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May 2018 Newsletter:
Dear Friend,
We are thrilled to announce another closing, a $29,177,000 loan for a multifamily property, just outside of Albany, NY. The building on the property was an adaptive reuse of a historic commercial property into a thriving multifamily property and included the utilization of historic tax credits. We also obtained the construction financing and the loan amount was well in excess of the construction loan.
Our customer wanted a flexible exit, the longest period of interest only possible, an 80% LTV and needed to use a short period of stabilized occupancy to size the loan. We accomplished all those goals despite facing challenges relating to a tax abatement and the organizational structure of the historic tax credits, among other challenges.
If you are considering Fannie, Freddie, FHA or portfolio lender for your multifamily execution, let us know as we can walk you through the perils of the pitfalls of each lender. We are not married to any source and we don't take fees from any lender if we are representing the borrower. So, our analysis will always be based on what is best for you, not us.
On the new business front, we are working on a large commercial loan ($43,000,000 or so) for an office building in upstate NY, with some difficult roll, tenant credit and early termination options. We have found a way to mitigate those risks without significant up-front reserves or draconian cash flow sweeps. We also made a 'LeBron like' last second shot on a multifamily deal in Syracuse, NY, where our new customer was about to take a loan from Freddie Mac. We met this customer at a diner in late March as our lunch date introduced us to them as they were ready to take a Freddie deal. Guess what, they just accepted a loan from another lender through us; more dollars, more interest only and a lower spread. We like those kinds of lunches.
Happy Spring, letís connect soon.
Emmet Delany
Chief Executive Officer
February 2017 Newsletter:
Dear Friend,
We have had a great start to 2017 and a strong end to 2016 and wanted to bring you up to date on examples of our most recent success in the financing of multifamily properties, as well as our views on the current market for multifamily and commercial real estate financing. As Bob Dylan so aptly stated in one of his hallmark songs way back in 1964, “The Times, They Are a Changing”.
Below is some commentary on the current debt markets and the nuts and bolts from three recent multifamily financings, which occurred in January, 2017 and the end of 2016, all of which presented different challenges.
1. Life Companies, Fan/Fred, Banks, CMBS Lenders, Who Ya Got?
So, you reached out to your longtime financing team and asked them to help you in financing the purchase of a multifamily property in a secondary market. You get a proposal from a life company; your finance team acts as a correspondent and services the loans. The leverage is okay, the pricing is decent and they will rate lock at application. Is it really the best for you? If you’re seeking the highest leverage, the best pricing, and the most flexible exit, the answer is likely NO. We recently won some business where we were competing against a life company. Our deal was better in almost every respect. We don’t service our loans or take fees or strips from lenders, so every loan is done on an open book approach, which prevents conflict and miscommunication.
How about Fannie, Freddie and FHA? We aren’t sure where they will wind up in the current political climate, so we will deal with the present. All Fannie, Freddie and FHA lenders are not the same. We know how to get the agencies to compete and to stretch on loan amounts. Do intermediaries help? Yes “in thunder” as we are always in the market. Guess what, we also have some banks, with better terms than the agencies, particularly on 5 and 7 year terms.
How about CMBS? The pricing has come in on each tranche this year, but are you okay with defeasance or yield maintenance, making exit flexibility impossible? We view CMBS as appropriate for tougher deals, special purpose properties, or very large loans recognizing that 10 year fixed rate loans are the only true sweet spot for CMBS. It might also be the best execution for hotels or for deals involving principals with credit or other personal issues. Are all CMBS lenders the same? No, particularly if you have a challenging deal. You need to know which CMBS lender has the hot hand and if they are reliable in the clutch (excuse the sport’s references, but I have been coaching travel/high school basketball since the late 1970s). Guess what, we had a very tough single tenant deal for a start up business with no operating results. We were told that no CMBS lender would finance the deal, yet we found one, much to the pleasant surprise of our customer.
2. Three Multifamily Loans in the Total Sum of Just Under $50,000,000 for Multifamily Properties in Southern New England, All with Different Challenges.
