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Private Mortgage Fund Attracts Pension Money

SAN FRANCISCO-A unidentified pension fund's investment in a local company's private commercial mortgage fund appears to be the beginning of a trend.

By Brian K. Miller | Updated on November 26, 2006

SAN FRANCISCO-California Mortgage & Realty recently gained $150 million in commitments from institutional investors and others for investment in private commercial mortgage loans, which are made much faster than conventional bank loans in exchange for a higher interest rate. The news is seen as a major milestone for the private commercial mortgage industry, which is said to have seen little or no money from institutions before now.

“As far as I know, no institutional investor has ever invested [directly] in a private mortgage fund,” one of the investors in the fund tells GlobeSt.com, under condition of anonymity. “Some hedge funds have invested in private commercial mortgages, but for a large pension player to get involved directly, I’ve never heard of it. It is definitely a big stamp of approval.”

Private mortgage loans are an alternative to traditional financing sources such as banks and other lending institutions. The loans typically have short terms, a low loan-to-value ratio and an interest rate that is at least 600 basis points over prime. Such loans are often used by professional real estate investors who wish to close on a property more quickly than traditional financing allows or who have been unable to qualify for traditional bank financing.

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