Shayne Fowler

Investment bankers may be a good funding option for mortgage brokers and their clients
Andrew Bogdanoff, president, Remington Financial Group
As published in The Niche Report, October 2008

You hear the term all the time, but most people don't know exactly what a "hard money" loan is. The truth of the matter, is that a bit of time should be invested in understanding this unique loan type since it is an effective tool in a broker's arsenal of possible commercial lending types. Brokers that have a strong relationship with a hard money lender simply make themselves available to assist their clients and earn a fee that they ordinarily would not.

But what exactly is a hard money loan? Let's look at the attributes of this loan, review some examples of how and why it's used and further explore how lenders make these unique loans happen.

Why Hard Money?

A hard money loan is most easily recognized by its distinguishing characteristics including a low loan to value, high rates and high fees. But it is best known for its ability to close quickly; often times hard money loans can move from start to close in 30 short days.

So, why would someone need to close a loan in 30 days? It turns out there are many reasons that a quick turn around might be necessary. For instance, consider a woman who is aware of a piece of available property that is near the site of a soon-to-be-built shopping center. The land owner will sell the property at a lower cost, but only if the deal can close in the next 30 days. If the borrower were to go the traditional borrowing route, closing would take 60 to 90 days meaning she would lose the opportunity to secure the land at the reduced rate. By securing a hard money loan, the borrower will pay higher rates and fees, but can close quickly knowing that she will earn a significant return in a year when the shopping center's construction is complete and the land's value has increased.

Despite the high fees and rates, a hard money loan might be the only choice to help borrowers out of a sticky spot. For example, consider the individual who's lender is about to foreclose on his property unless he can repay a certain amount within a short time period. The property is worth $10 million and the borrower owes $1 million against it. If the property is foreclosed upon, all of the property's equity will be lost. Although a hard money loan carries high fees and rates, it enables the borrower to meet the aggressive repayment timeframe and save the equity in the property.

How Hard Money Works
A lender that specializes in hard money loans is equipped to handle the expedited closings of 30 days or less, which makes them unique in the lending space. These firms do so by preparing themselves with all of the necessary underwriting resources (attorneys, appraisers, etc.) to review and approve a loan very quickly.

Hard money lenders employ a lower loan to value ratio than a traditional lender might. For instance, a commercial loan to value might range from 70 to 95 percent. A hard money lender, however, will lend at no more than 50 percent loan to value, which allows the firm to recover its investment should the need arise.

Also, most times a hard money lender will skip traditional underwriting steps, such as evaluating a borrower's credit rating or examining his experience level, as a means to progress the loan more quickly. One step the hard money lender will never skip is a water tight appraisal of the property. By ensuring the property's value in advance of making a loan, the lender can tolerate the high risk it takes because it can liquidate the asset for enough money to recover the loan if necessary.

Just as important as a rock solid appraisal is an appropriate exit strategy. If a borrower can not share how the loan will be repaid, in reasonable terms, a lender will not make the deal. There is a derogatory expression that hard money lenders are "loan to own" lenders, meaning that they would be happy to take possession of a property because they can get it at such a low cost. This is the last thing that a hard money lender wants. Taking over a property and trying to manage it while they want to sell it is not what the lender is in business to do. Foreclosure, therefore, is not a suitable exit strategy for a hard money lender.

No Pre-payment Penalties

It's important for a broker's client to understand that a typical hard money loan does not have a pre-payment penalty associated with it. So, if the borrower is in a position to repay the loan early the lender will not impose an extra fee.
Because the loan fees for a hard money loan are already high, lenders are able to enhance their yield and, therefore, do not need to impose pre-payment fines.

Consider this example: A lender makes a loan for $1 million at 14 percent interest and 10 points. The lender collects $100,000 up front. He is only exposed for $900,000 but is collecting a high rate of interest for the full $1 million. Not only did the lender collect a whole year's worth of interest in the $100,000 paid up front, but his loan is repaid in a short period of time which allows him to loan it out again very quickly and increases his yield for that loan amount. In short, a hard money loan allows the lender to continually re-lend dollars numerous times each year, so there is no need to collect a pre-payment fee.

Offering More than Before

In the course of a commercial broker's career, the need for a hard money loan will most definitely arise. By forging a solid relationship with a hard money lender, a broker now has a resource to serve clients in need of a fast-closing loan.
Keep in mind that most hard money lenders are broker friendly also. Because their fees and rates are higher than the typical loan, many hard money lenders will actually funnel some of their fees back to the broker.

