Mountain Funding Closes $1.0 Million EquityInvestment for the Construction of Two Luxury Homes
— June 7, 2000
Golf Course Development: Getting to the Green
— Urban Land Institute, February 2000
Arthur G. Nevid Appointed Managing Director of Mountain Funding LLC
— January 19, 2000
Private Lending: Myths vs. Realty
— Commercial Lender, January 2000
Making the Deal: The Art of a Fast Closing
— Real Estate Weekly, January 2000
Mountain Funding Closes $16.3 Million Equity Funding for SMG, Inc.
— January, 2000
Mountain Funding Closes a $1.4 Million Equity Funding Transaction for Skylands Development
— January, 2000
Mountain Funding Closes $1.0 Million Equity Investment for the Construction of Two Luxury Homes
— June 7, 2000
SAN DIEGO - June 7, 2000 - Mountain Funding LLC, a private real estate lender based in East Brunswick, New Jersey, has closed a $1.0 million equity investment with a San Diego homebuilder for the construction of two luxury homes in Rancho Dieguno, an affluent northern suburb of San Diego, CA.
The two homes will be built by Joseph Gallagher, Mountain Funding's development partner in the transaction and an experienced custom homebuilder in the San Diego market. The homes will measure 8,200 and 9,500 square feet and are projected to sell for approximately $4.0 million and $5.0 million, respectively. The total construction budget for the two homes, including land cost, is approximately $5.8 million. The financing for the construction has been arranged through First Republic Bank of Del Mar, CA. The homes are scheduled to be completed in early 2001.
"Joe Gallagher has previously borrowed approximately $40 million from us for residential development in Southern California," said Peter J. Fioretti, Mountian Funding's CEO. "Although this particular investment falls below our normal minimums, Joe's proven track record combined with above-average equity returns enticed us to close this investment."
"Our focus in 2000 is to create strategic relationships with developers and real estate investment bankers," said Arthur G. Nevid, managing director. "We are committed to do repeat business with strong, seasoned developers who specialize in value-added opportunities. This transaction was a success because we closed quickly, offered flexible, creative debt and equity structures and we are developers and deal-makers, not just bankers."
Mountain Funding is a direct lender and investor, which provides financing for opportunistic real estate transactions on a nationwide basis. Mountain Funding specializes in non-conventional, "outside-the-box" financings usually requiring quick closings. It offers participating first mortgages, mezzanine debt, preferred equity and pure equity structures, often on a non-recourse basis. Mountain Funding offers flexibility on term, prepayment, recourse, debt service coverage, and loan-to-value. First mortgages range from $5-$50 million for non-income transactions and up to $100 million for "pre-stabilized" income projects; mezzanine and equity transactions range from $3-$20 million. Term sheets can be presented within 24 hours, and closing within five days from receipt of all required documentation.
Golf Course Development: Getting to the Green
— Urban Land Institute, February 2000
During the recent golf course building boom, the field of financiers was nearly as wide as a double fairway. Now, with increased competition from the wave of new courses, the field has narrowed so much that only the best shots will be able to make it through.
"We are seeing more and more specialization in financing," says Arthur Nevid, Managing Director of Mountain Funding, Inc., a New Jersey-based real estate investment company. "There are now just a handful of lenders willing to lend for development of golf courses. A lot of conventional lenders have shied away from golf course development and stuck to real estate development or residential projects," he adds.
Golf has become too much of a business for most lenders, Nevid says, explaining that lending to a golf course is less like a real estate investment and more like investing in a revenue-producing company. Lenders are comfortable lending on projects they believe they understand, and golf, in this competitive climate, is not one of them, he adds. "Golf course loans are not real estate loans, they are business loans," Nevid comments. "A golf course is only as good as its operator." Most lenders are now taking on either golf course financing or residential financing, but not both. A golf development therefore is in a better position to obtain financing if it is presented separately from the residential portion of a project.
Arthur G. Nevid Appointed Managing Director of Mountain Funding LLC
22 year veteran to direct New Jersey headquarters
East Brunswick, NJ - January 19, 2000 - Arthur G. Nevid has been promoted to Managing Director of Mountain Funding LLC, a private real estate lender and investor based in East Brunswick, New Jersey.
"This promotion was necessitated by our planned expansion, which will include the opening of several satellite offices throughout the U.S. over the next three years. Arthur will run our New Jersey headquarters and continue his lead in identifying, analyzing, structuring, closing and managing debt and equity investments," said Mountain's CEO Peter Fioretti. "This is a well deserved recognition."
