Do hedge funds make commercial mortgage loans? The answer is unequivocally yes. Hedge funds lend billions to commercial real estate property owners, investors and developers every year. In-fact, during this credit crisis, hedge funds filled an important role by funding deals the banks couldn't. Many, many properties were saved from financial disaster last year because they secured funding from a hedge fund.
A hedge fund is an investment company set up and managed by Wall Street bankers and funded by wealthy individuals or other cash rich entities, such-as trusts, endowments and corporations small and large. Originally hedge funds were created to "hedge" risks associated with more traditional investing, but today hedge funds are a form or high return investing unto themselves.
Although many are registered with the SEC (Securities & Exchange Commission) they remain largely unregulated and are free to invest as they see fit. The bulk of hedge fund activity involves trading in the equity, debt and derivatives (options, futures, synthetic securities etc.) markets. However, a good number of hedge funds have a real estate component that seeks opportunity by investing in property. It is the funds that have an appetite for real estate that will consider lending against a quality building or a promising development.
Hedge funds are opportunistic, high return investors; borrowers should not expect low rates and great terms. Commercial mortgage loans, when offered, will be high interest, short term loans with significant points and fees attached. In some cases the hedge fund will provide all the funds necessary to close a deal but will insist on becoming an equity partner and will demand a percentage of any future profits.
The best way to approach a hedge fund is with a short, simple deal summary that highlights the strong points of the property or development. Don't send a full business plan or loan package; hedge fund managers are traders at heart, they won't take the time to read a large proposal unless they already have an interest in it. If they like your summary they will request more information.
Hedge funds make decisions quickly and don't string people along. If they like a deal and can make good money on it they will fund it in a very fast and efficient manner. If they don't like your deal they will let you know right away.
The world of Wall Street hedge funds is very private and very exclusive but once you've done a successful deal and made money for them, you will enjoy a reliable and dependable funding source.