The banks, Wall Street brokers and Hartford insurance companies have two very serious problems on-their-hands. First, if assets they hold continue to drop in value, they are at risk of becoming statutorily insolvent. And second, there is no viable market for loans they originate. They are in a situation that will not allow them to let a single dime out of the vault; if they can’t recover their capital by selling a loan they simply can’t write the loan. To make a long story short: banks couldn’t lend even if they wanted to.
Where does that leave the commercial real estate investor? Their buildings still need to be refinanced, their projects still need to move forward. Where are they supposed to get the funding they so desperately need?
The trend in commercial real estate finance is towards private, rather than institutional sources of financing. Private commercial mortgage lenders, often called “hard money” lenders, have stepped in and are funding many deals that, due to the credit crunch, the banks and other traditional lenders have turned away. Unlike banks and Wall Street firms, private, hard money lenders tend to hold or “portfolio” the loans they issue. This means that they are not dependant on the secondary mortgage market; they can originate commercial mortgage loans regardless of the current credit situation.
Private lenders are not regulated or controlled by the Government; they are funded by private entities or wealthy individuals. Hedge funds and private equity firms often act as private mortgage bankers, lending money on behalf of their investors. Other hard money firms are funded by large “commercial mortgage pools” that get their capital by pooling contributions of many smaller investors. A private mortgage is generally underwritten based on the equity in a building or development project. They are not usually credit driven like conventional financing is.
Borrowers like the fact that lending decisions and funding can happen very quickly when dealing with a private funding source. Multi-million dollar loans can be arranged and closed in a matter of a few weeks with a minimal amount of documentation. The rates and points that hard money lenders charge are significantly higher than what a bank or institutional lender would charge, but, in today’s economic environment, borrowers and project sponsors are happy to get any loan at all. No one is quibbling over interest rates now-a-days.
We are in strange and confusing times when it comes to financial matters. Banks are flush with cash but refuse to lend it out. The Government is pouring hundreds of billions of dollars into the system but it just doesn’t seem to loosen up. With all the traditional, conventional lenders in crisis, it seems that hard money has become the only game in town. Years ago private lending was considered shady and somewhat suspect, but today hard money is main stream business, private lenders are well funded and highly sophisticated. Private commercial mortgage lending is in-fact, the fastest growing segment of commercial real estate finance. When the history of this period is written many accolades will be given to the private financiers who stepped in and filled the funding void that the credit crisis created.
Where does that leave the commercial real estate investor? Their buildings still need to be refinanced, their projects still need to move forward. Where are they supposed to get the funding they so desperately need?
The trend in commercial real estate finance is towards private, rather than institutional sources of financing. Private commercial mortgage lenders, often called “hard money” lenders, have stepped in and are funding many deals that, due to the credit crunch, the banks and other traditional lenders have turned away. Unlike banks and Wall Street firms, private, hard money lenders tend to hold or “portfolio” the loans they issue. This means that they are not dependant on the secondary mortgage market; they can originate commercial mortgage loans regardless of the current credit situation.
Private lenders are not regulated or controlled by the Government; they are funded by private entities or wealthy individuals. Hedge funds and private equity firms often act as private mortgage bankers, lending money on behalf of their investors. Other hard money firms are funded by large “commercial mortgage pools” that get their capital by pooling contributions of many smaller investors. A private mortgage is generally underwritten based on the equity in a building or development project. They are not usually credit driven like conventional financing is.
Borrowers like the fact that lending decisions and funding can happen very quickly when dealing with a private funding source. Multi-million dollar loans can be arranged and closed in a matter of a few weeks with a minimal amount of documentation. The rates and points that hard money lenders charge are significantly higher than what a bank or institutional lender would charge, but, in today’s economic environment, borrowers and project sponsors are happy to get any loan at all. No one is quibbling over interest rates now-a-days.
We are in strange and confusing times when it comes to financial matters. Banks are flush with cash but refuse to lend it out. The Government is pouring hundreds of billions of dollars into the system but it just doesn’t seem to loosen up. With all the traditional, conventional lenders in crisis, it seems that hard money has become the only game in town. Years ago private lending was considered shady and somewhat suspect, but today hard money is main stream business, private lenders are well funded and highly sophisticated. Private commercial mortgage lending is in-fact, the fastest growing segment of commercial real estate finance. When the history of this period is written many accolades will be given to the private financiers who stepped in and filled the funding void that the credit crisis created.
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Tags : Mortgage , Money , Commercial , Hard Money , Mortgage Loans
