Posted by John Behle on October 20, 1998 at 18:29:13:
If you are talking about creating a 100% first lien position note to sell in the private market, it will not have much in the way of buyers. Paper buyers are as choosy or more than institutional lenders.
As a paper buyer, I will never sacrifice collateral for good credit or any other attributes of the payor. I would rather have a 60% LTV note with a total flake as the payor as a 100% LTV note with Donald Trump or Bill Gates as the payor.
People rise and fall. The property always pays me.
Private financing can work in a scenario like this if you do a “Leveragectomy”. Un-leverage the note by creating an 80% first and a 20% second. The first would be easy to sell, but the second will probably have to be held by the seller. It would be saleable at such time as the property values went up by about 25-30%, but note until then.
In that case, it could work, but there are no great advantages other than to the paper buyer. Institutions still have better rates and go for higher LTV ratios.