With more than 17 years of experience in real estate finance, investment, management, development and ownership, and another five years as a Certified Public Accountant, Nevid has been involved with more than $300 million of property, comprising of more than 3 million square feet of commercial space, and over 3,000 residential condominiums, homes and apartment units.
Nevid joined Mountain Funding in 1997 as the director of acquisitions and lending. Prior positions include serving as a real estate investment banker and asset manager at Merrill Lynch, and serving as U.S. managing director for a French-owned real estate investment firm. Nevid received an accounting degree from the State University of New York at Binghamton, and spent the first five years of his career as an audit and tax professional in public accounting.
Mountain Funding is a direct lender and investor that specializes in providing financing for opportunistic real estate transactions on a nationwide basis. Mountain Funding specializes in non-conventional, "outside-the-box" financings usually requiring quick closings. It offers participating first mortgages, mezzanine debt, preferred equity and pure equity and pure equity structures, often on a non-recourse basis. It first mortgages ranges from $3-$50 million (up to $250 million for "pre-stabilized" income projects); its mezzanine and equity transactions range from $2-$20 million. For more information, call (732) 390-2155.
Private Lending: Myths vs. Reality
— Commercial Lender, January 2000
The credit and lending crunch of the early 1990's spawned a new form of commercial financing: the "hard money loan". Hard money lenders, although not popular, filled a niche at that time by funding small, non-conventional loans to non-credit borrowers requiring fast closings. With the expansion of the capital markets throughout the decade, some hard money lenders have expanded as well, narrowing the gap between themselves and institutional lenders. However, these "private lenders" continue to fill niches not suitable for conventional lending, namely difficult ("hairy") loans, difficult borrowers and/or quick closings. Despite their evolution towards mainstream lending, the private lending business remains largely unknown and saddled with certain myths attributable to its hard money roots.
Myths vs. Reality: What's the Truth?
Myth #1. Private loans are "hard money", because the lenders are "hard" to deal or negotiate with, and their terms are "hard" to accept.
While the nature of the business does require private lenders to hold relatively firm stands on their lending criteria, the simple truth is that the "hard" part is the loan itself, i.e., a difficult borrower, a difficult project and/or difficult circumstances surrounding the transaction. One needs to refer to these difficulties as "hair." Every request is unique, requires understanding, dissection and reconstruction in order to make it workable.
The "hair" encountered is often incredible and sometimes comical. Putting aside the extreme examples such as hand-written requests from state penitentiary, ostrich and catfish farms, stadium tailgating concessions and financing of independent nations to be formed in the State of Texas, there are several consistent themes running through the typical request:
- Money is needed quickly, often within a week and almost always within a month.
- The borrower has little or no cash equity, and is either unable to raise a reasonable amount or is unwilling to sacrifice a substantial equity interest in his project to an equity investor. Oftentimes, the borrower professes to have "previously invested many millions" of his own cash equity, but doesn't have $5,000 available today to pay for an appraisal.
- The borrower was extremely successful - one of the best in his field - and has made (and lost) millions. In other words, the borrower has a troubled credit history, including personal and corporate bankruptcies and other litigation, thus non-bankable.
- The borrower has been trying to arrange the loan for several months, and has been close two or three times. Sometimes the borrower was simply misled by the prospective lender (who may have actually been a broker misrepresenting itself as a lender), but usually the borrower was stubbornly holding out for an unrealistically cheap loan.
- The project has problems or questions such as environmental, zoning and/or approvals, location, litigation, feasibility, valuation, etc. Or the project cannot currently service debt until it is repositioned.
- There is no clear exit strategy for the loan.
Myth #2. Private lenders are really brokers who misrepresent themselves as direct lenders.
True private lenders are exactly that - lenders. When such a lender commits to make a loan, it does so based on its known ability to fund the transaction from its own account or from a discretionary funding program which it may manage. The reputable private lender internally underwrites and performs the transaction's due diligence, is the named lender in the documents, and directly services, disburses and collects the loan proceeds.
Unfortunately, there are a few mortgage brokers who do mislead borrowers into believing that they are actually direct lenders. Sometimes a broker will bury into its commitment letter a "subject to best efforts" clause, which a prudent borrower could identify, but most do not. To protect themselves, borrowers should perform their own due diligence to verify the ability of the "lender" to actually lend. They should insist on speaking with references such as lawyers (both the lenders' lawyers as well as some of their borrowers' lawyers), trade associations and actual borrowers. Of course, borrowers should assume that a lender will only offer references, which are known to be positive. Confident lenders may go a step further, and offer the names of several developers with whom they were unable to finalize a deal.
