First mortgage private loan
Getting a first mortgage private loan, is a serious decision, because ultimately, you are giving your equity to a private lender, that you may or may not know.
So, who do you trust?
The private lending market
The private lending market is full of various private lenders, some of which are listed below.
Types of private lenders
Fund Type 1: Their capital is sourced from small investors, HNW investors and family offices
Fund Type 2: Their capital is sourced from warehouse bank facilities, investment banks or sovereign funds.
Individual investors who lend out their own money.
Family offices who prefer to lend out their own money directly.
The advantages and disadvantages of each lender
Each of the above have their own advantages and disadvantages for a private loan, and each has their deal preferences. For example, funds may be good for development construction loans, that most individual investors do not wish to fund due to complexity, loan management and risk.
A fund may also specialise in lending to one type of asset class eg regional, that deeply understands the risk involved and how to mitigate that risk, so their perception of risk is lower. Whereas an individual investor on their own, may perceive the deal as being very high risk.
On the downside of a fund, they may not compete on pricing, individual terms and speed compared to an individual investor lending their own money. Because the fund has a specific investment mandate it must follow, an investment committee to review the deal, and the fact they must charge a premium to make a return above what they pay to investors.
Where does the best first mortgage capital come from?
At Royce Stone Capital, we asked one simple question. Where does the best capital come from, that is business friendly, property developer friendly and is aligned with commercial interests?
Not the largest (this goes to central banks, and sovereign wealth funds), but friendly capital that would understand the challenges of business owners, and their ability to get business funding.
Family office lending partners
The short answer is family offices, that have made their own money and that understand entrepreneurial challenges.
This is where we got things right, for the following reasons.
- Family offices can offer a discounted cost of capital.
- Family offices can offer high LVRs.
- Family offices don’t need to follow a specific set mandate that funds have to follow.
- Family offices can be sympathetic to your challenges and not predatory in nature when you go through hard times. They will work with you, and support you.
- Family offices can provide capital on urgent notice.
- Family offices can offer flexible terms to suit your specific situation, so a loan is tailor made.
- Family offices can later be JV partners when trust is built with them as a function of performance and time.
Friendly capital during hard times.
Consequently, when several borrowers went through a hard time during C-19 our family offices supported them! They didn’t charge them penalties, and worked through the problems with them to rehabilitate the situation. This is exactly what real lending should look like.
So, has our business model worked for private lending?
Several borrowers now only want to work with our family office clients, because they value the capital support of a family office, their expertise in business dealings and above all the family understands them. As a function of their long-term relationships, several of them are now doing JVs and other business dealings together. The family offices likewise have their favourites that they enjoy working with, because they see the sincere attitude of good borrowers and future partners.
Consequently, we’ve seen discounted interest rates being offered, high LVRs and above all patient capital that is there to support borrowers.
What could you achieve with this level of support?
For a confidential discussion, please feel free to speak to us.
