Every troubled real estate market offers opportunities for investors who can recognize them - and who have the cash and experience to capitalize on them.

Here at Realty Times we've talked about the plusses and minuses of picking up distressed condo units and "turnaround" investing in small rental residential properties in key markets around the country.

But here's a different investing concept: Fill in the market gaps being left by lenders who've tightened standards so much in recent months that even qualified borrowers sometimes can't find mortgage money.

A new private fund coming to market in California aims to provide short-term "bridge"-type financing to income property owners who find themselves locked out of their traditional mortgage sources because of recent underwriting changes.

Wilshire Finance Partners (www.wilshirefp.com) specializes in niche deals where loan-to-value ratios never exceed 65 percent, borrowers need short-term liquidity -- six months to two years -- and where local economic indicators are positive.

Here's an example of a recent transaction to give you an idea of the concept: A group of investors planned to build and operate a car wash. They approached banks for a construction loan and long-term financing. Because of the credit squeeze, lenders said they could do the permanent mortgage, but were severely restricted on construction loans.

A Wilshire associate in Arizona stepped in, analyzed the project's feasibility, and made a nine-month construction loan at 13 percent. The investors built the carwash, paid off the loan, and approached banks again for long-term financing. Thanks to interest rate declines in the interim, they got a bank mortgage at a two percent lower rate than the original quote.

Thomas OBryon, chief executive of Wilshire, says 13 percent for a short-term bridge loan like this - even to borrowers with good credit and high equity stakes -- is par for the course. OBryon's been in the specialty financing business since 1976 and says today's credit crunch is creating more opportunities than he's seen in years.

That's why he and partner Kevin DeMeritt have each sunk one million dollars into a niche opportunity fund that is projected to grow to $100 million by 2010 and has a cap of $280 million. The fund, registered under California securities laws, is focused primarily on individuals and self-directed pensions with $100,000 or more to invest, but can accept IRA and other funds from investors with $25,000 up.

Target returns, according to OBryon, are nine to 12 percent per year, paid monthly.

Are there risks in pooled deals like these? You bet: All the usual risks associated with any high-yield, noninsured real estate investment. Due diligence and professional advice are essential.

Published: May 23, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.