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orrowers in need of capital will be hard-pressed to find a commercial mortgage
lender willing to fund opportunities
abroad. That’s the case no matter how
lucrative these prospects may be.
Mortgage brokers who work on international deals should know about the
barriers for both traditional and hard
money lenders that keep them from financing these
opportunities. And, when it comes to hard money,
they should look for an experienced lender that can
successfully navigate this tricky marketplace.
When it comes to commercial real estate investments,
there’s certainly no shortage of lucrative opportunities
outside the U.S., whether it’s related to multifamily
housing, hotels and resorts, or even — in rare instances
— raw land. Continued economic and tourism growth
abroad is certainly driving the need for foreign capital,
but many obstacles remain for lenders who need guarantees that their investments will pay off.
A borrower may need working capital, to pay off a
debt or to simply purchase a property. Regardless, a
lender seeking to fund such real estate opportunities
abroad requires that far more scrutiny and due diligence be conducted than a lender funding a real estate
deal located in the U.S. A lender needs to know that
the project will succeed, which ensures that the loan
will be repaid.
To achieve this, direct lenders require a clear title,
an up-to-date appraisal and other key documentation
that ensures the loan will be used in a sound, responsible and legal manner. They’ll often want to see more
information about the property itself, rather than information about the borrower.
These standards are harder to enforce once lenders
cross borders into foreign countries. Laws regulating
foreclosures, purchase and sale approvals, and other
essential parts of the transaction process, for example,
can be vastly different than those in the U.S. They can
even vary greatly from region to region within the
same country. Any language barriers make these
obstacles even harder to overcome.
Many lenders are unsure how to evaluate opportunities in
real estate markets in which they are not well-versed.
Analyzing demand for a property is much more diffi-
cult from thousands of miles away. On-the-ground
knowledge of desirable neighborhoods and real estate
trends play a part in an accurate appraisal. Without that
firsthand knowledge, many lenders are not willing to
risk their funds on something with which they do not
have hands-on experience.
Currency fluctuations add yet another dimension
that complicates an already complex landscape. A
foreign currency’s strength against the dollar is susceptible to market volatility, so severe shifts can impact the
value of a property or even tank a deal. What happens
if a currency’s decline in value jeopardizes an entire
real estate project and loan payments can no longer
be made? Understandably, many lenders aren’t willing
to open themselves up to that kind of risk.
Lenders also need to keep an eye on a foreign country’s
political situation. The value of currency or the asset
in question may not stabilize in politically volatile
countries. From an event as ordinary as a change in
administration, to something as extreme as a military
coup, these vulnerabilities can be scary to a lender,
who may not be repaid due to circumstances beyond
the borrower’s control.
If a borrower defaults, a lender could be left holding
the bag. Worse, if the property in question was accepted as collateral, lenders will need to coordinate a sale
in a country with completely different rules for buying
and selling real estate. Simply put, it’s a headache that
many lenders don’t want to deal with.
When it comes to international real estate deals, a borrower’s search is limited from the start as all traditional
lenders and many private/hard money lenders are off
the table. In the case of the few U.S. lenders willing to
make a loan on foreign real estate, commercial mortgage
brokers and borrowers should first and foremost look
for signs of that lender’s past success.
Borrowers should partner with hard money lenders
that have a strong history of closing loans abroad. As
previously mentioned, the many issues lenders face
internationally make it impossible for them to simply
jump into this market. Lenders with a track record of
success, however, have not only proven they can make
these complicated deals happen, they have shown
they have the infrastructure in place to repeat that success with new clients.
Brokers also should ensure the lender uses an internationally recognized and respected appraiser. The right
appraiser for foreign real estate holds up against the
U.S.-based lender’s scrutiny and utilizes expert-level
knowledge of the country in which the borrower wants
to use the loan proceeds. This type of appraisal ensures
that both the borrower and lender will get a full picture
of the property’s true value.
is an executive
loan officer with
Financial, a direct private lender
based in Englewood Cliffs, New
Jersey. Urrego is a 20-year industry
veteran and is part of a team that
has closed in excess of $3 billion
in hard money loans to borrowers
across the globe. Urrego has suc-
cessfully closed property and land
loans throughout the Caribbean,
Europe, Canada and South Amer-
ica. He specializes in bridge loans
for land, multifamily, retail, office
and hospitality properties.
Reach Urrego at (800) 342-8500