I recently saw a spreadsheet detailing a hedge fund's purchase of a 40 loan, $15 mil UPB, loan pool. They used 70% debt servicing, 20% from investors, and 10% from manager funds. Since they are a well know fund I assume that they know what they're doing but I'm newer to notes and very new to the whole fund thing. That much leverage scares me.
Interesting any idea where they got their debt financing? The big players have access to investor cash and have the means to work with borrowers and legal system, while it takes working knowledge, the returns can be very attractive for even small scale investors. As the big pools get watered down we are seeing more and more opportunities for smaller investors.
Most of the $1M or less assets are being financed with private investor money. Its either on a flat percentage or a joint venture (50/50) basis.
We've financed several pools where we pre-sold a chunk of the pool above what we had it under contract for to help pay for the assets while walking away with the rest paid for.
In one case, I was buying a pool of 50 assets at 50% of FMV with 15 of the assets being located in CA. I was able to find a buyer for those CA assets at 80% of FMV which almost paid for the entire pool. I found another buyer to buy 5 of the assets at 70% of FMV which helped pay for the rest of the pool. Basically, for what I sold 20 assets off, I was able to keep 30 of them free and clear.
There are several funds rolling out NPN financing including Black Rock. They are looking at 75% ITV with a minimum loan amount of $150,000 on 5 loans with asset values of $40K or greater. 12-24 month time frame at a 6.5% rate with a couple of points. The stickler is on who will be servicing the loans as that will definitely determine profitability as some servicers are a lot better then others.