By Buck Wargo (contact), In Business reporter
Fri, Mar 5, 2010 (3 a.m.)
Hard-money lenders want to capitalize on distress in commercial real estate and the foreclosures that may hit that market.
Investors, hard-money lenders and mortgage brokers attended a conference last week at the Monte Carlo to discuss the industry and opportunities they are expecting in 2010.
Hard-money lenders are companies, groups or individuals that as investors loan money at higher rates and fees than banks. Hard-money lending is a tool widely used by the real estate industry.
Leonard Rosen, a former anchor at the Financial News Network who hosted the seminar, said the market is imploding with $300 billion of $1.8 trillion in commercial mortgages in arrears in metropolitan areas. Las Vegas has the highest percentage of troubled commercial real estate in the country.
“There is going to be a huge commercial crash, and that’s happening now,” said Rosen, who nevertheless acknowledged more banks are working with property owners. “This is an extremely dynamic and powerful force, and it’s going to impact the overall economy.”
Many hedge funds with real estate portfolios have been under financial pressure, and many have gone out of business as have many large hard-money lenders, Rosen said.
“But for every one going out of business, there are new lenders to take advantage of the current opportunities. Real estate values are becoming more in line with reality.”
The business model has changed for hard-money lenders that are trying to deal with this new environment, Rosen said.
Under previous business models, the lenders would fund commercial real estate deals and sell the paper at a discount to investors. In other cases, lenders would receive a warehouse line of credit from large banks and reloan the money for commercial projects at a higher rate. That has stopped as well, Rosen said.
Today, the hard-money lenders are becoming portfolio managers. They are creating mortgage funds where they bring in investors who are given dividend yields, Rosen said.
“The portfolio manager business model is much more profitable for the lenders and safer for the investors who are not looking for double-digit returns,” Rosen said.
The funds are spread out among properties, and money would be secured against the property, Rosen said.
Lenders are no longer loaning 65 percent of the value of the property. That is down to 50 percent, he said.
