Hard Money Perspective
— Commercial Mortgage Insight - December, 1998
Private Lender Fills Equity Gap
— Criittendens Developers Financing News - December 7, 1998
The Hard Facts About Hard Money Lending
— Mortgage Press - November, 1998
When Banks Wont Budge
— Star Ledger - September 20, 1998
Building Blocks For Construction Deals
— Commercial Mortgage Insight - September, 1998
Brokering Construction Deals
— Commercial Mortgage Insight - September, 1998
Mountain Funding Boasts Fast Closing
— Commercial Mortgage Insight - June, 1998
Private Lender Covers 125% of Costs On Texas Land Purchase
— Criittendens Developers Financing News - May 4, 1998
N.J. Firm More Than Doubles Lending Activity
— Real Estate Finance & Investment - April 6, 1998
Private Lender Backs Gotham Condo
— Criittendens Developers Financing News - January 5, 1998
Hard Money Prospective
— Commercial Mortgage Insight, December,1998
Mountain Funding LLC, a hard money lender based in East Brunswick, N.J., is seeing more opportunity as desperate borrowers who would have gone to conduits only a few months ago turn to the hard money lender, says Arthur Nevid, director of acquisition and development.
Because of that, the lender, which expects to generate $125 million this year and $150 million to $200 million next year, anticipates a flood of funding requests to close the year.
"People are turning to us because they don't have any choice," Nevid says, adding that even hard money lenders have been going out of business. "The money is not there for anything but the most vanilla deals. It'' hard to quote deals.""
Pricing loans higher, the company is lending more carefully and pricing loans with the expectation that funding will continue to dry up and that property values will drop before leveling out - which is difficult to explain to borrowers, Nevid observes. "It looks like a ridiculously overpriced loan that way."
In the past, the lender has charged interest rates of 12% to 15%. But rather than paying exit fees that may reach 15 points, more borrowers are opting for participating loans or joint ventures in which the lender receives 25% to 50% of profits.
Private Lender Covers 125% of Costs on Texas Land Purchase
— Crittenden's Developers Financing News, May,1998
Dallas-based American Realty Trust Inc. turns to private hard money lender Mountain Funding LLC for a 12-month, $20.7M loan to finance its acquisition of 425 acres of commercially zoned land in McKinney, Texas.
Mountain Funding structured the deal to cover 125% of the publicly-traded company's initial acquisition and entitlement costs. American Realty Trust will sell lots in the so-called McKinney Corners parcel to commercial developers. The firm already has contracts for the sale of almost 150 acres and expects to begin closing sales in June. Possible uses for the far north suburban Dallas land include a movie theater, a golf course and 1,500 apartments and single-family houses.
American Realty Trust used about $4.7M of the loan proceeds as equity and spent the remaining $16M to pay off existing debt to Los Angeles-based Foothill Capital Corp. American Realty will use the proceeds from lot sales at McKinney Corners to pay down the principal on the Mountain Funding note. Mountain Funding charged 8 points and priced the loan at 12%. The commitment includes a provision which allows American Realty to borrow any repaid amounts. Mountain Funding would underwrite additional loans on the repaid amount to a maximum of 50% and would charge a 1% fee.
The Hard Facts About Hard Money Lending
The Mortgage Press, November,1998
Part 1: Myths vs. Reality
Several years ago, as head of a real estate investment and development concern, I was seeking land acquisition, development and construction financing for a New Jersey residential project. As a result of the lending and credit crunch of the early 90's, conventional bank financing was practically unavailable, particularly for acquisition and development. Moreover, our scenario had its own peculiar complications:
- Our company, while very experienced in commercial development worldwide, did not have existing domestic banking relationships to quickly fund this residential project.
- Our cash equity commitment was only about 10% of the total project cost.
- The only principal of our company with substantial net worth was European, with no assets of any size in the United States.
- The property had an environmental issue, buried asbestos, and a ten year history of litigation: environmental, zoning and ownership.
- The property abutted up against an active railroad in an industrial section of town, and the particular product type was untested in this community.
