Why Private Money Loans Are On the Rise

LOS ANGELES—Investors are using private loans as a tool to acquire and pull cash out of properties because of the speed and certainty of execution they provide, Lone Oak Fund's loan originator Alexa Mizrahi tells GlobeSt.com. As the firm reports funding close to $100 million in loans in April—a record-breaking month for Lone Oak—we spoke with Mizrahi exclusively about what makes private money so attractive to borrowers, how her firm differentiates itself from its competitors and loan trends she is seeing in the market.

GlobeSt.com: What do you believe is the cause of the significant increase in demand you've seen for private money loans?

Mizrahi: California is an extremely desirable state for both local and foreign real estate investors. The combination of low interest rates and the influx of foreign capital has created an extremely competitive environment. Investors are using private money as a tool to acquire and pull cash out of properties because of the speed and certainty of execution that private loans provide.

GlobeSt.com: What do you feel separates your firm from other lenders?

Mizrahi: Lone Oak Fund closes extremely quickly. Many of our loans close in a matter of days, and most loans close within a week. Our fastest close was six hours (repeat borrower, local property). We take pride in providing quality service and do our best to remain flexible. We view mortgage brokers as our clients and do everything we can to protect the broker's interest. Additionally, we provide very fair rates and charge low fees to borrowers. Lone Oak Fund never has a prepayment penalty and does not have the stringent underwriting requirements that banks do, such as debt-coverage ratios, income verification and tax returns. We also do not require a personal guaranty.

GlobeSt.com: Why is the California purchase market particularly competitive?

Mizrahi: California is an extremely desirable location for real estate investment because of the population base, healthy employment levels and abundance of coastal communities. There are many metropolitan areas, and California's economy has rebounded remarkably since the mortgage crisis in 2008. Northern California's real estate market has become extremely competitive due to the tech boom. California is also seen as a safe haven for foreign investors, with 1% neighborhoods in West Los Angeles, Newport Beach, San Francisco, etc., seeming relatively inexpensive compared to other global cities such as New York, Paris, London and Dubai.

GlobeSt.com: What are some other loan trends you're seeing?

Mizrahi: We've closed more loans on commercial properties recently. A lot of our volume in previous years came from residential investments. We are still actively lending on non-owner-occupied residential properties, but we're seeing an overwhelming number of commercial loan requests. We've made multiple loans on entitled, urban-infill land for multifamily developers. A lot of developers are using us for acquisition financing and then paying off our loans with construction financing in three to six months. Investors are using our loans to secure a site and beat out the purchase competition, and then they take the time to place permanent debt on the property. Since we're doing more commercial loans lately, our average loan amount has increased substantially. We do loans from $250,000 to $25 million, with the bulk of our loans in the $1-million-to-$10-million range.