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

The ongoing credit crisis has created it much much more tricky for investors to qualify for an institutionally funded (bank, broker, insurance firm) commercial mortgage loan. Underwriting standards have turn out to be substantially tougher and loan parameters have tightened. Quite few offers are getting accepted by the banks, and even fewer are truly closing.
 
Various good loans that really should get financing are becoming rejected out-of-hand. We call this scenario the "funding gap."
 
Lately a number of hedge funds and private equity organizations have recognized that opportunity exists for firms that can assist fill the funding gap by providing private commercial mortgages to high quality borrowers who have been shut out by their banks. Over the last 18 months revenue managers have committed hundreds of millions of dollars to the commercial real estate finance sector. They are acquiring distressed mortgage paper directly from troubled lenders and they are pretty willing to write new loans against commercial buildings and development projects.
 
But prior to commercial genuine estate investors seek a loan from a hedge fund or other private lender there are some important items they ought to know.
 
Private commercial mortgage lenders are opportunistic investors a hedge fund is in company to earn high returns for its investors in a timely and effective manner. The loans they supply will be short term in nature (rarely far more than 36 months) and will carry substantially greater interest rates and origination points than a bank or Wall Street broker would. Further, hedge funds will be particularly aggressive in foreclosure scenarios they will take your property if you fail to carry out.
 
Funds and private lenders that we operate with are at the moment charging ten%-15% annual interest with three-four points. This signifies that borrowers can expect to pay a 13%-19% APR. On best of that, borrowers are responsible for the price of any third party reports that might possibly be necessary such as appraisals, environmental assessments and feasibility reports.
 
On the positive side, there is capital offered for these private commercial mortgage loans and deals can be closed really speedily. Most funds prefer income producing, investor owned commercial buildings like apartment complexes, office buildings or self storage facilities. They will commonly lend up-to 65% of a properties value and underwriting is equity based not credit driven. They will lend for each obtain and refinance, but private loans are "bridge" loans and a viable, realistic exit strategy wants to be in-place. In-other-words they will will need to know exactly how they are going to be paid back.
 
This credit squeeze has been devastating to the commercial genuine estate industry and the issues are not going away. As we all wait for the circumstance to boost private lenders, such as Wall Street hedge funds and private equity firms, have cash and are willing to lend it.