Private debt funds. A time & a place.
The first few months of 2018 have been met with cautious optimism. The stock market started the year with a few turbulent weeks, but it seems to have fended off the major selloff that many economists predicted. As we’re about to enter our 9th year in recovery from the “Great Recession”, many investors are cautiously optimistic on the overall strength of the commercial real estate sector. The overall low cost & availability of capital have kept real estate prices inflated. However, over the last several months we’ve seen a majority of our institutional lending partners become more conservative from a leverage standpoint then they’ve were earlier in the cycle. We’re seeing leverage decrease from 75%-80% to 60-65% today. With the exception of government subsidized loans (Fannie Mae, Freddie Mac, HUD, SBA, USDA, etc.) whom are still offering leverages between 75%-90%, the private debt funds are the only available sources of capital to achieve these higher leverages; especially on construction opportunities. The good news, over the last 3-4 years, there has been several of these private debt funds that have raised an enormous amount of capital to fill the void where traditional lending sources have fallen short. The entrance of these new debt funds has created a highly competitive landscape, forcing these funds to offer lower rates and higher leverages.
Typical Private Debt Fund Terms:
Loan Amounts: $2MM - $50MM
Leverage: Up to 85% LTV / LTC
Rates: 6.25% - 11.00%
Terms: 6 mos. – 60 mos.
Amortization: Interest Only
Territory: Nationwide (Most Markets Considered)
Property Types: ALL ASSET TYPES CONSIDERED