The Wall Street Journal reported yesterday on the degree to which hedge funds are providing commercial real estate loans. In a time when banks are pulling back from all forms of lending, hedge funds are stepping into the breach to keep business moving. The article notes that the interest rates on some of the deals can be high (12% is cited), but deal makers a) have no alternatives and b) can afford higher financing costs because the price of the assets have fallen.
Lending is not a new business for many hedge funds, but as banks' inability to lend perpetuates the credit crisis, the presence of hedge funds who are willing to lend becomes an important prop up for an economy that appears to be teetering.
Another Journal article yesterday says that financial institutions will have to pay off at least $787 billion in floating rate notes and other medium-term obligations before the end of 2009 and the cost of new borrowing to pay off the old borrowing is only going up. This reality means that it will be difficicult to borrow from traditional financial institutions well into 2009.
Could hedge funds really be important for the health of the US economy? Let's see who writes that story...