With conventional financing apparently impossible, I was referred by another developer to Mountain Funding LLC, a privately-held "hard money" lender which was known to quickly finance difficult development projects. I met twice with the president of Mountain Funding, Peter Fioretti, after which he outlined a proposal for our consideration. The terms, procedures and conditions of his proposal were unlike any I had ever seen in traditional institutional real estate finance. I thought the terms were too tough, and our discussions ended. However, a relationship and respect grew out of this exchange whereby my company subsequently invested as a co-lender in two of Mountain Funding's hard money loans, and I have since joined in partnership with Peter on a full-time basis. I have come to understand that, while Peter's terms and conditions on my residential deal were tough, they were appropriate relative to the tough, "hard" nature of our loan request.
My experience, both previously as a developer/borrower and currently as a partner in Mountain Funding, has enabled me to understand the basics of the hard money lending business and clarify some commonly-held myths.
Myth #1
Hard money loans are named as such because the lenders are "hard" to deal or negotiate with, and their terms are "hard" to accept.
While the nature of the business does require hard money lenders to hold relatively firm stands on their lending criteria, the simple truth is that the "hard" part is the loan itself, i.e., a difficult borrower, a difficult project and/or difficult circumstances surrounding the transaction. We refer to these difficulties as "hair". Every request is unique, requires understanding, dissection and reconstruction in order to make it workable.
As Director of Acquisitions and Lending for Mountain Funding, I personally respond to all loan requests. The "hair" encountered is often incredible and sometimes comical. Putting aside the extreme examples such as hand-written requests from state penitentiary, ostrich and catfish farms, stadium tailgating concessions and financing of independent nations to be formed in the State of Texas, there are several consistent themes running through the typical request:
- Money is needed quickly, often within a week and almost always within a month.
- The borrower has little or no cash equity, and is either unable to raise a reasonable amount or is unwilling to sacrifice a substantial equity interest in his project to an equity investor. Oftentimes, the borrower professes to have "previously invested many millions" of his own cash equity, but doesn't have $5,000 available today to pay for an appraisal.
- "The borrower was extremely successful - one of the best in his field - and has made (and lost) millions." Interpretation: the borrower has a troubled credit history, maybe including personal and corporate bankruptcies and other litigation, and is non-bankable.
- The borrower has been trying to arrange the loan for several months, and has been close two or three times. Sometimes the borrower was simply misled by the prospective lender (who may have actually been a broker misrepresenting itself as a lender), but usually the borrower was stubbornly holding out for an unrealistically cheap loan.
- The project has problems or questions, such as: environmental; zoning and/or approvals; location; litigation; feasibility; valuation, etc.
- There is no clear exit strategy for the loan.
Myth #2
Hard money lenders are really brokers who misrepresent themselves as direct lenders.
True hard money lenders are exactly that - lenders. When such a lender, like Mountain Funding, commits to make a loan it does so based on its known ability to fund the transaction from its own account or from a discretionary funding program which it may manage. The reputable hard money lender internally underwrites and performs the transaction's due diligence, is the named lender in the documents, and directly services, disburses and collects the loan proceeds.
Unfortunately, there are a few mortgage brokers who do mislead borrowers into believing that they are actually direct lenders. Sometimes a broker will bury into its commitment letter a "subject to best efforts" clause, which a prudent borrower could identify, but most do not. To protect themselves, borrowers should perform their own due diligence to verify the ability of the "lender" to actually lend. They should insist on speaking with references such as lawyers (both the lender's lawyers as well as some of their borrowers' lawyers), trade associations, and actual borrowers. At Mountain Funding, we insist that the prospective borrower "check us out." Of course, borrowers should assume that a lender will only offer references which are known to be positive. Mountain Funding goes a step further, we offer the names of several developers with whom we were unable to finalize a deal!
Myth #3
Hard money loans are too expensive.
As explained earlier, what makes hard money loans "hard" are the circumstances surrounding the request, not the lender or the loan terms. If the loan was easy or worthy of cheaper pricing, the borrower would not have sought a hard money loan in the first place. The typical hard money borrower has unsuccessfully explored and exhausted all sources of conventional debt and equity. The pricing quoted by a hard money lender is usually appropriate for the particular circumstances and properly matches the real risk (which is always understated by the borrower).
