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Non-tradition lending methods come of age.

Today's healthy real estate market has yielded an abundance of opportunities for ambitious companies. However, mortgage lending has changed dramatically during the last decade - traditional lenders have learned from "past mistakes" and have continued with a highly cautious approach to financing ventures.

Within this context, non-traditional private finance companies like SWH Funding Corp. have come of age as we enter a new millenium. These "hard-money" lenders help real estate entrepreneurs and owners of operating businesses with real estate assets take advantage of prime conditions by providing high-yield commercial mortgage loans for sound, viable projects that traditional lenders have chosen to set aside. This includes financing short-term bridge loans to qualified borrowers for acquisitions, refinancings, turnaround/work-out situations, foreclosures and bankruptcies for virtually all property types.

SWH, as a private company, can exercise its prerogative to evaluate each loan on its own terms. We can provide funding based on the personal history and credibility of the borrower, coupled with the potential success of a project. In many cases, we assist with the "clean-up" of projects so that they can ultimately be repositioned.

SWH Funding first recognized the need for consistent, alternative funding sources for developers and owners following the real estate industry's downturn in the late 1980's. Companies like ours quickly became resources for buyers who were unable to obtain conventional financing through banks and other institutional sources, and were at the forefront of the real estate lending industry's rebirth during the early 1990's. And, the vital function of non-traditional lenders has continued to grow.

Creating Value During a Project's Early Stages

By supporting early-stage projects that do not yet fit the traditional box of conventional lenders high-yield lenders can help create value and move projects forward. Often, traditional lenders recommend us to potential clients, SO that they can upgrade their status and re-present their deal when it has reached the "next phase."

Today, renovation projects comprise one of the hottest areas of financing for non-traditional lenders. There may be some skepticism about a project's viability, or perhaps an entire level of reconstruction must be completed to prepare for final leasing or sale. Savvy high-yield financing firms are comfortable meeting these types of challenges.

Funding Land Acquisitions

For decades, residential builders depended on their local savings banks to back raw land purchases. The banks financed the acquisition and, in return, benefited from writing home mortgages for the buyers of the developed property. In today's market, however, savings institutions are turning away from supporting land acquisitions.

Residential builders that cannot self-finance are turning to non-traditional lenders. For those developers that can demonstrate industriousness and creativity, financing is readily available. Most importantly, the builder must have the vision to divide land and design homes that are attractive to the end-users, and in ways that are financeable. To prepare a property for financing, critical factors include proper zoning and approvals. Once the land is fully entitled, it becomes highly desirable.

Reading the Story Behind a Deal

The loan process begins when an applicant submits an executive summary of a project and a formal request for funding. We read it, perform some preliminary due diligence, talk to the applicant on the phone and determine if the deal would fit our criteria. If the proposal looks promising, SWH Funding asks the applicant to sign a commitment and pay a due diligence fee. At that point we know that he's serious and, accordingly, we start due diligence in earnest.

As SWH Funding works a project through, our top concerns include: Will the next person in line - a lender or buyer - accept this deal, this research, this preparation? Will another lender or buyer accept this kind of consultant, appraiser, architect, study, survey, title report and deed structure? Is SWH Funding putting these things in the proper form?
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Article Details
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Author:Herrick, Sanford S.
Publication:Real Estate Weekly
Article Type:Brief Article
Date:Jan 26, 2000
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