How can I learn about what creative financing is ?
What exactly is it and what are some examples? How practical and common is it?
TIA
[{"id": "ittoz1o", "text": "Great question - I wonder why ppl use hard money lenders, bridge loans, proforma etc in CRE.\n\nI come from a hedge fund background in commodities where the finance that's applied is a bit more realistic in that it's supported by supply/demand, and not numbers that are best case scenarios.\n\nMy first project was done thru conventional lending, but I had hard money lenders, and bridge loan guys set up in the back ground should the conventional loan not materialize.\n\nWhy do ppl in CRE use creative finance on an already spec bet? The deal is out there for a reason, and the story behind why the owner is liquidating should be enough for ppl to understand that he didn't see anymore delta left in this deal for him to keep it in his portfolio. My deal would've left nearly no profit for me during the first year after expenses had I gone hard or bridge.\n\nWhy do ppl use creative financing? And had I done a syndication, what would've been my upside? I went in 600k cash down, financed the rest at 4.75% with an asset that had a decent rent roll already at 50% occupancy.\n\nNo partners, no PM, just me solo. Best thing I could've ever done. Ready for my next project.", "replies": [{"id": "itv15uh", "text": "Honestly I think the best way to learn how to structure a great deal is watch others as a CRE broker for a couple years, then do it yourself. None of it is that complicated\u2026 some CMBS is assumable, seller carry, seller carrybacks, subject to financing, extended escrow, etc\u2026", "replies": [], "depth": 2}], "depth": 1}, {"id": "ituzk78", "text": "RE books and packages from the 70s and 80s covered creative financing extensively. All those topics were written out with the advent of cheaper financing and low inflation since the 90s.", "replies": [], "depth": 1}, {"id": "itvo9ml", "text": "Commercial mortgage broker here:\n\n1. There's a time and a place for hard money. Many of my clients pursue deals and use a 30-day TOE closing to make their offer sweeter to a seller who might need a quicker close. Bank financing does not close in &lt;30 days.\n2. Bridge lenders underwrite to a stabilized value/DY so any in-place income/NOI constraints with a banks DSCR do not exist. Bridge lenders also can lend on an LTC basis (inclusive of acquisition, renovation, reserves, closing costs etc) whereas banks may only fund acquisition or acquisition + renovation costs. This higher leverage is a huge value proposition to borrowers who don't have deep pockets or a deep bench of friends &amp; family investors.\n3. There's a massive stigma to \"Hard Money Loans\". Many think HML refers to a high interest rate but in reality HML refers to a loan that is lent on the basis of the value of a HARD asset rather than cash flow.\n4. Not all bridge loans are created equal. We work with bridge lenders that price loans at SOFR + 200 and lenders that go all the way to SOFR + 700 +/- and everything in between. I typically like to steer clear of the \"hard money\" title and try to refer to them as debt funds/bridge lenders. It just lands softer with less stigma.\n5. Many borrowers don't have the NW &amp; Liquidity or track record to qualify for bank financing or they have a BK/foreclosure in which HMLs serve this part of the market.\n6. Credit criteria for bridge lenders is much wider. For example, I did a $8 million bridge construction loan on a retail asset in Queens, NY. We needed a lender to give us credit for the current \"Market Value\" of the collateral as opposed to the cost paid for the asset (which was acquired in 2006). The value and cost are two completely different numbers and banks (mostly in part to HVCRE regs) were constrained on this and their quotes were underwhelming in terms of proceeds. Certain deals don't have the right requirements to go to a perm lender like historical financials, seasoning (consecutive proof of rental collections &amp; proof of occupancy) so a borrower needs to get a bridge loan temporarily to position the asset right for perm/agency financing. Office is tough these days and so while there might be no execution in the bank world, there's definitely financing available in the bridge lending world. Sometimes deals don't have Certificates of Occupancy and are not bankable (but still a good acquisition) so a borrower might need a bridge loan for this reason.\n7. Hard money lenders have easier financial reporting and easier draw processes for releasing money from a hard cost reserve. A bank may take 2 weeks to release money from a hard cost reserve from the initial request whereas a hard money lender can take 48-72 hours. This speed allows a borrower to deliver their product quicker especially when timing the market (i.e. renting or selling condos in the spring/summer as opposed to the winter).\n8. Many borrowers (especially syndicators) don't put in a lot of equity but get \"promoted\" once a certain hurdle/return is given to the investors. In this instance, getting high leverage going in, executing a business plan, and refinancing/selling in the shortest time possible is paramount to the syndicators success because many of these hurdles are IRR hurdles where the longer time goes out for them, the harder it/more expensive it is to hid that hurdle and get promoted. Also, being able to recycle investor or principals (assuming limited) capital allows him/her to do more deals, take more fees, and be all around more active. \n\nAt the end of the day, many of my clients don't WANT  a bridge loan but many times it serves it's \"time and place\"\n\nRegarding other facets of creative lending that are not hard money/bridge loans, while rates are more expensive there is still a robust lending environment out there today. Creative structures or other forms of \"credit enhancement\" to assuage \"hair on a deal\" may include but are not limited to: burn off recourse, interest only periods, springing guarantees, rate locks, open prepayment penalties, prepayment penalty waivers in the event of an internal refinance/arms length sale, loan assumption clauses, to name a few.", "replies": [], "depth": 1}]