Hard money loans are priced to market like any other loan (the second part of this article will discuss the specific pricing for hard money loans). Interestingly, I have seen competing proposals from such institutions as Lehman Brothers, Credit Suisse First Boston, Starwood Capital and Itochu International which were priced and structured at least as "hard" as we would price them. However, being prestigious investment banking concerns, their proposals would never be labeled as "hard money" but rather as "Wall Street deals."
Hard money loans are usually a blend of debt and equity risk, but are priced higher than conventional debt and cheaper than the cost of equity. Relatively few transactions actually fit, but hard money lenders are trained to identify those that do and competitively price them. Once a borrower recognizes that it is a candidate for a hard money loan, it will seek out the few reputable lenders like Mountain Funding and get quotes from each. Inevitably, the competitive proposals will be priced very similarly. Therefore, the borrower's final decision should be based on the (a) the reputation of the lender and its ability to close; (b) the conditions of each proposal (e.g. recourse vs. non-recourse); and (c) the chemistry between the principals.
Myth #4.
Hard money lenders are disreputable, bad guys.
For the most part, hard money lenders are reputable, experienced, straight-shooting professionals. Most principals of hard money lending firms have successful backgrounds as institutional financiers, developers, accountants or lawyers. They recognize that they can only make money by closing loans, and a bad reputation will not help do that. Finesse, however, is not necessarily their strong suit. As time is their most valuable commodity, hard money lenders will quickly and bluntly lay it on the line. Savvy borrowers appreciate this approach and use it to better focus their financing search.
There are occasional horror stories of loan applicants being mistreated by certain hard money lenders. Applicants have been known to lose money and time, sometimes substantial, during the qualification process. Occasionally, the lender may be at fault. More often, the borrower was unrealistic in his expectations, or misunderstood the conditions and obligations in the executed commitment letter.
In summary, reputable hard money lenders are tough but fair, and experienced in both assessing risk and closing loans. However, as mentioned earlier, a prudent borrower should perform its own due diligence on the lender at a very early stage of the relationship to avoid potential problems.
Hard money lenders fill a niche between conventional lending and private equity capital. Conventional institutional lenders will not finance hard, hairy loans. Equity investors demand very high returns and/or shares of profits. Hard money lenders do not equate "hard" deals with "bad" deals. Rather, we use our practical experience and flexible capital sources to see through the hair and help developers seize opportunities or add value to their existing projects. Our funding is best suited for opportunistic, undervalued or other special situations which are short on time or capital, or have conditions which make them difficult to conventionally finance. Due to the relatively high cost of hard money loans, they work best as short-term fixes (helping developers get "from point A to point B") rather than as permanent financing. Oftentimes, hard money loans bridge the "equity gap" which may be temporarily missing from a deal, thus avoiding the necessity for a developer to give away a substantial share of his profits.
Prospective borrowers who realistically assess: (1) the availability (or scarcity) of financing for their situation; (2) the limitations and frustrations inherent in conventional institutional financing; and (3) the value of speed and frankness, are the perfect customers for hard money lenders. We welcome their inquiries and offer immediate, frank, experienced, and helpful answers and insights.
Part 2: Process and Pricing
Previously in this series, we discussed the myths and realities of the hard money lending business. In this part, we will look at how the loans are processed and priced.
Hard money lenders are prepared and equipped to finance difficult situations. As Director of Acquisitions and Lending for Mountain Funding LLC, I personally respond to every request received by our firm. Our experience has been that only 20% of all calls received are qualified, and only about 2.5% of those result in a closing (i.e., about one out of every 200 calls results in a closing). As a result, the most difficult and critical part of my job is to be able to quickly screen the wheat from the chaff, and devote quality time to qualified candidates only. There are many indicators related to both the project and the presentation itself which may quickly clue me as to a proposal's worth. As soon as a negative indicator arises, I politely end the discussion (although always appreciative that the caller considered our firm for financing).
As to those calls which are worthwhile, any or all of the following are usually present:
- The caller is clear, concise, realistic, honest and non-argumentative.
