Equity partners and underwriter alternatives are among the creative options private lenders bring

Milton Franklin, president and CEO, Nationwide Business Consultants of South Florida Inc.

As published in Scotsman Guide's Commercial Edition, August 2010.

The commercial real estate market is slowly beginning to recover, and strong borrowers with strong construction projects are again in position to get favorable financing terms.

Projects must show potential to generate revenue to support their debt service in the present market and to cover increased payment requirements that may result from potentially increasing interest rates. The borrowers themselves also need solid financials and past experience in the type of projects in which they are involved.

Borrowers who don't have enough equity to meet a traditional lender's requirements still could find funding for their construction projects. Commercial mortgage brokers can help these clients by working with flexible, private-money lenders that have access to private-equity sources willing to help borrowers meet cash-flow requirements.

Here's how.

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Private-money lenders typically are more flexible than traditional lenders. They often will work with borrowers and their mortgage brokers to make up for any funding shortfall by helping to secure additional equity from private sources. Brokers who know the terms these lenders and their equity partners seek, as well as how the underwriting process differs from that of traditional lenders, can help clients needing an extra cash infusion get their deals funded.

Flexible terms

There are no set rules for private-money lenders. Some may only offer set terms, and those that will negotiate may do so only when they find specific projects attractive.

Some private lenders may offer built-in safeguards to cover stabilization difficulties that may arise in a construction loan's initial term. This flexibility frees developers from possible foreclosure if they do not achieve stabilization before their construction loan is due. For example, a borrower who has a construction loan approaching expiration may have an option to accept a bridge loan until the property's net operating income (NOI) stabilizes.

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