Debt Fund CRE Loans
Using Private Lenders to Finance Commercial Real Estate
Private Debt Fund Loans
In recent years, a growing number of private debt funds ("private lenders") have emerged offering greater flexibility than traditional lenders. Borrowers using private lender financing are willing to accept a higher interest rate (7%+) in order to get funds more quickly because of a shorter and less strict underwriting process. Because of the higher rates, typical uses for private debt loans include closing a real estate acquisition on a demanding timeline or obtaining financing for an asset or borrower than would not be possible with a bank loan.
Bridge loans from private debt funds often have the advantage of being interest-only. This allows the borrower to preserve cash flow from a property despite the higher interest rate.
Private debt funds fill many different niches in the lending market. This means the terms, loan amounts, rates, and maximum leverage can vary significantly. Private lenders generally prefer to specialize in certain asset types, geographies, or financing scenarios. Finding the right loan for your funding scenario means finding the right private lender.
$1 Million - $100 Million+
1 - 3 years
7% - 10%+
- Flexible underwriting
- Quicker funding
- Non-Recourse loans available
- Varies by lender
Required Documents for Underwriting
- Current rent roll
- Last 2 years operating statements
- Schedule of Real Estate Owned
- Personal Financial Statement (for Guarantors)
How to Get a Private Debt Fund Loan
You can find hundreds of private lenders online, but they often have names you won't recognize. It's hard to know if you're working with a reliable partner that won't waste your time, or if it's a mortgage broker disguised as a direct lender. Furthermore, there are some lenders with a “lend to own” mentality, meaning they actually would prefer the borrower to default, because they can then take back the collateral posted (your building). You can give it a shot on your own or you can submit your loan request to StackSource. When you use StackSource, a dedicated capital advisor will help you fund your loan using our network of reliable private lenders, and we can generally negotiate a better resulting loan.
Guide to Private Debt Fund Loan Scenarios
Some borrowers use private lenders to fund acquisition loans. These bridge loans give the borrower the flexibility to close quickly, which is sometimes the difference between a successful deal and a missed opportunity. After closing, the borrower can look to refinance the property with other lower rate loan sources. Private lender loans are especially helpful for borrowers looking to refinance into an agency or HUD loan, which can take many months to close.
Private debt funds have more flexibility than conventional lenders to finance construction loans. Private lenders are more eager to take on the risk of a construction project due to the higher interest rates they charge. Interest-only loans can be especially valuable for construction loans because the lower monthly payments means a delay in construction will be easier to manage financially.
When trying to turn around an under-performing asset, it can be difficult to obtain financing from conventional lenders. Private lenders can provide a bridge loan while a project sponsor works to rehab a property, raise rents, and improve occupancy. After a successful turn around, the bridge loan can be refinanced at a lower rate using a traditional lender.
Some properties may have difficulty passing a traditional underwriting process. For example, a building might be purpose-built such that it is only usable by a specific industry or tenant. Or perhaps the tenant or tenant's industry is not viewed favorably by traditional lenders. In these scenarios, property owners may be able to charge favorable rents such that they can accept the higher interest rates of a private lender loan.
Learn More About Commercial Real Estate Loans
Whether you are purchasing an asset and time is of the essence, looking to reposition an existing asset which will take significant work, or simply need to buy some time to increase cash flow before refinancing, your situation may call for a bridge loan.
Who are all the lenders behind office towers, apartment complexes, and industrial parks? There are actually several different types of entities that make loans against commercial real estate assets.
So you’re a real estate investor. Maybe you’ve bought and flipped a bunch of houses, or even built a few. But now you’ve crossed over 5 units, or into retail, and you’re in commercial loan territory. Everyone has a first commercial loan. To make sure you’re getting a good deal, you need to know your stuff.