The financial meltdown of 2008 has caused long lasting, and potentially permanent, changes in the ability of commercial real estate borrowers to find the capital they need to refinance their debt or borrow money for new real estate investments.  They are not alone.  The world of small business finance has also suffered from a severe capital shortage as the largest banks have drastically cut back funding loans to these types of borrowers.  Welcome to the new world of “Alternative Lenders”.  Who are these lenders and what alternative lending options can they offer?

• Credit Unions:  Credit Unions are playing an ever larger and more aggressive role in funding commercial real estate (CRE) loans. Many credit unions are grouping together to create an underwriting and loan serving organization that serves multiple credit unions, thus credit unions now have access to the same professional skills that heretofore they had been too small to obtain. In addition to become more active in the CRE lending arena, the credit unions are expanding their role as SBA lenders. Look for this trend to continue.

• Private Capital (Non-Bank) Lenders:   These lenders are non-bank players in the CRE market. There are an increasing number of groups that are filling the niche created by bank’s dysfunctional lending abilities which in turn are forced on them by the Federal Reserve regulators.  Hedge funds are now funding large loans.  Private money lenders (i.e. hard money lenders) both locally and nationally are making a comeback.  Some of these privatemoney lenders operate off of lines of credit from large banks while others collect their money from private individuals through creation of Limited Partnerships. Full disclose note:  Montegra Capital – a Colorado based hard money lender – obtains its funds in this fashion. Montegra is owned and operated by Bob Amter, the author of this article.  Commercial Mortgage Backed Securities (CMBS) almost totally moribund since the 2008 crash are beginning to operate again and should become a substantial source for commercial real estate loans over the coming year.

• Crowd Funding:  Sometimes called “peer-to-peer financing” this approach to raising capital has been used for some time in the high tech world.  Obtaining small amounts of money from a number of individuals has also been common in funding movies, Broadway shows, and providing startup funds for innovative companies.  However there is a new twist to this concept which is now just beginning to be used to fund CRE deals.  The Empire State Building is now in process of being sold to small investors who are buying “stock” in a company that will own the building.  This is carrying out the concept the REIT stock companies to a new level where someone with $100 can become an owner of a prominent property.

• Sale-leaseback: This type of transaction, once very common, is now coming back into fashion as an alternative method of being able to control  certain types of properties such as:   warehouses,  industrial and manufacturing properties, and even single tenant retail properties by allowing the tenant to either develop a new facility or raise capital by selling its existing facility to investors and then signing a long term lease giving them control of the property for a 20 to 25 year time frame.

Look for alternative sources of financing to become increasingly important over the next few years.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.