Hard-money lenders want to capitalize on distress in commercial real estate and the foreclosures that may hit that market.
Investors, hard-money lenders and mortgage brokers attended a conference last week at the Monte Carlo to discuss the industry and opportunities they are expecting in 2010.
Hard-money lenders are companies, groups or individuals that as investors loan money at higher rates and fees than banks. Hard-money lending is a tool widely used by the real estate industry.
Leonard Rosen, a former anchor at the Financial News Network who hosted the seminar, said the market is imploding with $300 billion of $1.8 trillion in commercial mortgages in arrears in metropolitan areas. Las Vegas has the highest percentage of troubled commercial real estate in the country.
“There is going to be a huge commercial crash, and that’s happening now,” said Rosen, who nevertheless acknowledged more banks are working with property owners. “This is an extremely dynamic and powerful force, and it’s going to impact the overall economy.”
Many hedge funds with real estate portfolios have been under financial pressure, and many have gone out of business as have many large hard-money lenders, Rosen said.
“But for every one going out of business, there are new lenders to take advantage of the current opportunities. Real estate values are becoming more in line with reality.”
The business model has changed for hard-money lenders that are trying to deal with this new environment, Rosen said.
Under previous business models, the lenders would fund commercial real estate deals and sell the paper at a discount to investors. In other cases, lenders would receive a warehouse line of credit from large banks and reloan the money for commercial projects at a higher rate. That has stopped as well, Rosen said.
Today, the hard-money lenders are becoming portfolio managers. They are creating mortgage funds where they bring in investors who are given dividend yields, Rosen said.
“The portfolio manager business model is much more profitable for the lenders and safer for the investors who are not looking for double-digit returns,” Rosen said.
The funds are spread out among properties, and money would be secured against the property, Rosen said.
Lenders are no longer loaning 65 percent of the value of the property. That is down to 50 percent, he said.
In other news
• The Greater Las Vegas Association of Realtors has donated $20,000 to Housing Help for Nevada. The grant was made possible by money the association received from the National Association of Realtors as part of its foreclosure prevention program. It was obtained with assistance from the Nevada Association of Realtors. Housing Help for Nevada is a nonprofit agency whose goal is to provide free counseling to homeowners facing foreclosure and other challenges.
• First American CoreLogic reported 75 percent or 342,234 residential properties in the Las Vegas Valley with a mortgage were underwater in the fourth quarter of 2009. Another 3 percent were close to being underwater as well, the firm reported. Negative equity, or being underwater, means that borrowers owe more on their mortgages than their homes are worth. Nevada leads the nation with the highest percentage of homes underwater at 70 percent, followed by Arizona at 51 percent, Florida at 48 percent, Michigan at 39 percent and California at 35 percent.
• Marcus & Millichap is handling the listing of a 960,000-square-foot, 20.81-acre marina-front development site and nine acres of Laughlin Bay Marina. The development site is entitled for 521 marina-front town houses. It is listed for $5 million.
The marina has 110 boat slips, a boat storage facility, banquet room and restaurant. The property has a gaming overlay. The listing price is $7.5 million.
• CB Richard Ellis announced it has appointed Christina Roush, a senior vice president based in its Las Vegas and San Diego offices, to a new leadership team for its private-client group. Roush has more than 22 years of experience in commercial real estate.