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Four Advantages to First Position Commercial Mortgage Notes

Barry Kornfeld

Financial advisor Barry M. Kornfeld serves as a principal of the First Financial Tax Group, which develops flexible income strategies for clients planning their retirement funding strategy. Barry Kornfeld’s company also helps clients utilize first position commercial mortgage (FPCM) notes fit in with their retirement funding strategy. Secured by highly valued commercial real estate, FPCMs offer a number of advantages to lenders:

1. Short term. FPCMs feature a short term of only one year, which prevents long-term commitment of a client’s funds.
2. Enhanced security. The structure of an FPCM offers an additional layer of comfort by placing lenders in the first-lien position and using the equity of the property for collateral. Furthermore, the FPCMs that Kornfeld's firm specifically works with, only offers low loan-to-value (LTV) ratios, which are considered to be amongst the most important security measure.
3. Higher return rates. With annual yields starting at 6%, paid out monthly, yields on these FPCMs are very competitive with more traditional portfolio choices available to most clients, or "lenders", as they are known. FPCMs possess the potential for higher return rates than stock or bond markets - with additional security.
4. Monthly interest payments. Lenders will receive monthly interest payments over the course of the 1-year loan period. According to the basic FPCM contract, the originator is responsible for interest payments as well as the final principal payment at the loan’s balance.
5. There are certain Secured Bridge Loan notes that are even shorter term than the 1-year mentioned above. 9-month notes exist as well, and also start at a 6% annual effective yield, paid out monthly.

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