Bloomberg – There’s not a lot of light in Paulson & Co.’s 28th-floor headquarters on a drizzly November afternoon. The Alexander Calder sculpture and multicolored prints have been shipped to the firm’s new offices six blocks south. Darkness envelops the New York skyline.

The Dow Industrials have lost a total of 929 points over two days, and the jobless rate is poised to hit 6.5 percent. And John Paulson, who oversees $36 billion in hedge fund assets, isn’t exactly Mr. Sunshine either.

“You have deterioration in almost every asset class,” Paulson says. “You’re looking at declines in housing prices, the health of manufacturers and the earnings of various companies. There are rising delinquencies in auto loans and commercial real estate.”

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Wall Street Journal – Three months ago, Eric Gray saw an opportunity to scoop up a vacant retail property in New York City’s borough of Brooklyn. But he had a problem, one that has been plaguing many real-estate investors and owners: The nation’s banks, burned by years of easy credit and the resulting devastating losses, are no longer eager to lend.

So Mr. Gray turned to an unlikely source for money — a hedge fund. He took out a one-year, $2.3 million loan from Madison Realty Capital to pay for the $3.7 million property.

Even though the interest rate on the loan — at 12% — is nearly twice as much as a conventional-bank commercial mortgage, the developer took solace in the fact that he purchased the property at an attractive price and was able to close the deal fast. "For the flexibility, I can pay a bit more for the loan," he says.

As the credit crunch enters its second year, more investors seeking financing to acquire office towers, retail stores, hotels and the like are left with little choice but to turn to so-called hard-money lenders, lightly regulated businesses that charge high interest rates for short-term loans.

Right now, among the biggest players in the hard-money arena are hedge funds, which view commercial-real-estate lending as a way to diversify their traditional trading operations while still commanding double-digit returns.

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