Bonds, equities, commodities – now short-term real estate loans are the latest offering from billionaire money manager Jeffrey Gundlach’s fast-growing investment firm.
His DoubleLine Capital announced last week that it is partnering with fellow downtown L.A. firm Thorofare Capital in a move that will give DoubleLine’s clients access to an exclusive pool of short-term real estate loans. With interest rates that can approach double digits, these loans are hot commodities for investors looking for yield.
Such loans are usually called bridge loans, as they’re designed to fill a gap until a borrower can secure cheaper, more conventional financing. For example, a borrower might take out a two-year bridge loan to acquire an empty office building, then replace that loan with a standard 10-year commercial property mortgage once tenants are in place.
Because there’s added risk – after all, there are reasons many banks won’t make these loans – lenders can charge relatively high rates for bridge loans. For example, Lone Oak Fund, a private Brentwood bridge lender, charges borrowers rates that range from 7.9 percent to 9.9 percent and maxes out at a 60 percent loan-to-value ratio. Since standard commercial mortgages are often in the 5 percent-6 percent range, those higher rates have naturally attracted the attention of investors desperate to find yield anywhere.
Gary Mozer, principal at George Smith Partners, a Century City firm that lines up financing for real estate transactions, said DoubleLine is just the latest firm to step into the bridge-lending market, and that all the competition has pushed down the rates lenders can command.
“The banks, the life insurance companies, debt funds and Wall Street are all playing in the arena,” he said. “With that much competition, the pricing has gone down and the proceeds have increased.”
Even with lower rates, bridge loans still offer attractive yields for investors, said Morris Chen, a DoubleLine portfolio manager who leads the firm’s commercial real estate team. He said today’s white-hot real estate market provides plenty of opportunities for Thorofare to find borrowers.
“There’s ample supply for us to choose from,” he said.
Under the new partnership, Thorofare will underwrite and originate middle-market commercial real estate loans with terms of between two and five years, and with principal balances ranging from $5 million to $20 million.
DoubleLine will then buy the loans for its clients who have accounts managed under the firm’s Opportunistic CRE Debt strategy. The firm has more than $5 billion invested in commercial mortgage-backed securities, a fraction of the more than $73 billion in assets under management it has amassed since 2009, when Gundlach founded the firm just days after he was fired by rival money manager TCW Group.
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