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Trends of Private Money Lending in Commercial Real Estate

As the commercial real estate market in California continues to grow, it is increasingly important for lenders to have potential investments properly vetted as well as the loan documents clearly detailed in order to perfect a lender’s position. While this rationale commonly applies to institutional lenders, the growth of the commercial real estate market has attracted (and continues to attract) private money lenders.

There are several indicators that justify this trend. This post will highlight a few.

Housing market stability – It is reasonable to say that the residential housing market has achieved a level of stability to where fewer private money loans will be used on residential projects. With that, the level of risk is such that investors are more comfortable with issuing private money loans to fund commercial projects.

Lower interest rates – By their very nature, hard money loans are going to be more expensive than traditional bank loans. But as we alluded to earlier, the market is such that interest rates for bank loans are lower, so the rates for private money loans are palatable to a broader customer base.

Overseas activity – While the majority of hard money loans occur in the United States and Canada, more of these loans are being used for commercial real estate endeavors across the world. If the housing market maintains stability, it is likely that more of these loans will be used for international investments.

Since private money lenders may not have the same restrictions and protocols that institutional lenders may have, it is particularly important for them to have loan documents reviewed and detailed by experienced legal counsel. If you have questions about what that entails, a skilled real estate attorney can help.