video conferencing sales soared and using the technology was all the rage. The big problem back then was that the technology was a bit more difficult to use and everyone went back to their old ways of working after the crisis.
The difference now is that the technology has come very far and the new catalyst is a crashing economy that, in my opinion, will be an even stronger catalyst than September 11th. Fickleness and discomfort around the use of technology for basic operational issues is gone. I recently spoke at a conference about this and I asked a very simple question. Has anyone ever sent an email to the person in the office next to them? Everyone looked around like it was a trick question, but the reality is that there is no difference between sending an email to the next cubicle or around the world. This is now the same for almost all types of communicating including voice, video, text, Instant Messaging, etc., and connecting them all together in 2009’s buzzword called, unified communications. In the telecommunications arms race between the Telco’s and the cable companies, there has been such a huge push for mega bandwidth to the end customer to try and own them, that they have inadvertently made millions of households viable for high speed telecommuting. In addition to the end user having the capacity, most applications that company employees need access to have moved to secured web based applications that can be accessed through the internet over these super networks. With the actual communication media being so robust, an employer’s largest concern about sending an employee home is the potential for slacking and a loss of productivity. However, there are very sophisticated systems available to track employee’s progress and activity remotely that can resolve this issue as well. Even though this is not viable for every office worker, the ones that are allowed to do this end up being more productive; think less water cooler conversations, coffee breaks, and long lunches. There is an argument that the employees lose some of the social aspects that bind an office together, but the employees become less stressed without long commutes and early wake-ups, and they end up being happier all around with their job.
So, what does all of this have to do with the real estate market? Simply stated, with all of the supply in the technology arena the demand for physical office space is going to be reduced. Office space has always been a property type that is less desirable due to its susceptibility to economic pressures. Now more than ever companies are looking to chop space and get lean, and office space is going to take an even harder hit. With more space on the market, rinse and repeat and you will have a serious glut of space. The glut of space will end up deflating rental rates reducing cash flow and reducing market value of the properties. If the past 12 months have shown us anything, examining past trends do not help us in this market. Investor’s buying commercial real estate trying to use past trends to make future gains are going to get crushed short term. Why? Because even after the economy recovers companies are not going to take on an expense for space that they have done without through telecommuting. The Gartner Group’s last estimate was that there was 137 million teleworkers worldwide and, “This growth will mushroom as companies learn more about telework benefits and its highly advantageous return on investment, and the proliferation and use of online job boards and virtual hiring,” according to a report in Innovisions Canada.
So that is the argument for office space, but what else will technology affect? On the retail front, there is an entire generation that is getting used to conducting their lives online and that includes buying products. People that were born in the late 60’s and throughout the 70’s are a generation that has one foot in the past bricks generation and another in the future clicks generation. If I look at myself, I would say that there are some things I am not comfortable buying online but my younger colleagues and friends have no problem buying everything needed online. It’s a generational shift and it’s going to add strain on the retail property market during a downward economic cycle. Take Blockbuster for instance and their huge initiative to follow Netflix in the online ordering of movies. Right now those services are sending the DVD’s to your house without ever setting foot in a store. Many of the big cable and satellite providers in the industry are trying to make it viable to download 1000’s of titles from their cable and satellite boxes, and so far the On Demand services are on the forefront but lack in volume of titles. On another front, Telco’s are developing a robust broadband solution over IP, and in Microsoft’s case they are trying to enable downloads right into their Xbox entertainment system via the web. How many empty Blockbuster stores and other video stores is that going to push onto the market? Okay, so that’s digital media and one could argue it is an exception due to ease, but technology is enabling the ordering of many other services to be delivered right to our front doors. Are people still going to go out and shop? I would say yes because it seems that many people have turned shopping into a hobby (think better times), but with our youth becoming more introverted and more accustomed to everything being at their fingertips, maybe less than before on a per-capita basis.
Mobile technology efficiencies are not going to destroy office space or retail spaces on a whole, however it is important to understand that in an evolving technological economy, as well as a down economy, they start becoming a lot less necessary. Commercial real estate has always been a sound alternative investment but the last 12 months have proven that investing in these types of properties takes a lot of experience and more importantly, an open mind about what’s to come to gauge future cash flow and value. Betting against technology has never been a very sound investment strategy and this is definitely not the time for anyone to put their head in the proverbial sand. Perhaps you’re reminded of the story about the close minded man who opened up a typewriter store because he thought computers were just a fad for pimply faced kids?