Myth #3. Private loans are too expensive.
As explained earlier, circumstances surrounding the request, not the lender or the loan terms make private loans "hard." If the loan was easy or worthy of cheaper pricing, the borrower would not have sought a private loan in the first place. The typical private money borrower has unsuccessfully explored and exhausted all sources of conventional debt and equity. The pricing quoted by a private lender is usually appropriate for the particular circumstances and properly matches the real risk, which is always understated by the borrower.
Private loans are priced to market like any other loan. Competing proposals from Wall Street investment banking firms or other major institutions are priced and structured at least as "hard" as private lending, but benefit from their institutional pedigree.
Private loans are usually a blend of debt and equity risk, but are priced higher than conventional debt and are cheaper than the cost of equity. Relatively few loan requests actually fit, but private lenders are trained to identify those that do and competitively price them. Once a borrower recognizes that it is a candidate for a private loan, it will seek out the few reputable lenders and get quotes from each. Inevitably, the competitive proposals will be priced very similarly. Therefore, the borrower's final decision should be based on the (a) the reputation of the lender and its ability to close; (b) the conditions of each proposal (e.g. recourse vs. non-recourse), and (c) the chemistry between the principals.
Myth #4. Private lenders are disreputable, bad guys.
For the most part, hard private lenders are reputable, experienced, straight-shooting professionals. Most principals of hard money lending firms have successful backgrounds as institutional financiers, developers, accountants or lawyers. They recognize that they can only make money by closing loans, and a bad reputation will not help do that. Finesse, however, is not necessarily their strong suit. As time is their most valuable commodity, private lenders will quickly and bluntly lay it on the line. Savvy borrowers appreciate this approach and use it to better focus their financing search.
There are occasional horror stories of loan applicants being mistreated by certain hard money lenders. Applicants have been known to lose money and time, sometimes substantial, during the qualification process. Occasionally, the lender may be at fault, sullying the credibility of both the hard money lending business and private lenders as a whole. More often, the borrower was unrealistic in his expectations, or misunderstood the conditions and obligations in the executed commitment letter.
In summary, reputable private lenders are tough but fair, and experienced in both assessing risk and closing loans. However, as mentioned earlier, a prudent borrower should perform its own due diligence on the lender at a very early stage of the relationship to avoid potential problems.
Making the Deal: The Art of a Fast Close
— Real Estate Weekly, January 2000
The holiday season rush is on again! No, not in search of last minute presents, but for something much more difficult to find - financing for real estate transactions which have to close by year end. It's the time of year when opportunistic "private lenders" don their red suits and white beards and begin working miracles. With few restrictions, ample and flexible capital sources, centralized decision making and finely tuned due diligence and legal teams, private lenders are the lenders of choice when deals have to close quickly.
There are many other reasons other than year-end why a fast closing is needed. The borrower may have a great opportunity such as an acquisition, partner buyout or discounted debt buy down but he/she must close quickly without any financing contingency or free-look period. Or, a borrower may have waited too long for the perfect financing to come along and now his/her time is running out on purchase contract, debt maturity or option. Or, the borrower's funding commitment from an institutional lender has been suddenly terminated. These borrowers tend to seek private lenders because they are known to close deals quickly.
HOW A FAST CLOSING WORKS
The following are five conditions, if present, facilitate a quick closing.
- The private lender has at its disposal a ready, ample and flexible money source.
- The private lender is closely controlled and operated, unregulated and is not burdened by endless committee approval and red tape.
- The borrower is sophisticated and prepared. The borrower understands that negotiating for a long time on every business and legal issue will not facilitate a quick closing.
- The borrower is offering a "fat" collateral package, fat enough to allow the lender to limit its due diligence
- The lender's attorney is experienced in documenting private loans, and is always available to take on a new assignment and work overtime. The lender's due diligence team (appraiser, engineer, market study, accountant, environmental, title, etc.) is always standing ready to jump on a new assignment, is acquainted with the needs and preferences of the lender, and delivers results to the lender as they are learned instead of waiting until the end.
The art of a fast closing begins with the initial phone call from the prospective borrower. The private lender should:
- Assess whether the borrower is serious about closing quickly.
- Quote the firm's pricing and make sure the caller understands that there will be little time for negotiation.
- Advise the caller that to close quickly, the caller must be ready to cover the costs of lawyers, consultants and travel costs.