We arranged two loans in late 2016 for multifamily properties which had been owned for a long time by one of our best customers. Both presented different challenges and included large cash outs for our customer. One property had many voucher tenants in a good location, with just decent real estate. The other property was the leader in its class for rents in a market that concerned many lenders. We executed on loan dollars, pricing and even negotiated some flexibility in exit.
The last loan in January, 2017 was in connection with a purchase in a good Northeastern location. All lenders were wary about new supply in the market as there was a lot of ongoing construction, with less than optimum occupancy. The seller was an absentee owner that was underperforming in the market and was taking a large loss on a property which was purchased in the 2012/13 period. This was a value add deal where we very much wanted to push leverage and pricing. Various banks and agency lenders gave us different presentations. We settled on a bank agency lender as we knew that the bank would offer us a balance sheet loan if they could not meet the very tight time deadline imposed by the seller. We also believed that the lender would commit and close on time because of our strong relationship with the lender and with the agency. Guess what, we closed on time with high leverage and with better pricing than was offered by any other agency lender in the market. We did have bank options available, which helped to push the agency on dollars, pricing and timing.
We continue to have a great reputation for being “finishers” in the execution of loans and we are very proud of it. We’ve had the “hot hand” for several years and we like the ball in our hands late in the 4th quarter. Give us a chance, we can even hit the long 3 pointers!
Give me a call if you want to chat and find out the many ways to better capitalize your real estate deals. We are still doing all the food chains, including hotels, retail, office, skilled nursing, including construction and adaptive reuse deals. Let’s find a way to connect soon.
Emmet Delany
Chief Executive Officer
March 2016 Newsletter:
Dear Friend,
We have had a great start to 2016 and wanted to bring you up to date on our most recent success, as well as some commentary on Freddie, Fannie and CMBS loans. Let’s find a way to connect soon. Below are the nuts and bolts from a debt/equity funding which occurred last week as well as some commentary from us!
1. Are all CMBS, Fannie and Freddie Lenders the Same? We sometimes hear that there may not be a need for intermediaries in obtaining CMBS, Freddie or Fannie Financing. Really? What is your protection against spread increase, loan dollar haircuts and the like? As Freddie Mac is essentially a CMBS lender, don’t you have the same risk? How do you know which CMBS lender will offer you the best terms? Do you know the profit margins at each CMBS lender (they vary widely) or which have better experience with hotels, for example? Does your lender have a close relationship with your intermediary? Do you know if they get paid any “servicing” fees or strips by the lender? How do you know if a CMBS loan is the best alternative for you if that is all you are presented to you by your intermediary? Has your lender or intermediary worked through other alternatives with you or might they be taking the most familiar or easy path for them? We do understand that there is always risk in the execution of a loan between application and commitment/funding as markets do change. Yet, we too often hear that borrowers are not always afforded the best or wisest alternative. A new customer which owns a well branded limited service hotel in a secondary market came to us for the first time on a recommendation from one of our other customers. They had been working with a well-known intermediary for many months which just presented CMBS alternatives that were simply not the best alternative for many reasons. We are now close to obtaining a loan for them from a portfolio lender on superior terms.
2. $58,900,000 Loan and $10,000,000 Equity Investment for Multifamily Purchase in Fairfield County, Connecticut- One of our best customers recently purchased a large Class B+/A multifamily property which had lost much of its luster despite being owned by one of the largest owners of multifamily properties in the United States. The property had grown tired and lost some of its reputation in the marketplace. The property was also in the midst of a revaluation of its real estate taxes, which occurred during the contract period and created some tough challenges for us. Our customer sought our assistance in obtaining debt and equity, and we once again succeeded on both fronts. Our customer wanted to find a high leverage, non-recourse loan, using a floating rate loan but mitigating the risk of rate increase with the purchase of a cap (capping the maximum interest rate, regardless of the increase in the index). Our customer also wanted significant cap ex dollars out of the debt. Hmm, sounds like a tough assignment? We were able to persuade a lender to give us a loan for approximately 83% of the purchase price despite the low cap rate nature of the deal. The prepayment rights are also very liberal, allowing for a highly flexible exit strategy. The current interest rate for the loan is less than 3%. We also worked to successfully bring equity into the deal from an opportunity fund managed by a dedicated real estate team. Our expertise went well beyond financing as we had to help explain the exit of GE’s headquarters from Fairfield County, by way of example ( perhaps a big deal from a symbolic perspective but was in the works for 3 years and GE will still have 5,000 employees in the state).