Copyright: Dominic Mazzone, Regent Global Funds 2009
This article was written by Dominic Mazzone, Managing Partner and Fund Manager of Regent Global Funds. This article and other like it can be viewed at http://www.investingsymposium.com which is part of the Regent Global Funds Network.
Regent Global Funds, www.rgfunds.com is an alternative investment fund that offers its participating investors and asset backed investment through asset based lending. The Fund Managers of Regent Global Funds have an expertise in commercial real estate lending and have created a successful alternative investment vehicle that is diversified through this structure.
They separate themselves from other fund mangers by personally investing their own money side-by-side with their investors in the fund, creating an absolute structure of accountability. Dominic Mazzone has written about the need for this type of accountability in an article titled “Fund Managers Need to be Accessible and Personally Invested.”
Though there seems to be an endless supply of other shoes to drop into the current economic chasm, there seems to be a general consensus that commercial real estate is going to take a significant hit. The shoe that could end up kicking commercial real estate down further and is relatively unknown or just not thought about is technology. Developed countries around the world, save a few, have never gone through such a potentially devastating economic cycle with the amount of technology we have at our disposal. What that technology allows for will greatly affect the length of the commercial real estate recession and its effects on the overall economy.
With our daily dose of eye popping layoffs, the top question on every company’s agenda is how to cut costs. When looking to cut costs the typical first question is how many people can be cut and how much of a cut in productivity can be tolerated. But with all of this technology, there is now the possibility to cut costs and keep the same amount of productivity. This wasn’t a viable option in previous recessions, but this time around companies can start sending people home to work, which is all made possible by the giant leaps in communication. People have been telecommuting for years, but with the great expansion of communications technology coupled with a downward economy, the cost cutting choice between cutting a group of employees and cutting out leased floors in a building has become a whole lot easier. The last time we saw a boom in telecommuting was the September, 11th attacks and the catalyst was the fear of travel and a shaky economy. Audio and video conferencing sales soared and using the technology was all the rage. The big problem back then was that the technology was a bit more difficult to use and everyone went back to their old ways of working after the crisis.
The difference now is that the technology has come very far and the new catalyst is a crashing economy that, in my opinion, will be an even stronger catalyst than September 11th. Fickleness and discomfort around the use of technology for basic operational issues is gone. I recently spoke at a conference about this and I asked a very simple question. Has anyone ever sent an email to the person in the office next to them? Everyone looked around like it was a trick question, but the reality is that there is no difference between sending an email to the next cubicle or around the world. This is now the same for almost all types of communicating including voice, video, text, Instant Messaging, etc., and connecting them all together in 2009’s buzzword called, unified communications. In the telecommunications arms race between the Telco’s and the cable companies, there has been such a huge push for mega bandwidth to the end customer to try and own them, that they have inadvertently made millions of households viable for high speed telecommuting. In addition to the end user having the capacity, most applications that company employees need access to have moved to secured web based applications that can be accessed through the internet over these super networks. With the actual communication media being so robust, an employer’s largest concern about sending an employee home is the potential for slacking and a loss of productivity. However, there are very sophisticated systems available to track employee’s progress and activity remotely that can resolve this issue as well. Even though this is not viable for every office worker, the ones that are allowed to do this end up being more productive; think less water cooler conversations, coffee breaks, and long lunches. There is an argument that the employees lose some of the social aspects that bind an office together, but the employees become less stressed without long commutes and early wake-ups, and they end up being happier all around with their job.
So, what does all of this have to do with the real estate market? Simply stated, with all of the supply in the technology arena the demand for physical office space is going to be reduced. Office space has always been a property type that is less desirable due to its susceptibility to economic pressures. Now more than ever companies are looking to chop space and get lean, and office space is going to take an even harder hit. With more space on the market, rinse and repeat and you will have a serious glut of space. The glut of space will end up deflating rental rates reducing cash flow and reducing market value of the properties. If the past 12 months have shown us anything, examining past trends do not help us in this market. Investor’s buying commercial real estate trying to use past trends to make future gains are going to get crushed short term. Why? Because even after the economy recovers companies are not going to take on an expense for space that they have done without through telecommuting. The Gartner Group’s last estimate was that there was 137 million teleworkers worldwide and, “This growth will mushroom as companies learn more about telework benefits and its highly advantageous return on investment, and the proliferation and use of online job boards and virtual hiring,” according to a report in Innovisions Canada.
