Alternative Commercial Mortgage Lenders – Hedge Funds and Private Equity
Hedge funds and private equity firms are investment companies created by Wall Street investment banks and financed by wealthy individuals and cash-rich corporate entities. Unlike standard, publicly traded mutual funds, hedge funds are largely unregulated and have much more leeway in their investment choices. Many of these funds recognized the opportunity that arose in commercial real estate lending and stepped in to fill the funding gap. The money managers in charge of these huge pools of capital are seasoned investment professionals, they know a good deal when they see one and can be very nimble. Hedge funds and equity funds are not afraid of risk; in fact, they thrive on it. If they like a deal, they make decisions quickly and can close a loan or equity financing in just days.
There are many private funds that specialize in investing in commercial real estate or have a commercial mortgage lending division. They are wealthy and actively seek out quality financing deals. They can be an excellent alternative to banks and other traditional lenders.
But keep in mind that they are very professional and extremely sophisticated. Don’t approach hedge funds with poor or incomplete packages. They are professionals and work exclusively with other professionals.
Hedge fund and private equity people have a Wall Street mentality; they are traders art heart. When looking at a deal, they want to be able to make decisions quickly.
When approaching a fund, you’ll want to have a complete, well-documented package ready to show them right away, but don’t give it to them all at once. Having worked for Wall Street firms for over 20 years, I’ve decided that the best way to approach CFOs is with a short, well-written 1-page deal summary.
Summarize the benefits of your deal on a single piece of paper, highlighting the profit potential, the level of experience of the investors, the strength of the location, and some of the project’s other strengths. They will appreciate the fact that you respected their time by being brief. If they like what they see, they’ll ask for more. Give them exactly what they want; don’t overwhelm them with documentation until they tell you they want to see it. Sell them the big story before you try to sell them the details.
If you are looking to secure financing from a large private equity shop or hedge fund, I highly recommend using the services of a professional broker with Wall Street experience. They can speak the language of fund managers and know exactly what is important to highlight about a particular deal. These funds usually operate like private clubs, it helps a lot if you have an “in”. If you’re lucky enough to develop a relationship with this unique type of lender, you’ll enjoy a seemingly endless source of capital.
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