MAKING IT WORK
One such opportunity arose with a property located in McKinney Corners, McKinney, Texas: It was a complicated deal, yet it closed in seven days. Here's how:
A major, publicly traded real estate company owned a 450-acre unimproved commercial land parcel in McKinney, a northern suburb of Dallas. Since this company brought the parcel most of the way through entitlement, they had added substantial value and sought to refinance their original debt and return to the company their equity investment plus some additional capital for new investment. All of this had to be accomplished by the end of their fiscal quarter, which was just seven days away.
Fortunately, the borrower was sophisticated, prepared and offering substantial collateral well in excess of the loan amount.
The result? The $20.7 million non-recourse land loan closed in a timely manner. But, had the company gone to another type of financial source that could not have responded as quickly, the opportunity would have been lost. The moral of the story? Maybe those in the industry should start thinking of private lenders as their first resort, rather than the last. Something to think about.
Mountain Funding Closes $16.3 Million Equity Funding for SMG, Inc.
— January, 2000
East Brunswick, NJ/Rockland County, NY - January 18, 2000- Mountain Funding Inc., a private real estate lender based in East Brunswick, New Jersey, has closed a $2.3 million equity funding transaction and has committed to fund an additional $14 million as a non-recourse construction takeout for SMG, Inc., a New Jersey-based development firm that is in the process of completing and selling the 83-unit luxury mid-rise condominium in Rockland, NY.
"In early December, the developer contacted us and explained that this equity funding had to be completed by Christmas," said Peter Fioretti, CEO of Mountain Funding LLC "Since we have known the developer for many years and due diligence was fairly simple based on the quality of the work, the prime location, and the impressive sales record to date, we were able to close in two weeks."
The project is a conversion and gut rehabilitation of apartments into condominiums selling from $250,000 to $800,000. More than 50 percent of the units have been pre-sold, with a projected total sellout of $35 million. However, the developer's construction line was fully expended, and certain work had to be completed before the end of 1999, or some contracts would have been terminated.
The $2.3 million equity funding had a term of 36 months, accrues interest at 10 percent per annum and required two points to close plus a participation in profits. The $14 million construction commitment calls for an interest rate of prime plus 2 percent, a two point closing fee and a two point exit fee.
Mountain Funding is a direct lender and investor that specializes in providing financing for opportunistic real estate transactions on a nationwide basis. Mountain Funding specializes in non-conventional, "outside-the-box" financings usually requiring quick closings. It offers participating first mortgages, mezzanine debt, preferred equity and pure equity and pure equity structures, often on a non-recourse basis. It first mortgages ranges from $3-$50 million (up to $250 million for "pre-stabilized" income projects); its mezzanine and equity transactions range from $2-$20 million. For more information, call (732) 390-2155.
Mountain Funding Closes a $1.4 Million Equity Funding Transaction for Skylands Development
— January, 2000
East Brunswick, NJ/Warren County, NJ- January 25, 2000 - Mountain Funding LLC, a private real estate lender based in East Brunswick, New Jersey, has closed a $1.4 million equity funding transaction for Skylands Development Group, a New Jersey development company. The funds will be used by Skylands for a 188 single family home subdivision development known as Spring Meadows in Warren County, New Jersey.
"Mountain Funding's sister company, Tri-Mountain Development, has successfully developed similar housing product in this same general market in the past," said Peter Fioretti, CEO of Mountain Funding. "We felt that this was a good opportunity to team up with a quality development group, which we have known and respected for some time, and take advantage of a strong market. Due diligence was facilitated by our familiarity with the market, and on the solid track record and sales backlog at Spring Meadow. Because of this, we were able to close in three weeks, improve the developer's bottom line by replacing more expensive equity, and do so on a non-recourse basis."
Spring Meadows is a $38 million residential development selling homes ranging from $150,000 to $225,000. The project is substantially complete and actively selling at a faster pace than projected. However, the developer required additional immediate capital to fund working capital and to retire some existing, more expensive equity.
Mountain Funding is a direct lender and investor that specializes in providing financing for opportunistic real estate transactions on a nationwide basis. Mountain Funding specializes in non-conventional, "outside-the-box" financings usually requiring quick closings. It offers participating first mortgages, mezzanine debt, preferred equity and pure equity and pure equity structures, often on a non-recourse basis. It first mortgages ranges from $3-$50 million (up to $250 million for "pre-stabilized" income projects); its mezzanine and equity transactions range from $2-$20 million. For more information, call (732) 390-2155.
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