So that is the argument for office space, but what else will technology affect? On the retail front, there is an entire generation that is getting used to conducting their lives online and that includes buying products. People that were born in the late 60’s and throughout the 70’s are a generation that has one foot in the past bricks generation and another in the future clicks generation. If I look at myself, I would say that there are some things I am not comfortable buying online but my younger colleagues and friends have no problem buying everything needed online. It’s a generational shift and it’s going to add strain on the retail property market during a downward economic cycle. Take Blockbuster for instance and their huge initiative to follow Netflix in the online ordering of movies. Right now those services are sending the DVD’s to your house without ever setting foot in a store. Many of the big cable and satellite providers in the industry are trying to make it viable to download 1000’s of titles from their cable and satellite boxes, and so far the On Demand services are on the forefront but lack in volume of titles. On another front, Telco’s are developing a robust broadband solution over IP, and in Microsoft’s case they are trying to enable downloads right into their Xbox entertainment system via the web. How many empty Blockbuster stores and other video stores is that going to push onto the market? Okay, so that’s digital media and one could argue it is an exception due to ease, but technology is enabling the ordering of many other services to be delivered right to our front doors. Are people still going to go out and shop? I would say yes because it seems that many people have turned shopping into a hobby (think better times), but with our youth becoming more introverted and more accustomed to everything being at their fingertips, maybe less than before on a per-capita basis.
Mobile technology efficiencies are not going to destroy office space or retail spaces on a whole, however it is important to understand that in an evolving technological economy, as well as a down economy, they start becoming a lot less necessary. Commercial real estate has always been a sound alternative investment but the last 12 months have proven that investing in these types of properties takes a lot of experience and more importantly, an open mind about what’s to come to gauge future cash flow and value. Betting against technology has never been a very sound investment strategy and this is definitely not the time for anyone to put their head in the proverbial sand. Perhaps you’re reminded of the story about the close minded man who opened up a typewriter store because he thought computers were just a fad for pimply faced kids?
Copyright: Dominic Mazzone, Regent Global Funds 2009
This article was written by Dominic Mazzone, Managing Partner and Fund Manager of Regent Global Funds. This article and other like it can be viewed at http://www.investingsymposium.com which is part of the Regent Global Funds Network.
Regent Global Funds, www.rgfunds.com is an alternative investment fund that offers its participating investors and asset backed investment through asset based lending. The Fund Managers of Regent Global Funds have an expertise in commercial real estate lending and have created a successful alternative investment vehicle that is diversified through this structure.
They separate themselves from other fund mangers by personally investing their own money side-by-side with their investors in the fund, creating an absolute structure of accountability. Dominic Mazzone has written about the need for this type of accountability in an article titled “Fund Managers Need to be Accessible and Personally Invested.”
Private Commercial Mortgage Lenders; Filling a Vital Role in Today’s Credit Market
Glenn Fydenkevez asked:
The Liquidity Crisis Has Paralyzed Institutional Commercial Mortgage Lenders
We are in the middle of the most challenging credit environment in a generation, crisis is not too strong a word to describe the situation we find ourselves in. American business runs on borrowed money, as-does America’s multi trillion dollar commercial real estate industry. Without the free flow of capital the system breaks down.
Institutional lenders are just not lending. Thousands of great projects that would have been fought over just two years ago are being rejected out-of-hand by banks and by Wall Street. The problem is liquidity. Conventional lenders can’t sell their loans into the secondary mortgage market anymore, so they are opting to hold on to their cash until things improve. And who can blame them? There is no money to be made writing a 6% mortgage and then holding it for decades. A thriving market in mortgage paper is imperative; institutions absolutely must have the ability to sell and borrow against the loans they write.
The Mortgage Derivatives Market Has Broken Down
Specifically, it’s the "collateralized mortgage obligation" or "CMO" market that has broken down. CMOs are simply publicly traded bonds that are backed by packages of mortgages that Wall Street investment banks have bundled and turned into marketable securities. They trade in several different incarnations such-as "CDO" (collateralized debt obligations), CCMO (collateralized commercial mortgage obligations) and "MBS" (mortgage backed securities) but, whatever the acronym they’re all the same thing; mortgage derivatives.