Andy Bogdanoff, founder, Remington Financial Group
As published in The Niche Report, July 2008

The Niche Report would like to present to you a company that truly needs no introduction - Remington Financial Group, a commercial lending services company with presence and leadership that offers "seamless financing with terms that are often superior to conventional approaches". Andy Bogdanoff, the man at the helm, gives us an opportunity to find out more about him and his company.

Andy, how did you get into the commercial lending space?

I worked in a traditional residential shop that occasionally received inquiries for commercial deals. We had previously never done anything with these leads, but the president of the company noticed it as an opportunity. In 1973 he offered me the chance to create a division to focus on commercial requests and to figure out how to generate revenue from them. After that, I was hooked. I've worked continuously in the commercial lending space for almost 35 years, in a variety of capacities including starting several commercial mortgage companies. In 1993 I founded Remington Financial Group where I act as the company's chairman.

What is Remington Financial Group and why did you start the business? What makes your company unique?

Remington Financial Group, or RFG, provides financial services to sophisticated real estate owners and developers nationwide. Having been in the industry for so long, I tend to see opportunities for underserved markets.

That's why I started RFG. I think that the commercial lending space is underserved in general; there aren't that many companies that specialize in commercial lending, so it made sense to fill that void. More specifically, there are even fewer companies that can provide highly leveraged financing. That's what makes Remington different. We can provide traditional senior debt loans, but our company can also deal with those highly leveraged financing deals that require things like mezzanine or equity loans.

What keeps you in the game after 35 years?

From both a professional level and a personal level, I like the work. I enjoy problem solving and find that this business creates an environment that lets me be creative since no two deals are exactly the same. Every deal has its own identity and unique nuances, and I find that working to find ‘outside the box' solutions is both challenging and rewarding.

What is your sense of the commercial lending space over the next 12 months?

As everyone knows, the economy is tight and will remain that way for at least the next 12 months. When the economy is tight, it creates an opportunity for companies like RFG. The current market condition means that finding solid financing options is more challenging. The biggest and the best companies can still find financing relatively easily, but as you move through the subsequent tiers - those companies that are not quite as big or well established -the process is more difficult. Companies that previously arranged financing internally are now considering outsourcing the process, and are looking for a highly qualified firm, like Remington, that has expertise in structuring deals and finding available financing.

For companies like RFG, the worse the market conditions the greater the demand for our services. We have always been an attractive option for B- or C-level companies looking for financing, but now our phones are ringing with calls from A-level companies that are unable to secure financing from their traditional sources.

What are some of the challenges facing the industry this year?

It's taking a bit longer to put a deal together and take it through funding. And, because there are fewer sources that are open for business and that are looking to do deals, our jobs are more challenging.

How does RFG address these challenges?

RFG performs well in these conditions for a couple of reasons. First, we have great relationships with lenders and know where the available capital is for our business dealings. Second, we have a tremendous amount of expertise - remember, I've been doing this for 35 years - that helps us structure deals in a way that makes them more desirable. There are a limited number of dollars available today, and Remington can present a deal in the best way so that lenders can easily see the value of the deals presented to them. This expertise helps us secure funding for our clients more easily and efficiently.

What is RFG's relationship with Brokers?

It's simple - Remington Financial Group puts a premium on the broker relationship. Companies like ours can market to the broker or to the end user. We see the broker as a tremendous value, so have structured our entire strategy to focus solely on the broker community. Because we don't market to the end user, we do not compete with brokers and are able to coordinate our efforts jointly with them. We appreciate and support the role a broker plays and take proactive efforts to ensure we don't compete with the brokerage community.

How do you like to work with brokers?

We are prepared to be highly proactive or very passive, depending on the broker's approach and have different programs in place for these different approaches. For instance, we have programs for brokers that just want to give us a name and number and have us work the deal. We have other programs for the highly and actively involved broker that wants 100 percent client control and uses us as a back office function. And we offer everything in between.

What are RFG's goals over the next 12 months?

Our goals focus exclusively on closing transactions. We are shooting to get to $1.5 billion in closings during the 2008 calendar year. Given our approach to broker relationships, our ability to access financing and our expertise in structuring complex commercial deals, I feel confident we will meet this goal.