- The caller is not insistent on specific terms, but will leave it to our own judgment to make the best offer we can.
- Most of our business is generated through the mortgage brokers. We respect and value our relationship with all brokers, but especially enjoy working with brokers who: (i) will perform their own limited due diligence on the borrower and the project prior to presenting the request to us; (ii) help their client prepare an efficient and effective loan request package; (iii) understand the realistic market pricing of the loan and have explained it to their client; (iv) work as a constructive intermediary between borrower and lender throughout the process.
- The borrower is experienced, cooperative, creative, flexible and confident in his abilities and his project. He unhesitatingly presents strong, logical responses to all questions regarding his project.
- The project must seem feasible, have no entitlement or environmental risk, and have a believable exit strategy. Its profitability must be significant enough to support the high current and/or back-end costs of the hard money loan, even based on conservative operating assumptions.
- The applicant must be able to comfortably and willingly pay the lender's actual due diligence and closing expenses. Moreover, a borrower who is able and willing to invest new cash money into the deal immediately rises to a high level of comfort with the lender.
Process
Prospective borrowers or brokers seeking hard money loans usually first call a loan officer or may fax a brief summary of the transaction. If the loan officer feels that the request generally fits his parameters and a possible deal exists, he will request that a more complete package be faxed or sent containing:
- An "executive summary" outlining as briefly and clearly as possible the project, the loan request and the borrower's background.
- A source and use of funds, including equity to be invested by borrower.
- A detailed financial projection.
- A discussion of the exit strategy.
- Detailed borrower background and experience, financial statements and references.
- Area maps and market information.
- Site and building plans.
- Pictures, if available.
- Appraisal and market study, if available.
After reviewing the loan package, the loan officer will speak with the borrower and broker to better understand the particulars, and to try to negotiate a deal. Lenders appreciate (and sometimes require) the borrower to visit the lender's office to personally walk the lender through the package. A face-to-face meeting, the chance to shake hands and look into each others eyes, is often the best way to expedite (or terminate) a deal.
Once the transaction is fully understood, the lender will make an oral proposal to the borrower and attempt to negotiate a deal-in-principle. If the borrower wants to move forward, the lender will submit to the borrower a term sheet (which may be referred to as a letter of intent or a conditional commitment letter). The term sheet will outline the basic pricing, funding conditions and legal terms for the borrower's review. This letter is not a commitment. The lender's obligation to close will be subject to satisfactory due diligence and legal documentation, all of which will be referred to in the term sheet and will be completed to the lender's satisfaction. The borrower must execute the term sheet and remit any necessary fees or costs prior to the lender beginning its due diligence. At the completion of its due diligence (1-30 days), the lender will advise the borrower of its findings and will schedule a closing date if the due diligence was positive.
Pricing & Terms
All hard money loans include (1) a requirement for monthly payment of interest (or preferred return in the case of a joint venture) at rates which range from 12%-16%, plus (2) fees and/or profit kicker. If the project cannot support monthly interest payments, the lender may include an adequate reserve or prepayment for interest. The combination of interest and fees quoted by a hard money lender will reflect the lender's perceived risk of the transaction, based upon the many factors that directly affect risk, including: borrower qualifications, experience and credibility; borrower equity; level and quality of personal guaranties; loan-to-value and loan-to-cost ratios; market strength; entitlement status; project track record; development risk; and speed of closing. The overall pricing typically ranges from the high-teens to above thirty percent per annum.
The types of fees charged can vary greatly between lenders, or even between different deals as proposed by a single lender. The following are some of the various types of fees which may be charged, two or three of which will be included in any loan proposal:
- Application Fee or Due Diligence Fee: Payable upon signing a letter of intent or conditional commitment letter. $5,000-$50,000. In addition, the borrower will always be required to pay for all of the lender's third-party costs of due diligence and closing, including legal, appraisal, market/feasibility study, travel, engineering, environmental, etc.
- Commitment Fee or Break-Up Fee: Usually paid at the earlier of loan closing and borrower default of its obligations to close. 1%-4%. May be funded by the Lender as part of the loan.
- Closing Fee, Points, or Participation Fee: Due at closing. 2%-10% of the committed amount. May be funded by the Lender as part of the loan.
