Alternative Commercial Mortgage Lenders: Hedge Funds and Private Equity

Hedge funds and private equity firms are investment companies created by Wall Street investment banks and financed by wealthy individuals and cash-rich corporate entities. Unlike standard exchange-traded mutual funds, hedge funds are largely unregulated and have much more wiggle room in their investment choices. Many of these funds have recognized the opportunity that has arisen in commercial real estate lending and have stepped in to fill the funding gap. The money managers in charge of these massive equity funds are professional investment experts, know a lot when they see it, and can be very agile. Hedge funds and private equity funds are not afraid of risk; in fact, they thrive on it. If they like a deal, they make decisions quickly and can close loans or equity financing in just days.

There are many private funds that specialize in commercial real estate investments or have a commercial mortgage lending division. They are cash rich and actively looking for quality deals to finance. They can be a great alternative to banks and other traditional lenders.
But keep in mind that they are very professional and highly sophisticated. Don’t approach hedge funds with shoddy or incomplete packages. They are professionals and work exclusively with other professionals.

Hedge fund and private equity people have a Wall Street mentality; They are art dealers at heart. When they look at a deal, they want to be able to make decisions quickly.

When you get close to a fund, you’ll want to have a complete, well-documented package ready to show them at a moment’s notice, but don’t give it all at once. Having worked for Wall Street firms for over 20 years, I have determined that the best way to approach money managers is with a well-written, concise 1-page deal summary.

Summarize the selling points of your business on a single sheet of paper, emphasizing the profit potential, the level of experience of the investors, the strength of the location, and some of the other strengths of the project. They will appreciate the fact that you have respected their time by being brief. If they like what they see, they will order more. Give them exactly what they ask for; don’t bog them down with documentation until they tell you they want to see it. Sell ​​them the big story before trying to sell them the details.

If you want to get financing from a big box private equity firm or hedge fund, I suggest you use the services of a professional broker with Wall Street experience. They can speak the language of fund managers and know exactly what is important to note about a particular trade. These funds tend to operate like private clubs, it helps a lot if you have an “in”. If you are lucky enough to develop a relationship with this unique type of lender, you will enjoy a seemingly endless source of capital.