Andrew Bogdanoff has more than 35 years' commercial lending experience and founded Remington Financial Group in 1993. Bogdanoff has served as the company's president since its inception, and, under his leadership, RFG has closed billions of dollars in transactions. Andy can be reached at andy@remingtonfg.com. For more information on Remington Financial Group, please visit www.Remingtonfg.com

Published July 2008 in The Niche Report

Andy, How did you get into the commercial lending space?
I worked in a traditional residential shop that occasionally received inquiries for commercial deals. We had previously never done anything with these leads, but the president of the company noticed it as an opportunity. In 1973 he offered me the chance to create a division to focus on commercial requests and to figure out how to generate revenue from them. After that, I was hooked.Center Stage with Remington Financial Group
The Niche Report would like to present to you a company that truly needs no introduction - Remington Financial Group, a commercial lending services company with presence and leadership that offers "seamless financing with terms that are often superior to conventional approaches". Andy Bogdanoff, the man at the helm, gives us an opportunity to find out more about him and his company.

What is Remington Financial Group and why did you start the business? What makes your company unique?
Remington Financial Group, or RFG, provides financial services to sophisticated real estate owners and developers nationwide. Having been in the industry for so long, I tend to see opportunities for underserved markets.

That's why I started RFG. I think that the commercial lending space is underserved in general; there aren't that many companies that specialize in commercial lending, so it made sense to fill that void. More specifically, there are even fewer companies that can provide highly leveraged financing. That's what makes Remington different. We can provide traditional senior debt loans, but our company can also deal with those highly leveraged financing deals that require things like mezzanine or equity loans.

What keeps you in the game after 35 years?
From both a professional level and a personal level, I like the work. I enjoy problem solving and find that this business creates an environment that lets me be creative since no two deals are exactly the same. Every deal has its own identity and unique nuances, and I find that working to find ‘outside the box' solutions is both challenging and rewarding.

What is your sense of the commercial lending space over the next 12 months?
As everyone knows, the economy is tight and will remain that way for at least the next 12 months. When the economy is tight, it creates an opportunity for companies like RFG. The current market condition means that finding solid financing options is more challenging. The biggest and the best companies can still find financing relatively easily, but as you move through the subsequent tiers - those companies that are not quite as big or well established -the process is more difficult. Companies that previously arranged financing internally are now considering outsourcing the process, and are looking for a highly qualified firm, like Remington, that has expertise in structuring deals and finding available financing.

For companies like RFG, the worse the market conditions the greater the demand for our services. We have always been an attractive option for B- or C-level companies looking for financing, but now our phones are ringing with calls from A-level companies that are unable to secure financing from their traditional sources.

What are some of the challenges facing the industry this year?
It's taking a bit longer to put a deal together and take it through funding. And, because there are fewer sources that are open for business and that are looking to do deals, our jobs are more challenging.

How does RFG address these challenges?
RFG performs well in these conditions for a couple of reasons. First, we have great relationships with lenders and know where the available capital is for our business dealings. Second, we have a tremendous amount of expertise - remember, I've been doing this for 35 years - that helps us structure deals in a way that makes them more desirable. There are a limited number of dollars available today, and Remington can present a deal in the best way so that lenders can easily see the value of the deals presented to them. This expertise helps us secure funding for our clients more easily and efficiently.

What is RFG's relationship with Brokers?
It's simple - Remington Financial Group puts a premium on the broker relationship. Companies like ours can market to the broker or to the end user. We see the broker as a tremendous value, so have structured our entire strategy to focus solely on the broker community. Because we don't market to the end user, we do not compete with brokers and are able to coordinate our efforts jointly with them. We appreciate and support the role a broker plays and take proactive efforts to ensure we don't compete with the brokerage community.

How do you like to work with brokers?
We are prepared to be highly proactive or very passive, depending on the broker's approach and have different programs in place for these different approaches. For instance, we have programs for brokers that just want to give us a name and number and have us work the deal. We have other programs for the highly and actively involved broker that wants 100 percent client control and uses us as a back office function. And we offer everything in between.

What are RFG's goals over the next 12 months?
Our goals focus exclusively on closing transactions. We are shooting to get to $1.5 billion in closings during the 2008 calendar year. Given our approach to broker relationships, our ability to access financing and our expertise in structuring complex commercial deals, I feel confident we will meet this goal.