- Loan Administration Fee: Charged by some lenders to monitor and service the loan, particularly with construction loans. 0.25%-2.5% of the outstanding loan balance. Funded by the Lender as part of the loan.
- Exit Fee or Release Fee: Charged upon repayment of the loan. 1%-3% of the amount being repaid.
- Extension Fee: Payable by borrower upon notice of maturity extension. Amount will depend on length of extension and general fee structure.
- Profit Kicker: In lieu of some of the fees listed above, a share of profits or revenues (10%-50%) occasionally requested by lender, particularly when lender is lending at a higher than normal percentage of value or cost.
The majority of hard money loans have short-term maturities, ranging from 6-24 months, often with the ability to extend. Others, particularly those requiring construction or sales, may range up to three years. For pure bridge loans, terms may be as short as 90 days. Most loans have prepayment penalties if paid back before a minimum hold period.
Most hard money loans require a personal guaranty for repayment of the loan. At a minimum, personal recourse will be required for construction completion (if a construction loan) and for "standard carve-outs" such as fraud, misrepresentation, and bankruptcy filing. A few lenders, like Mountain Funding, offer non-recourse programs.
The commitment will also refer to (1) exclusivity: the borrower must agree not to solicit other financing; (2) brokerage: the lender will usually agree to fund the procuring broker's commission as part of the loan, but to protect against unforeseen brokerage claims, borrower must indemnify Lender against any claims for any additional brokerage commissions; and (3) legal issues such as governing law, opinions, etc.
Hard money lenders fill a niche between conventional lending and private equity capital. Conventional institutional lenders will not finance hard, hairy loans. Equity investors demand very high returns and/or shares of profits. Hard money lenders do not equate "hard" deals with "bad" deals. Rather, we use our practical experience and flexible capital sources to see through the hair and help developers seize opportunities or add value to their existing projects. Our funding is best suited for opportunistic, undervalued or other special situations which are short on time or capital, or have conditions which make them difficult to conventionally finance. Due to the relatively high cost of hard money loans, they work best as short-term fixes (helping developers get "from point A to point B") rather than as permanent financing. Oftentimes, hard money loans bridge the "equity gap" which may be temporarily missing from a deal, thus avoiding the necessity for a developer to give away a substantial share of his profits.
Prospective borrowers who realistically assess: (1) the availability (or scarcity) of financing for their situation; (2) the limitations and frustrations inherent in conventional institutional financing; and (3) the value of speed and frankness, are the perfect customers for hard money lenders. We welcome their inquiries and offer immediate, frank, experienced, and helpful answers and insights.
When Banks Won't Budge, Hard Money Fills The Gap
— The Star Ledger, September,1998
The old joke about banks is that they won't lend money to anyone who really needs it. For borrowers who fall into that category, it's no laughing matter.
But New Jersey-based "high-yield, short-term" lender, Mountain Funding in East Brunswick - along with perhaps four or five other similar-sized companies elsewhere in the nation - have been able to create profitable nationwide businesses doing what larger lenders can't or won't do.
Investors say some operators in the largely unregulated industry have been known to charge would-be borrowers high up-front fees for loans that never materialize.
As long as companies such as Mountain lend their own money rather than money from depositors' accounts, they don't come under the state's banking laws and don't require a state license, said Dana Sullivan, a spokesman for the state banking and insurance department.
"Basically, they aren't regulated," he said, adding that their interest rates, while high, don't appear to violate the state's usury laws. Those laws allow loans to corporations to carry annual interest rates of up to 50 percent, he said.
The company said the size and number of their loans are increasing as enterprising developers seek to stay on the cutting edge of the real estate revival. Loan money comes from combination of company profits, wealthy investors, bank credit lines and, more recently, Wall Street investment firms looking for lucrative returns.
Hard lessons
Arthur G. Nevid, director of lending for Mountain Funding, said the company, which specializes in short-term land acquisition and construction loans to developers, "has been swamped with business since we went national last year." The 5-year-old lender closed its largest loan so far, a $20.7 million land loan to a Dallas developer, in March.