Because many of these bonds are backed by a variety of mortgage types, including the dreaded "sub-prime" residential mortgage, and because no one really has a handle how bad the sub-prime crises will get or if it will spread, investors are cool towards mortgages now-a-days. Or, put another way, nobody’s buying CMOs anymore. Lenders are not confident that they can sell the loans they write, so they don’t write them. Likewise, investors are not buying mortgages because they aren’t sure they could turn them back into cash if they needed to. The cycle is vicious and devastating to our economy.
A Massive Funding Gap Has Been Created
The result is what I call "the funding gap". Loans that fall into the funding gap are quality commercial mortgages that should be funded but, due to the turmoil in the credit markets, have been rejected. There are tons of great deals on the sidelines today, deals with top-notch sponsorship and plenty of equity. With the big banks largely out of the lending business, private mortgage lenders have stepped in to fill the funding gap.
Private Lenders Are Playing a Vital Role
Private lenders, once referred to as "hard money" lenders, are privately held companies that engage in commercial mortgage lending for their own benefit. Privately funded commercial mortgages are, generally underwritten on the basis of equity and are typically not credit driven. Interest rates and points on private loans are significantly higher than those charged by banks and other large institutional money centers. Private mortgage lenders can make decisions quickly and fund loans in a matter of a-few weeks, rather than the several months it takes to close a conventional deal.
Many private commercial lenders are, what’s-known-as, portfolio lenders, meaning they hold the mortgages they issue in their own company portfolios. Others do sell their loans, but generally not to investment banks that turn them into bonds. By-and-large, private, hard money lenders are not concerned with the goings-on in the CMO market. Private lenders charge more than double what their institutional counterparts’ charge, so it can be very profitable for them to write a loan, collect the interest during the loan’s term and then get their principle back at maturity. They issue mortgages at low LTVs (loan-to-value ratios) so the risk inherent in holding mortgage paper is mitigated. Because private mortgage firms are not at the mercy of the secondary market, the liquidity crisis that has paralyzed banks, Wall Street and other traditional lenders has had little negative impact on them. In-fact, private commercial mortgage lending is thriving.
Once considered lenders of last resort, private, hard money, firms are now mainstream business and are, indeed, the fastest growing segment of commercial real estate finance. With bank lending volume severely curtailed, thousands of excellent loans are in danger of going un-funded. Commercial real estate property owners, investors and developers are becoming more and more frustrated and are turning to private funding sources in record numbers. Private lenders are making deals and closing loans based on the merits of the deal not the condition of the credit markets. Even large developers and project sponsors who would not have dreamed of turning to a hard money lender just 18 months ago, are now lining up for privately funded loans.
"Hard Money" Can be Well Worth the Cost
Hard money commercial mortgage loans funded by private entities are more expensive than conventional loans on an absolute basis but, because there is no institutional bureaucracy and lending decisions are based on a simple LTV formula, private lenders are much faster and more efficient. If a deal makes sense, a private lender can close and fund it in 10 business days or less. Many real estate investors have come to realize that, even as high as the rates are, hard money is a-lot less expensive than losing the deal completely.
Private lending has been around for many years, and until fairly recently, has not enjoyed a good reputation. Today, spurred-on by the credit crisis, private commercial mortgage loans have gained respect and prominence in the real estate industry. They are funding deals when others can’t or won’t.
Today most private lenders are highly sophisticated and professional organizations. They are fulfilling a vital role in real estate and will continue to be important industry players until the credit markets stabilize and well beyond.
The Liquidity Crisis Has Paralyzed Institutional Commercial Mortgage Lenders
We are in the middle of the most challenging credit environment in a generation, crisis is not too strong a word to describe the situation we find ourselves in. American business runs on borrowed money, as-does America’s multi trillion dollar commercial real estate industry. Without the free flow of capital the system breaks down.
Institutional lenders are just not lending. Thousands of great projects that would have been fought over just two years ago are being rejected out-of-hand by banks and by Wall Street. The problem is liquidity. Conventional lenders can’t sell their loans into the secondary mortgage market anymore, so they are opting to hold on to their cash until things improve. And who can blame them? There is no money to be made writing a 6% mortgage and then holding it for decades. A thriving market in mortgage paper is imperative; institutions absolutely must have the ability to sell and borrow against the loans they write.