We are old school in our approach to making deals happen. In our latest deal, we were told that we would be retraded on spread and total dollars by those vying for the deal. Guess what, our interest rate did not go up ONE basis point, despite the market moving against us in the period between the application and the commitment. The loan amount also increased as a percentage of the overall costs of the transaction.
Give me a call if you want to chat and find out the many ways to better capitalize your real estate deals. We are still doing all of the food chains, including hotels, skilled nursing and adaptive reuse projects, including those involving the utilization of historic tax credits.
If you are NY Knick fan like me or suffering through your favorite team, fret not for baseball is almost here and this eternally optimistic NY Met fan is hoping that my guys win three more games this season! Let’s go!
Emmet Delany
Chief Executive Officer
July 2015 Newsletter:
Dear Friend,
We have had a very robust 2015 and wanted to bring you up to date on our most recent successes, as well as some new debt and equity financing tools. We are only going to describe two of our recent successes, which are as follows:
1. $29,500,000 Construction and Interim Loan for the Albany International Building, Albany, NY- This project is an adaptive reuse of a commercial loft building, which is on the National Register for Historic Properties. The building is being converted into a multifamily usage, as well as some ancillary uses for daycare and self-storage. Our customer wanted to knock the ball out of the park with leverage and we did our best Giancarlo Stanton impression for him. We obtained a five-year loan for close to 90% of project costs. So, how were we able to finance a very high percentage of project costs without running afoul of the HVCRE rules imposed on banks? Hmm, you will have to reach out to us for that answer, as we still have some unique tools in our toolbox! The pricing for the debt was at 3% or so (on a floating basis), so the solution was not simply to obtain more expensive financing.
We also assisted in obtaining an equity investor for the project, which invested in the historic tax credits. If you own or seek to own a building, which has or might have historic significance, do not simply assume that obtaining historic tax credits is too burdensome. It is a fantastic way to bring cash into a project as part of an adaptive reuse project. We also understand the historic tax credit business and can help you through the process; and
2. $23,900,000 Loan and Equity Investment for Multifamily Purchase Near New Haven, Connecticut- One of our better customers was selected as the purchaser for an underperforming multifamily property, just outside of the core of New Haven, after a deal fell through with another purchaser (always a concern when a multifamily deal falls through in today’s climate). The property had been poorly operated by an absentee owner, and some of the capital components had also been neglected. Our customer sought our assistance in obtaining debt and equity, and we succeeded on both fronts. Our customer wanted a long term fixed rate loan and the investor wanted a shorter term loan. Our customer also wanted significant cap ex dollars out of the debt. Hmm, sounds like a tough assignment? We were able to persuade a fixed rate lender to give us a loan for approximately 88% of the purchase price (though some of the funds were to be used for capital improvements) on a fixed rate basis for seven years (loan closed in June of 2015). Theprepay was based on Yield maintenance for four years (out of the seven year term), and then reduces to 1% for the last three years (with the last six months being at par). We paid a little more for these liberal prepayment rights, but our FIXED rate was still under 3.90% (and that is for high leverage). This structured fixed rate loan satisfied the long term needs of our customer and the exit flexibility desired by the investor (this lender has rarely even offered this kind of fixed rate loan).
We hear so many horror stories about equity investors. Like the old song from the 1970s, we think most of you are simply “looking for love in the all wrong places” (it was a pretty lame song, but you get the picture). Let us help to guide you on the right path as there are so many critical factors in selecting an equity investor outside of percentage of equity funding, current return, look back and promotes.
We do well in these kind of deals where we can marry fantastic debt with a new equity investor and still make everyone happy. Some of our long time customers believe that my personal success in making tough deals and new relationships work is the direct result of growing up in a large Irish family with five older sisters. I think they are right.
Give me a call if you want to chat and find out the many ways to better capitalize your real estate deals. We are still doing all of the food chains, including hotels and skilled nursing.
Have a great summer!
Emmet Delany
Chief Executive Officer