What Is a First Position Commercial Mortgage?

Barry Kornfeld pic

Barry Kornfeld
Image: fftaxgroup.us

Barry M. Kornfeld is a financial advisor and co-owner of First Financial Tax Group in Boca Raton, Florida. In this position, Barry Kornfeld focuses on assisting clients in building retirement funds through first position commercial mortgages (FPCMs), which differ from other retirement strategies in several ways.

A FPCM is a secured 12-month loan that presents clients with a retirement alternative considered to be safer than many other options. This is because the mortgages that back this retirement strategy are commercial in nature, leading to greater market stability and a higher yield on returns. The properties involved in an FPCM can be one of a wide variety of real estate options, including mixed-use properties, office buildings, or other high quality commercial real estate assets.

An FPCM pays out monthly interest to its holder, at a fixed rate of 6 percent per annum. Over the course of one year, clients with FPCM notes earn income on a monthly basis and receive a full return of principal once the FCPM loan term has reached it’s maturity.

The Reliability and Yield Advantages of FPCM Notes

stocks and bonds

stocks and bonds

 

Respected Florida financial advisor Barry M. Kornfeld leads First Financial Tax Group in Boca Raton. He offers clients a full range of retirement advice and income planning services. At the core of Barry Kornfeld’s offerings are first position commercial mortgage notes, or FPCMs, which are designed as fixed income alternatives that offer a safer pathway to monthly income.

Also known as secured bridge loans, FPCMs provide a reliable route toward predictable 6 percent returns over a one-year period, with interest paid on a monthly basis. Secured through insured property that acts as collateral, FPCMs are not subject to the fluctuations experienced with portfolio strategies such as stocks and bonds.

This type of loan is particularly valued for its combination of principal stability, high yields and short duration. This can free up funds for discretionary use once the one-year term has ended. Because the commercial mortgages have hard assets at their foundation, they provide lenders with peace of mind. Should a default occur, the property will simply be foreclosed on and the funds used in securing the loan recouped by the commercial lending firm that sponsors the transactions. Importantly, monthly payments and full principal redemption are contractual obligations of the commercial lending firm that Kornfeld uses for these transactions, even if the underlying property owner defaults. Importantly, the commercial lending firm that Kornfeld uses for these transactions, will have a second lien position in every FPCM that is offered, which is subordinate to all first lien positions. So, they can’t get their money out, until all FPCM clients get theirs out first.

The Basics of Bridge Loans

Bridge Loans pic

Bridge Loans
Image: investopedia.com/

At First Financial Tax Group, financial advisor Barry M. Kornfeld works to assist clients in the Boca Raton area with safer financial alternatives such as the purchase of first position commercial mortgage notes. An FPCM note is a short-term bridge loan that is secured by commercial real property. The safety factor lies in the fact that the property is worth considerably more than the bridge loan at time of closing. Barry Kornfeld and his team work extensively with a customer base that includes pre & post-retirement individuals who are seeking secure income-generating strategies. In fact, in today’s environment, their clients enjoy FPCM yield’s of 6% APY or better, with interest that is paid out monthly.

The term “bridge loan” refers to a loan issued over the short term, typically only 1-year at a time. Bridge loans typically cost the borrower a higher interest rate and often come with higher closing costs. It serves as a “bridge” to more permanent, long-term financing. The borrower typically uses the funds in the bridge loan as a stop-gap until he or she is able to obtain long-term credit from another source, like a traditional bank or the public markets, or even a REIT. In one example, a bridge loan might cover a situation in which an entrepreneur needs working capital until a major round of funding comes through.

Bridge loans are also called “gap loans” or “swing loans.” They are very common in the real estate sector, and they can also help a borrower to purchase or renovate an existing property or business and use the resulting new income stream to get on a better financial footing.

First Position Commercial Mortgage Notes

Barry Kornfeld pic

Barry Kornfeld
Image: fftaxgroup.us

Financial advisor Barry M. Kornfeld, based in Boca Raton, Florida, is co-owner of First Financial Tax Group. The firm concentrates on tax, estate and income planning for individuals of retirement and pre-retirement age. Barry Kornfeld and his team have made a particular study of the value of more conservative financial vehicles, including first position commercial mortgage notes, or FPCM’s.

An FPCM is widely considered one of the safer fixed-income alternatives when planning finances and seeking monthly income. Also called secured bridge loans, FPCM notes offer the potential to avoid the uncertainties of the markets in stocks and bonds. Additionally, an FPCM note typically earns a higher rate of interest, currently an annual percentage yield of 6 percent. The interest is paid out monthly, typically via direct deposit into the client’s bank account.

In today’s tight credit market, many potential commercial borrowers are unable to secure long term mortgage capital in an expeditious fashion. This is how an FPCM loan can help. It serves as a “bridge” over a temporary lack of capital funding sources for these borrowers. These borrowers accept the easier terms and higher interest rates of an FPCM when they need it to purchase or improve a property, then pay it back using the resulting new income streams.

Secured by a lien on specified real property, the FPCM loan is thoroughly vetted, including through a title search. As its name states, “first position” means that the holder of an FPCM is the first creditor in line for payment should a borrower default on a loan. As an additional and vital safeguard, the mortgage company that First Financial Tax Group sources its FPCM transactions through, contractually obligates itself to make the payments to lenders, even if the underlying property owner, does default. They will do this to protect their own second interest, which is subordinate to our first position, in the exact same property that we are involved in. In other words, they have skin in the same game, also, and this makes the transaction safer all around for everyone involved.