Hi Reader,

I'm keeping it short today as I just returned from a guy's fishing retreat aboard a catamaran in the British Virgin Islands.

The picture below was my office for the last few days - I'm fortunate to get out sailing a couple of times per year. You can check out the Yacht Warriors if you are interested in learning more about how we do it.

OK, back to business. Did you know that some lenders use low-leverage note financing to help capitalize their business and boost returns?

We do this for our own balance sheet at Longleaf Lending, and you can also set this up as part of a fund structure to generate higher returns for investors. Most cap the debt at 50%.

All types of banks play in this space. We are the largest customer for a rural Texas bank, for example. Many large private banks also play in the space. For the most part, we partner with regional or state-wide community banks.

Recent developments:

We've met with several banks over the last few weeks. Some for renewals on existing lines as well as a couple of new relationships. Here's a snapshot of the latest market sentiment:

1. Consistent appetite for this product: despite unsettled market conditions, most banks still really like this product. Some also cite the fact that it falls under their Commercial and Industrial (C&I) group, not Commercial Real Estate (CRE). This is making it easier to get these loans through committee right now.
2. Negotiating power: there hasn't been much change in terms despite what you might argue could be power in favor of the banks. I credit that to some of the long-term relationships we've developed. One exception is a party that delivered a termsheet with a reduced advance rate and a fairly high floor.
3. Rates - ouch: hard money lenders are getting crushed by note financing rates. Borrowing rates are usually floating and based on the WSJ prime rate + 25-100 basis points. That puts them at 9%+. We haven't been able to raise rates to borrowers as fast as our borrowing rates have ticked up. With one bank, we were fortunate enough to lock in some fixed debt - unfortunately, that line of credit is up for renewal!

That's it for today.