From the April issue: In the world of real estate finance there is an ambiguous and maligned concept called “loan to own.” Everyone acknowledges it exists, yet no one admits to participating in it. To be labeled a “loan to own” shop – or a lender that swoops in to finance a project at extremely high interest rates while hoping for a default – is considered an insult, real estate professionals said. They said no lender wants to be known as an institution that anticipates their loans will fail so that they can stand to gain ownership of the property. “No one goes out and says, ‘I am making a loan to own,’” said Andrew Gold, a partner at the law firm Herrick Feinstein. However, there are several types of lenders most often identified with the term, such as hard-money lenders, hedge and private equity funds and private individuals. And, as banks recoil, many developers have no choice but to tap less traditional sources of funding.
