Guest Blogger: Jeffrey Weingart, Principal at Avant Capital Partners
The current credit crisis has been a test for property owners and real estate investors. The collapse of the lending industry has left many market players outright paralyzed. Investors who are seeking financing to acquire or reposition a property or to pay off a maturing loan often find that their traditional financing avenues have been closed or lending parameters in the market are so restrictive that transactions simply cannot work. Many owners turn to mortgage brokers to help them navigate the current lending landscape, but mortgage brokers themselves often face challenges in adapting to the tightening underwriting standards and decreased availability of capital. Those who are knowledgeable of the current market, understand various financing structures and have relationships with active lenders/investors can add tremendous value to the real estate entrepreneurs they work with as they can provide them with superior financing structures to achieve long-term goals in the face of a short-term credit crisis.
Underwriting guidelines for conventional financing are often more scientific than they are subjective making it easier for real estate investors and mortgage brokers to qualify the possibility of a loan and the terms. However, proceeds restrictions have made many of these loans problematic as they do not meet the needs of most investors. Bridge lending platforms originate loans secured by a variety of property types, including multi-family, industrial, office and retail. They were originally designed to meet the needs of borrowers purchasing or holding properties that are being repositioned, re-tenanted, improved or otherwise redeveloped and also provided a financing mechanism for transactions that were time constrained.
Bridge financing from non-bank institutions such as hedge funds and REITS is becoming increasingly important to borrowers in the current landscape. In many cases, bridge loans from these institutions are the preferred financing tool for distressed borrowers as they provide higher leverage, greater certainty of execution than banks, interest-only periods and quicker closing time-frames. Borrowers have been utilizing these bridge loans for discounted note purchases and/or recapitalization/workouts. Most recently, we are seeing borrowers with stabilized assets utilize non-bank bridge loans to take advantage of opportunities to pay off their existing mortgages at a discount. While these bridge loans are costlier than conventional financing, they enable the Borrower to immediately increase their equity in a property and ultimately improve their long-term cash flow by reducing their leverage.
Non-bank bridge loans are priced on a risk adjusted basis and pricing will be lower for low-leverage deals with strong sponsors and high-quality assets in performing markets. The structure of a typical bridge loan from these institutions includes an interest rate ranging from 7.50% to 12.00%, origination fees of one to three points and a loan to value ratio of 65% to 80%. Bridge loans typically have one to five-year terms and are usually interest-only for the loan term.
Bridge loans from these private lenders often imply a more flexible underwriting criteria and higher proceeds, but that does not mean they will be appropriate for every transaction that is proceeds driven. In order to provide maximum proceeds and optimal structures, mortgage brokers, financing advisors and real estate investors must have access to capital from traditional lending sources such as banks, life insurance companies and government agencies to compare alternative structures utilizing conventional debt with mezzanine debt and preferred equity investments. Understanding the current market, knowing the players and structuring creative financing solutions to achieve optimal results for real estate investors is the first step in a mortgage broker or advisor to create value. But ultimately none of this matters if they can’t get lender’s to execute on deals. As a real estate investment bank, we professionally represent your transaction to our lending partners and have direct access and long-term relationships with most lenders in the market to help ensure transaction execution.
Jeffrey Weingart
Principal at Avant Capital Partners
Direct Dial: 617-517-3628
About Avant Capital Partners – Avant Capital Partners is a real estate investment bank and correspondent lender providing commercial mortgages and equity investments for stabilized and in-transition investment properties
