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This role expands into actually structuring the loan itself, at least in broad terms. Fortunately, the majority of private-money loans vary only slightly from one to the next. Loan to values (LTVs) remain the same, for example, as do rates, terms and points. So you won't have to shift roles and become an underwriter.
As a general rule, the process has more plates in the air. Multiple lenders will depend on you to provide a complete, organized due-diligence package. Substantially more teamwork will be involved as you coordinate various underwriting elements among different lenders. The challenge becomes more one of management than of technical details.
Ground rules regarding how all parties, including borrowers, will work together need to be established at the outset. You must combine lenders with similar preferences regarding property type and location, loan type and terms.
Next, look at the lenders' structures. Do they specialize in fractional loans or are they a fund? Fractional lenders are governed by different requirements and regulations than fund lenders. Fund lenders do business with other fund lenders, fractional lenders with fractional lenders. Funds have their own internal guidelines regarding allowable loan amounts, LTVs and property types comprising their portfolios.
Brokers must also describe how the loan makes sense for all parties involved. This element should come most naturally to an experienced broker. It's simply a matter of explaining to everyone involved how they stand to benefit by pursuing a common goal.
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Participations are complex, but for a committed, professional broker, there is always the payoff. First, you'll have the satisfaction and confidence that follow the successful completion of a large, sophisticated loan. Second, the ability to coordinate participations successfully can dramatically improve your reputation, bringing more and bigger loan opportunities. Finally, the close working relations you develop will likely deliver you and your next clients to the front of the line with lenders.
Richard Zahm and David Gruebele are co-founders and principals of Second Angel Bancorp, providing residential and commercial real estate financing in California and the West. Zahm leads Second Angel's Investor Relations, and Gruebele heads the firm's business-development, client-relations and lending operations.
They manage Second Angel Commercial Mortgage Fund I, a real estate-focused hedge fund. Contact info: (916) 863-7300, rz@SecondAngel.net and dg@SecondAngel.net. Web site: www.SecondAngel.net. David Belleville, vice president of Real Estate Lending Group Inc., also contributed to this article.
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