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Borrowing costs obviously risen substantially, much harder to be competitive in the bridge space while still maintaining spreads.
Edit: So to answer your questions, to an extent, yes — at least in my personal experience.
6% on low end, 10% on high end. After fees. I'm not really talking about the smaller buy-n-flip private money lenders that do single family residential. My 6-10% is more so for CRE loans.
My fund just signed 3-4 deals that will be levered high teens returns, netting to mid teens after fees (~18 netting down to ~14).
Good deals are still out there (and some would argue somewhat easier to do because so many people are out of the market right now), but there is a lot of crap out there too.
What are returns pre lever?
Lots of SOFR +600 with points in and out
Could you please explain what types of deals you are lending upon and how borrowers are able to afford SOFR + 600? In development, we are getting senior construction financing at SOFR + 275ish, while our untrended yield is high 5's. Essentially, we are underwater today. SOFR + 275 > untrended YOC. I couldn't imagine us taking a SOFR + 600 loan.
I'm at a high yield debt fund. Most of the stuff we do is repositioning/bridge/construction loans.
We just signed a ground up condo development in a Sunbelt state at S+635, a couple of airport hotels that are about 90% complete at S+715 and a hotel repositioning loan at S+750.
Wow, that’s insane. Is this a full 50/60 percent LTC senior loan or is this a mezz piece ?
We can go up to 65-70% LTC for deals.We will do back leverage, cut a senior/mezz, A/B, etc. on the back end, but when we sign a deal we speak for the whole deal. Our structure isn't borrowers problem (think of it like a CMBS execution where a bank is underwriting a deal and will fund with their balance sheet if they have to).That is how we get to our high teens returns.
Could you explain that a bit? Sounds like you would loan out 75% LTC, say, at 8%, and then sell off the portion that’s above, say, 50% LTC? And still get a portion of that return or something? How’s it work exactly?
.
Would you mind explaining here? Interested to understand the warehouse line math as well.
It works like this (I'm completely making up numbers for effect): let's say lender ABC originates a whole loan that's $100M at S+500. A warehouse lender (Barclays, Morgan Stanley, Goldman Sachs) looks to provide leverage to lender ABC at a 75% advance rate or $75M of your $100M position, priced at S+200. Your remaining $25M slug that lender ABC retains is earning the difference of the two spreads: ($100M *5% MINUS $75M *2%) DIVIDED By $25M = 14%. To the borrower it's S+5% money but to the lender retaining a $25M slug, it's significantly higher. Same concepts for carving out a senior/mezz, A/B note, or Loan on Loan
For the hotels that are almost complete, have the borrowers used up the full term of their construction loan plus extensions and thus are distressed in the sense that they need bridge (temporary) debt before they can refi into perm debt?
Are these fully paid current or is piece accruing?
We fund interest/shortfalls through the loan.
Yo who is your facility lender? We see lots of S+600 deals but our facility providers fuck us and try to make us pay s+475 or something crazy
We normally do LOL and not warehouse. So each deal is unique.
Yeah I mean that’s what I’m talking about. We get quotes from lenders who either provide a LOL or A-note. Also look at facility providers for multiple deals but the 475 quote I mentioned was a LOL
I feel like we can’t get any juice because senior lenders have pulled back so massively
We are seeing senior quotes anywhere between 350 and 500, but you can pay 450 on a 650 deal and the math still works for IRR because sofr is so high. 200x3+650+400 (SOFR)+67(2 points over 3 years) = 1717.
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