Equity release products

The credit crisis is realality and has been absolutely devastating to commercial real estate investors. Large, conventional lenders such as national banks, Wall Street investment houses, Connecticut insurance companies and large multinational corporations (i.e. GMAC) have stopped making loans that can't be sold to the Government or securitized. GSEs (Government Sponsored Enterprises) like Fannie Mae, Freddie Mac, Ginnie Mae, HUD (Housing & Urban Development) and FHA (Federal Housing Administration) are doing their best, providing as much liquidity as they can, but the bond market has stopped functioning as a provider of capital. There is still a massive shortage of money to lend. Hundreds of billions of good loans that should be approved are being turned away.

Desperate commercial real estate professionals are scrambling to find lenders who are actually willing to lend. Borrowers seeking alternative funding sources are increasingly turning to private equity firms to secure the funding they need.

Private equity firms are investment companies set up to invest the wealth of their sponsors and investors. They are similar to hedge funds in some respects but are structured a bit differently and can be more flexible and creative in their investment policy. Many private equity companies are flush with cash and hungry for good deals. Developers and property owners that have developed a relationship with private equity firms enjoy a reliable source of money for their real estate ventures.

Very few private equity companies are set up exclusively to be commercial mortgage lenders. Most are designed to use sophisticated LBO (leveraged-buy-out) strategies to acquire other successful businesses. However, many firms have real estate divisions that are willing to make loans and / or take equity positions in good deals they come across. These firms usually have a degree of expertise in commercial real estate and have a healthy appetite for mortgage paper.

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