Such "non-institutional" loans come at a steep price. Mountain normally charge the kind of double-digit interest rates usually seen at the bottom of your Mastercard or Visa statement.
Nevid at Mountain Funding said one reason his company can react quickly is that the principals, Peter and Robert Fioretti, are developers themselves.
"We know the right questions to ask. Within 15 minutes of the first conversation we'll know if we're dealing with a real developer with a good plan or some wheeler-dealer with a pie-in-the-sky scheme," he said.
Building Blocks For Construction Deals
— Commercial Mortgage Insight, September,1998
Because a developer is not necessarily a strong presenter of his project, the brokers role is to package the proposal, says Arthur Nevid, director of acquisitions and lending for Mountain Funding LLC, of East Brunswick N.J.
Nevid offers the following tips for what a loan package should include:
- An explanation of the real estate in a couple of pages.
- The developers background who he/she is, also in a couple of pages.
- Pro Forma statements, both existing and projected, a couple of pages each.
- An outline of the exit strategy in a couple of paragraphs.
- A site plan or map.
- Information on the projects local competition.
- Exerts from the initial appraisal. The full appraisal report will come later.
- An executive summary of two to three pages that summarizes the deal.
The entire package should be about ten pages long. Keep it simple, not a big, fancy, colorful package, Nevid advises.
Brokering Construction Deals
— Commercial Mortgage Insight, September,1998
Mountain Funding LLC of East Brunswick, N.J. gets involved in the early state of development when projects have more risk and brokers are the best source for deals, explains Arthur Nevid, director of acquisitions and lending for Mountain Funding LLC of East Brunswick, N.J.
"Even though there is a lot of money these days, banks still are looking at development and early stage development conservatively," Nevid says. If a developer is buying land for development or property for conversion, "there's still an element of what would be viewed as risky money."
"We will look at the entire project from beginning to end," he explains, adding that the company offers one-stop shopping for developers. "we're in there from day one, helping them with the harder money."
In its projects, pre-leasing is done during development. Conduit or pension funds commit to permanent financing - subject to construction completion and 25% to 75% lease ups - usually "right from day one."
The company is interested in anything from raw land acquisition to downtown office renovation and conversion and focuses more on the real estate rather than the borrower.
Deals with a story
"We do existing projects that need a fast closing or have hair on them. We welcome deals with hair on them," Nevid says, adding that the company has non-recourse programs which banks lack. "Our deals have a story."
Mortgage bankers or brokers, the best ones who obtain an entire financing package, usually provide its best leads, Nevid observes. Nevid sees three types of mortgage bankers and brokers.
- The lower level group that does mostly residential and occasionally comes across a suitable commercial deal.
- The high-end broker doing major institutional deals with top flight developers and Wall Street firms. They may approach Mountain Funding if a project "has wrinkle to it."
- The middle level brokers willing to work to make a deal work but who have enough discretion not to send every deal his way. Most of his work comes from this type of broker.
Mountain Funding looks favorably on renovation projects in secondary markets like Baton Rouge, La. And Birmingham, Ala. and is seeing opportunities in re-emerging B areas, like parts of North Carolina and northern Florida.
"In these types of markets you can still get reasonable pricing," Nevid says. "There's a shortage of institutional money, especially for redevelopment."
The company likes medium projects north and west of Dallas, but is worried about overbuilding in major markets like New York, Chicago and Boston, he notes. "We're concerned that we're coming back to some of the mentality of the 80's. We're not there yet. Projects come on line in the next year or two will do well."
The lender is concerned about pricing and lease ups in the strongest markets where even redevelopment costs are high. Development costs are already high on the West Coast where money is starting to chase deals.
MFI Boasts Fast Closing
— Commercial Mortgage Insight, June,1998
Mountain Funding LLC, of East Brunswick N.J. helps developers seize opportunities by closing loans fast. The Lender Typically gives commitment in three days, due diligence in two weeks and closing within five days of receiving documents.
"Mountain's principals are land developers in our own right," says Arthur G. Nevid, Director of Acquisitions and Development. "We understand dirt. We can immediately assess the underlying risk, obstacles and values in a development property."
