For those not already familiar with this type of investment vehicle, perhaps a brief description would be helpful.

Many private mortgage loans are made to acquire or to renovate properties in transition. The W Financial primarily focuses on loans secured by commercial, mixed-use or multifamily income-producing investment properties. Such bridge loans are typically made for one or two years to help an owner acquire, renovate, change the use of the property (for example from office to residential), buy out partners, or, in some other way, add value to the property. Both the borrower and the lender must be able to envision a viable exit scenario that will enable the repayment of the bridge loan by either refinancing or selling a property. In scenarios where the asset will not be producing any cash flow during the loan term (for example, due to construction or renovation), an interest reserve may be established.

A second category of bridge loans would include scenarios where time is the critical element and the private lender’s ability to react, underwrite and close a mortgage quickly makes them valuable to the borrower. Sometimes the bank loan that a borrower was counting on either takes too long to close or falls apart, causing that borrower to seek a private mortgage. Other times, an opportunity may present itself to a seasoned buyer who requires a closing within weeks, rather than the 2 or 3-month closing period typical with banks. In today’s hot real estate market, cash deals, or deals without mortgage contingencies are not unusual. Private mortgage lenders are real estate individuals, not bankers. They view each transaction through the prism of their firm’s expertise, and as such they are not constrained by typical underwriting parameters.

Given the short-term nature of private loans, their higher interest rate is usually not a critical factor to most borrowers. Clearly no one would want a 12% interest rate for 30 years, but for 8 or 10 months, with a viable exit strategy and a winning property, it is often deemed not to be a problem, especially if (since?) rapid and dependable execution makes the difference in a buyer/borrower’s ability to acquire or add value to a key asset.

Consequently, what would be the vehicle of choice for an investor interested in earning the higher interest rates generated by private mortgage loans? Clearly, a well-run Fund has numerous advantages over other investment vehicles. Accredited investors (defined in Rule 501 by the SEC as those who have a total net worth that exceeds $1,000,000 inclusive of homes, automobiles and spouse’s net worth) willing and able to park at least $100,000 for five years may decide to choose a vehicle like W Financial which primarily makes bridge and renovation loans within clearly defined parameters on metro area properties.

© 2008. Gregg Winter. All Rights Reserved.
Unauthorized use of this material may violate copyright, trademark, and other laws.

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October 8,2003

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