The Mortgage Derivatives Market Has Broken Down
Specifically, it’s the "collateralized mortgage obligation" or "CMO" market that has broken down. CMOs are simply publicly traded bonds that are backed by packages of mortgages that Wall Street investment banks have bundled and turned into marketable securities. They trade in several different incarnations such-as "CDO" (collateralized debt obligations), CCMO (collateralized commercial mortgage obligations) and "MBS" (mortgage backed securities) but, whatever the acronym they’re all the same thing; mortgage derivatives.
Because many of these bonds are backed by a variety of mortgage types, including the dreaded "sub-prime" residential mortgage, and because no one really has a handle how bad the sub-prime crises will get or if it will spread, investors are cool towards mortgages now-a-days. Or, put another way, nobody’s buying CMOs anymore. Lenders are not confident that they can sell the loans they write, so they don’t write them. Likewise, investors are not buying mortgages because they aren’t sure they could turn them back into cash if they needed to. The cycle is vicious and devastating to our economy.
A Massive Funding Gap Has Been Created
The result is what I call "the funding gap". Loans that fall into the funding gap are quality commercial mortgages that should be funded but, due to the turmoil in the credit markets, have been rejected. There are tons of great deals on the sidelines today, deals with top-notch sponsorship and plenty of equity. With the big banks largely out of the lending business, private mortgage lenders have stepped in to fill the funding gap.
Private Lenders Are Playing a Vital Role
Private lenders, once referred to as "hard money" lenders, are privately held companies that engage in commercial mortgage lending for their own benefit. Privately funded commercial mortgages are, generally underwritten on the basis of equity and are typically not credit driven. Interest rates and points on private loans are significantly higher than those charged by banks and other large institutional money centers. Private mortgage lenders can make decisions quickly and fund loans in a matter of a-few weeks, rather than the several months it takes to close a conventional deal.
Many private commercial lenders are, what’s-known-as, portfolio lenders, meaning they hold the mortgages they issue in their own company portfolios. Others do sell their loans, but generally not to investment banks that turn them into bonds. By-and-large, private, hard money lenders are not concerned with the goings-on in the CMO market. Private lenders charge more than double what their institutional counterparts’ charge, so it can be very profitable for them to write a loan, collect the interest during the loan’s term and then get their principle back at maturity. They issue mortgages at low LTVs (loan-to-value ratios) so the risk inherent in holding mortgage paper is mitigated. Because private mortgage firms are not at the mercy of the secondary market, the liquidity crisis that has paralyzed banks, Wall Street and other traditional lenders has had little negative impact on them. In-fact, private commercial mortgage lending is thriving.
Once considered lenders of last resort, private, hard money, firms are now mainstream business and are, indeed, the fastest growing segment of commercial real estate finance. With bank lending volume severely curtailed, thousands of excellent loans are in danger of going un-funded. Commercial real estate property owners, investors and developers are becoming more and more frustrated and are turning to private funding sources in record numbers. Private lenders are making deals and closing loans based on the merits of the deal not the condition of the credit markets. Even large developers and project sponsors who would not have dreamed of turning to a hard money lender just 18 months ago, are now lining up for privately funded loans.
"Hard Money" Can be Well Worth the Cost
Hard money commercial mortgage loans funded by private entities are more expensive than conventional loans on an absolute basis but, because there is no institutional bureaucracy and lending decisions are based on a simple LTV formula, private lenders are much faster and more efficient. If a deal makes sense, a private lender can close and fund it in 10 business days or less. Many real estate investors have come to realize that, even as high as the rates are, hard money is a-lot less expensive than losing the deal completely.
Private lending has been around for many years, and until fairly recently, has not enjoyed a good reputation. Today, spurred-on by the credit crisis, private commercial mortgage loans have gained respect and prominence in the real estate industry. They are funding deals when others can’t or won’t.
Today most private lenders are highly sophisticated and professional organizations. They are fulfilling a vital role in real estate and will continue to be important industry players until the credit markets stabilize and well beyond.
