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The 'Hard Money' That Makes Hub Development Easier

Here is the latest installment of Bates By the Numbers, a weekly feature by broker David Bates that drills down into the Hub's housing market to uncover those trends you would not otherwise see. This week, he looks at the hard money behind new Hub projects. (Last week, he unpacked the Southie condo market.)

If "brand-new" is residential real estate's irresistible force, then "the bank" is the immovable object. And, in the Hub, when the attraction of the irresistible force meets the resoluteness of the immovable object, developers often consider "private lending," also known as "hard money."

Dana Rosenblatt, a Boston area commercial loan officer who doesn't do hard-money loans but who's familiar with approximately 20 area hard-money lenders, says that hard-money lending is "situational asset-based lending," meaning the lender scrutinizes the collateral rather than the borrower's credit history or income. As a result, hard-money situations have larger down payments than other loans and the lender (who is often an experienced real estate investor) feels secure that in the event of a default he can get his investment back by foreclosing on the property.

Hard money is not for owner-occupied real estate and is particularly suited to small developers and investors who are once again as prevalent in Greater Boston as Patriots jerseys. Hard money can be a lending solution if the borrower has a glitch on their credit; if the property is difficult to finance (maybe because it's uninhabitable); or if the borrower needs quick money, short-term. Hard-money borrowers avoid the scrutiny banks use to determine an applicant's loan worthiness and receive funding for construction, condo conversions, land acquisition, or refinancing, usually within one week—or even as fast as a handwritten check can be signed.

Raymond C. Green, Inc., is widely considered to be the Hub's biggest hard-money lender. According to the company's website, the firm recently provided a $600,000 home-renovation loan in Weston and funded a $3 million, 14-unit condo project in West Roxbury. Justin Murphy, a loan officer with Raymond C. Green for nine years, said the company does more than $40 million in loans yearly, and is particularly active in South Boston and Cambridge.

Ken Chase, a principal at Atlas Funding LLC, another sizable area private lender, said that the market for hard-money lending typically has a borrower paying several points to secure a loan with an interest rate in the mid-teens. Although some may wince at the rate, it is important to remember these aren't 30-year mortgages—they're not even five-year mortgages. They typically are short-term loans (six to 12 months) to fund projects which may not get done otherwise, and which will likely leave the borrower with a profit after paying off the loan.

As the Boston real estate market recovers, there are no more immovable objects, only the irresistible force and high interest rates.
· Our Bates By the Numbers archive [Curbed Boston]