How does everyone think about CRE lenders and the main differences between them? How are you deciding whether you want a loan from a LifeCo vs. a debt fund or a bank? Here are some of my thoughts, but would love some others to provide insights into how they think about different types of lenders.
Life Companies - mostly fixed-rate, lower LTV
Debt funds - more willing to do higher LTV loans, bridge lending, construction loans, etc. More willing to lend on riskier property types?
Banks - stricter lending guidelines due to regulations compared to other lenders. More rigid when it comes to adhering to appraisals and other terms etc.
Agency - multifamily, non-recourse, higher-LTV. Anything else?
CMBS - any insights appreciated on how CMBS shops think about lending.
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From my understanding, this has happened in recent years due to an increased desire for yield and competition.
"Everyone is in everyone's business" may be a good way to summarize how banks and LifeCos will lend in a variety of product types now.
Agency Lender on the HUD side - DSCR 1.18 for market rate and down to 1.11 with 90% LTV for affordable. It’s a long process to get a loan closed (4-8 months for normal refi and possibly 12+months for new construction, depending on the type of multifamily). It’s a long process as we’re dealing with HUD to insure the loan, so it faces extreme due diligence in almost every aspect you can imagine
Might be a dumb question, but what is a debt fund? They raise money (through the use of various funds so Fund I, II, III, etc) and they deploy that using their strategy (say focus is construction lending). Then they would manage the loans they've made to sponsors, manage the draw funds process for the sponsor, make capital calls to their investors if needed, anything else?
Someone told me they make capital calls, but why would a debt fund make capital calls from their investors? Aren't the investors putting up an initial say $10 million expecting x% return and that $10mm would go out in the form of construction loans for development projects - why would those investors have to put more money into deals on the debt side I've only heard of capital calls on the equity side. But anyway so this debt fund is an alternative to a bank, life co, etc as described above. I received an offer from a debt fund and I want to make sure I know what they do and why before I start.
In my general experience, debt funds have committed capital from their investors but not all up front. As new loans are made or existing loans make advances, capital is called. Once capital is called, the fund has to start paying vig on it so they only want to do so when new investments are identified or existing obligations need to be satisfied.
Got it so for example if they raise a fund with $100 million with $20mm of capital ready to use now the rest capital calls and the investors want a return of 5%, and the fund find's two deals that of $20mm total meet their criteria and think are good investments they would use the capital on hand. If they needed say $30mm they would be paying 5% on that total amount.
So a debt fund is basically like a construction loan structure where you can pull funds as needed and the fund is making the spread between what they're paying their investors and what they're charging. Does the fund get the loan origination fees too?
Also, does the fund leverage their capital? Are they using the $100mm in equity and leverage it say 70% so they can get $170mm in proceeds to lend out to sponsors and increase returns?
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