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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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West Palm Beach (HedgeCo.net) - In an effort to head off a forced asset sale, Windmill Management’s SageCrest Finance and SageCrest II filed for Chapter 11 bankruptcy after its assets fell sharply.

The hedge fund filed at U.S. Bankruptcy Court in Bridgeport, Conn. In a letter to investors, The fund said that the bankruptcy process would give SageCrest the time necessary to conduct an orderly liquidation of their assets to maximise the return to investors.

The fund described its investment strategy as making short-term loans to small- and mid-sized firms that cannot secure them from banks and specialty lenders. "Our position in a market where lending opportunities continue to outpace sources of capital provides an ideal point of departure for growth." The SageCrest website says, "Our investments target asset-rich and undervalued situations overlooked by, and with limited access to, the mainstream capital markets."

In its bankruptcy filing, SageCrest claimed fewer than 49 creditors and debts of between $1 million and $10 million. The hedge fund, which once boasted assets of as much as $650 million, said it now had between $50 million and $100 million.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

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