"The same people who negotiate the deal underwrite it, perform the due diligence and write the check without bureaucracy or committees. In addition, the firm requires the developer-borrower to be sophisticated, and the collateral package to provide excellent security to make up for the lack of protracted due diligence.''
Mountain Funding's financing is less expensive than equity investment, more flexible than institutional investment of private syndication and less restrictive than hard money, according to Nevid.
Specializing in land acquisition and development, the company funds non-recourse loans nationwide. Loan amounts are $2 million to $25 million, although larger amounts are considered. Rates are 12% to 15% or preferred return, plus additional profit participation, interest of fees. It prefers terms of 12-36 months, and LTVs 50% to 70% with developers usually contributing 10%-20% equity. Pre-payment terms are negotiable.
Private Lender Covers 125% of Costs on Texas Land Purchase
— Crittenden's Developers Financing News, May,1998
Dallas - based American Realty Trust Inc. Turns to private hard money lender Mountain Funding LLC for a 12-month, $20.7M loan to finance its acquisition of 425 acres of commercially zoned land in McKinney, Texas.
Mountain Funding Structured the deal to cover 125% of all the publicly-traded company's initial acquisition and entitlement costs. American Realty Trust will sell lots in the so-called McKinney Corners parcel to commercial developers.
The firm already has contracts for the sale of almost 150 acres and expects to begin closing sales in June. Possible uses for the far north suburban Dallas land include a movie theater, a golf course and 1,500 apartments and single family houses.
American Realty Trust used about $4.7M of the loan proceeds as equity and spent the remaining $16M to pay off existing debt to Los Angeles based Foothill Capital Corp. American Realty will use the proceeds from the lot sales at McKinney Corners to pay down the principal on the Mountain Funding note.
Mountain Funding charged 8 points and priced the loan at 12%. The commitment includes a provision which allows American Realty to borrow any repaid amounts. Mountain Funding would underwrite additional loans on the repaid amount to a maximum of 50% and would charge a 1% fee.
N.J. Firm More Than Doubles Lending Activity
— Real Estate Finance & Investment, April,1998
Mountain Funding plans to originate $50-100 Million in commercial mortgages this year a significant increase over last years pace of $20 million, according to Arthur Nevid, Director of Lending.
The East Brunswick, N.J. Lender, which focuses on financingl development projects via construction loans, is boosting its lending activity to better accommodate new clients it obtained as a result of its national expansion last year.
The lender historically operated exclusivly in the New York and New Jersey markets , but given the shortage of raw land for development, heated competition and the difficulty in obtaining constructionpermits, it opted to to expand nationally, Nevid explained.
"We had the capital to lend out $50-100M last year," he said. "We just could not place the loans due to conditions in our traditional focus Markets." Mountain Funding now finaces projects in Chicago, Philadelphia and Throughout Texas.
Private Lender Backs Gotham Condo Conversion
— Crittenden's Developers Financing News, Jan.,1998
A partnership known as 112 Duane Associates, LLC, taps Mountain Funding LLC, for a 12 month, $4M bridge loan to finance the acquisition of the upper three floors of an old five story Manhattan industrial building for conversion to eight luxury condominium units. The development group plans to raise the roof and add sixth and seventh floor penthouse.
Partnership principals Louis Greco and Lewis Horowitz opted to obtain their financing from Mountain Funding because the East Brunswick, N.J. - based private lender agreed to structure the loan as a non-recourse commitment.
Most banks and other institutional lenders would have required personal guarantees from the principals. Greco and Horowitz also figured they would have to find a joint venture partner to come up with the equity needed to secure traditional construction financing. The partners decided they would rather pay a higher rate on the debt and give mountain Funding a limited backend participation than secure lower priced debt and dole out 50 % of their project to an equity partner
Mountain Funding fixed the rate on the mortgage at 12% plus a 2 point commitment fee and will take a participation equal to 11% to 22% of the projects net profits. The lender was able to advance the borrowers $2M of the loan up front to allow them to raise the roof and cover before winter set in. Mountain Funding completed the transaction in less than 4 weeks. It structured the deal with two six month extension options, which would cost 1 point each.
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