Investor Seeking Business Opportunities To Invest.Get Funded
Joe Straton asked:
SONEX INVESTMENT INC. is a private investment company that provides financing to Small-cap, publicly traded companies. Our mission is to add value by providing not only financial resources and industry knowledge, but hands-on M&A strategy and implementation. Acting as principal, we maintain successful long term relationships with our portfolio companies. Our expertise lies only partly in creating flexible financial structures. More importantly, our ingenuity and financial resources enable a company to grow both internally and externally via acquisitions. We’re a hard working, creative, highly experienced and successful team that can take a company to the next level. Contact us to see how we can help make your business grow financially. Our interests are lower than your local lenders, and our conditions are easier to meet. Depending on your compliance to make available the requirements, your funds could be transferred to your resident account within 7 working days you open a communication line with us. Listed below are the other particular areas which we also experienced in Start-up funding Commercial Real Estate Finance* Joint Venture/Partnership with long term business r/ship Seed Capital/Early stage funding Business Financing Debt Consolidation Secured/Unsecured Loans We serve your finance needs better,and make business comfortable for you. info.sonexsupport@gmail.com Joe Straton.
SONEX INVESTMENT INC. is a private investment company that provides financing to Small-cap, publicly traded companies. Our mission is to add value by providing not only financial resources and industry knowledge, but hands-on M&A strategy and implementation. Acting as principal, we maintain successful long term relationships with our portfolio companies. Our expertise lies only partly in creating flexible financial structures. More importantly, our ingenuity and financial resources enable a company to grow both internally and externally via acquisitions. We’re a hard working, creative, highly experienced and successful team that can take a company to the next level. Contact us to see how we can help make your business grow financially.
Our interests are lower than your local lenders, and our conditions are easier to meet. Depending on your compliance to make available the requirements, your funds could be transferred to your resident account within 7 working days you open a communication line with us. Listed below are the other particular areas which we also experienced in
Start-up funding
Commercial Real Estate Finance*
Joint Venture/Partnership with long term business r/ship
Seed Capital/Early stage funding
Business Financing
Debt Consolidation
Secured/Unsecured Loans
We serve your finance needs better,and make business comfortable for you.
info.sonexsupport@gmail.com
Joe Straton.
Get Business Loans Now
SONEX INVESTMENT INC. is a private investment company that provides financing to Small-cap, publicly traded companies. Our mission is to add value by providing not only financial resources and industry knowledge, but hands-on M&A strategy and implementation. Acting as principal, we maintain successful long term relationships with our portfolio companies. Our expertise lies only partly in creating flexible financial structures. More importantly, our ingenuity and financial resources enable a company to grow both internally and externally via acquisitions. We’re a hard working, creative, highly experienced and successful team that can take a company to the next level. Contact us to see how we can help make your business grow financially. Our interests are lower than your local lenders, and our conditions are easier to meet. Depending on your compliance to make available the requirements, your funds could be transferred to your resident account within 7 working days you open a communication line with us. Listed below are the other particular areas which we also experienced in Start-up funding Commercial Real Estate Finance* Joint Venture/Partnership with long term business r/ship Seed Capital/Early stage funding Business Financing Debt Consolidation Secured/Unsecured Loans We serve your finance needs better,and make business comfortable for you. info.sonexsupport@gmail.com Joe Straton.
SONEX INVESTMENT INC. is a private investment company that provides financing to Small-cap, publicly traded companies. Our mission is to add value by providing not only financial resources and industry knowledge, but hands-on M&A strategy and implementation. Acting as principal, we maintain successful long term relationships with our portfolio companies. Our expertise lies only partly in creating flexible financial structures. More importantly, our ingenuity and financial resources enable a company to grow both internally and externally via acquisitions. We’re a hard working, creative, highly experienced and successful team that can take a company to the next level. Contact us to see how we can help make your business grow financially.
Our interests are lower than your local lenders, and our conditions are easier to meet. Depending on your compliance to make available the requirements, your funds could be transferred to your resident account within 7 working days you open a communication line with us. Listed below are the other particular areas which we also experienced in
Start-up funding
Commercial Real Estate Finance*
Joint Venture/Partnership with long term business r/ship
Seed Capital/Early stage funding
Business Financing
Debt Consolidation
Secured/Unsecured Loans
We serve your finance needs better,and make business comfortable for you.
info.sonexsupport@gmail.com
Joe Straton.
Get Business Loans Now
What are the requirements for being a Commercial Real Estate Broker in Ca?
MYSTERY!! asked:
Also what is the difference between an “agent” and a “broker”..
Also what is the difference between an “agent” and a “broker”..
And is it better to do commercial real estate or residential?
Thanks!