Originations at a Hard Money Lender / non-recourse lender

JJP1234's picture
Rank: Baboon | banana points 151

Anyone have experience working for some of the larger non-recourse commercial real estate lenders? Specifically, those that focus on $2-20 million. Evaluating an offer. Newly raised $300mm fund.

How did it go?

As a follow up, what would be a competitor compensation structure / salary / commission split?

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Comments (8)

Most Helpful
Jan 31, 2019

Private Debt Funds and Hard Money CRE Lenders can be an interesting space, but the one thing I will say however, is ever since '08 the number of firms has sprouted like weeds after a heavy rain, so there's a lot of competition today. I've worked at both a Private Debt Fund and a Hard Money CRE Lender, and while they're ultimately similar there's definitely differences between them. For comparison sake, I figured this would be helpful:

At the Private Debt Fund we focused on Middle-Market properties with a Max LTV of 75-80% and usually the spread was 300-500 bps. over one-month LIBOR. In comparison, The Hard Money CRE Lender did not do draws so if there was a redevelopment or a value-add PIP they would instead fund the money at one time or fund an initial balance and the rest after a certain DSCR hurdle is met. They only offered fixed rate financing from 7-12%, at times up to 90% LTV, and typically had a loan term of 9-24 months versus the common 3+1+1 term (3 years plus 2, one-year extensions) at the Private Debt Fund. The deals I worked on at the Private Debt Fund were typically just under the size requirements for institutional money ($10-40MM), and therefore benefited from this private debt space, whereas the deals at the Hard Money CRE Lender had much more hair on them and often came to us bc they couldn't get a bank loan or were in a bind and needed cash fast (ie. we were capable of closing in 2-3 weeks from term sheet).

The two also had different compensation structures. The Hard Money CRE Lender offered more incentives for originators, granting them a % of the 1% origination fee on the loan (between 25-75%) but a lower base salary. The Private Debt Fund was more typical with a market base salary + bonus.

I know this won't be the same for all funds and companies, but wanted to share my experiences. I learned a ton about the mechanics of bridge loans and RE finance at the Private Debt Fund, but my boss at the Hard Money CRE Lender was brilliant having been a lawyer for 15 years and knew the in's and out's of any issue, as well as being able to think 5 steps ahead. He was also selling off the loans at par a few months after closing, allowing the money to recycle in his fund, whereas the Private Debt Fund kept 80-90% of their loans on their balance sheet. Only a few times while I was there did they sell notes individually or pool them into a CMBS.

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Jan 31, 2019

Who was your Hard Money boss selling the loans to? I am guessing the lender had to have a consistent pay history for at least 6 months?

Jan 31, 2019

Don't know the extent of his contacts, but it was to funds that buy notes and I think to an insurance company or two, if I remember correctly. And yes, when I said "a few months after closing" I meant closer to 6 months or more sometimes, but that's still a short time period. Basically, his contacts trusted him and knew he was a hitter.

Jan 31, 2019

Great response, thank you.

Can you give me an idea on what originators we're doing in volume? I know that it is highly dependent, but when targeting the $10-40mm project cost range, how many deals where they closing each year?

I ask because the commission seems low. Let's say they close five $8mm loans at 1.50% fee. Commission of 25% of the fee is $150k. And that assumes you find and close 5 deals, which is really your upside imo. I would want a $150k base with that.

Jan 31, 2019

+-5-10 deals/year. And at some point they take you off base salary (making you commission-only) but they raise your % share of the origination fee.

In your example, you'd be making closer to $300k than $150k. But as I said earlier, it can be different at every fund/company. At this office specifically, it was eat what you kill so the base salary was more to keep you afloat as you build your book of business.

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Jan 31, 2019

To clarify:

5*8mm=$40mm

$40mm*1.5% = $600k

$600k * 25% = $150k.

Am I not calculating the split correctly?

The problem is, they offer a low base with that. I'm having trouble seeing the upside.

Jan 31, 2019

Great write-up, thank you.

Feb 20, 2019