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September 2022 Newsletter:
Hi Friends,
Several of our customers have come to us perplexed as to the best plan to capitalize lower cap rate deals in a rising interest rate environment. It’s important to analyze this carefully before you bid aggressively on potential purchases as cap rates are similar to 2021 for the most part but the cost of debt has risen significantly. These factors have resulted in fewer deals going from LOI to closing. There is also significant volatility in the debt market today. Below is our brief analysis and some suggested strategies for you:
2022 Deals Constrained by Debt Service Coverage- Debt in 2021 was generally limited by LTV, rather than debt service coverage. As of September 2022, most loans are debt service constrained, not value constrained, a complete reversal. If you have tons of cash, it’s not a real issue as you just borrow less. If you are like most opportunistic buyers and are looking for upside promotes and investing 10% to 25% cash equity into a deal, you need a new approach. Read on for some of our ideas.
65% LTV- The debt world has really changed. If you are buying in a reasonably strong market, the combination of flat cap rates (say in the 4.00 to 4.75 range) plus the rising interest rates/spreads will likely cause your base loan to top out at 65% or even lower as the loan will be debt service constrained.
Best Loan Options Are Shifting Rapidly- Your “Go To” lenders from 2018 through 2021 (the “Good Old Days”) were somewhat predictable. The agencies were among the best lenders for most multifamily deals. Larger commercial loans generally fit best in the CMBS market (assuming you could tolerate defeasance). Your Go To portfolio lenders were reliable for the most part. We still believed we could find the best lender for our customers in the Good Old Days, but the sources were more predictable.
What Do We Do in the ‘Wild, Wild West” Period of Borrowing Today- We had a few solid portfolio lenders in the Good Old Days (different ones for each asset type) and their terms were predictable for the most part. Many of these lenders are now in and out of markets faster than Aaron Judge can hit home runs. CMBS spreads are up significantly. The agencies are still decent for most multifamily deals but often not the best option. We have found some great portfolio lenders with rates well below the competition (including the agencies), and we are still searching every day. One hot portfolio lender is significantly undercutting spreads of every competitor (for loans up to $45,000,000 or so). They also often stretch to be creative in determining in place cash flow, finding ways to look forward to some extent to make the DSCR work as low as 1.25. I went to Iona Prep in NY many decades ago and our archrival was Stepinac. If you are borrowing $ today, DSCR is your “Stepinac”. We do have solutions, but they change often.
How About Preferred Equity (“PE”)- This is often part of our strategy in filling up the capital stack. The cost and reliability of PE is a real issue today. We have some great PE sources which we rely on in many deals.
You Need Us More Than Ever in Filling Your Capital Stack- The Good Old Days are over at least for now and your Go To lenders are just not as reliable as they used to be. Most portfolio lenders are being cautious and their boards are holding out for higher spread deals (because they can get enough business simply by seeking deals which tolerate higher pricing). We closed a $21,000,000 loan in May of this year at a fixed rate of 3.5% with earn outs and flexible prepay. This lender has juiced their spreads a lot since that time. We do have excellent alternatives, however, and we are in the market every day.
We are more than happy to help you evaluate these options and navigate the current market. We have been in business for 30 years, and our first customer from 1992 is still a customer today. We look forward to hearing from you.
Emmet Delany
Chief Executive Officer
August 2022 Newsletter:
Hi Friends,
Most buyers of commercial and multifamily real estate were able to secure senior debt at 75% of the purchase price, or even greater, when the 5- and 10-year treasuries remained low from early 2020 through early 2022. The 5-year treasury was at .77% on August 30, 2021 and was at 3.27% on August 30, 2022. The 10-year treasury was at 1.27% on August 30, 2021 and was at 3.11% on August 30, 2022. The former rates allowed for a relatively easy path of 75% and even 80% financing with debt service coverage above the 1.25 to 1.35 generally required for conventional loans. If you are a buyer, you are now in a difficult position as cap rates have not moved down for the most part. So, the loan which previously met the DSCR needed for 75-80% leverage now often gets you 65% or so of the purchase price, given that spreads have also increased meaningfully this year, a true double whammy.
Many of you have not utilized preferred equity in the past. Despite being available, it is very important to navigate the field carefully to make sure that you are dealing with a finisher (and a reasonably well priced finisher at that). We can certainly help, as we work closely with the best PE providers and are constantly in the market. One of our current programs goes up to 85% of the capital stack (even greater in some cases), with a hard pay rate of 4%, a preferred return of 6.5% and a coupon of 11.5%. You can likely negotiate a 6.5% return in the waterfall for your investment once the preferred return is met. If you are a multifamily buyer, the agencies include the “hard” preferred return in a secondary DSCR test.
We are more than happy to help you evaluate these options and navigate the current market. We are very different from our competitors as we will gladly assist you before you sign an agreement with us. We have been in business for 30 years, and our first customer from 1992 is still a customer today. That is because we deeply value our relationships with our customers, and we do not simply focus on the "deal". That will never change.
Emmet Delany
Chief Executive Officer
July 2022 Newsletter:
Hi Friends,
A new customer contacted us in the latter part of 2020 to see if we could help them capitalize a very large, stalled, multifamily development project in New Haven, CT. They were seeking approximately $115,000,000 in funds to develop a 400 unit multifamily project on this site. There was a need to buy out certain partners and they were also seeking high leverage financing. The project was just outside of the growing biotech market in New Haven but also had some immediate neighborhood challenges. We helped them to develop a stronger team which ultimately led to our success in arranging the financing across several tranches (working with Sienna Capital, their in place advisor). The site had some interesting history as most of the weaponry made by the Union during the Civil War was made on this site (though it also resulted in some challenges getting rid of significant lead from the soil).
We brought them a great multifamily owner/manager, in addition to the capital needed to complete the project. The rising costs of materials resulted in an increase in project costs, requiring nearly $124,000,000 to complete the project with four separate tranches (well above the initial ask); an institutional senior lender, an institutional junior lender, preferred equity and a loan from our company. If you think that just knowing the right sources completes the task of funding large development projects, then you have not been in the market. Our talents extend far beyond just knowing the right sources, as we understand what makes development projects successful. Our focus is always on furthering relationships with our customer, not in doing deals.
Emmet Delany
Chief Executive Officer
June 2022 Newsletter:
Hi Friends,
As Bob Dylan said in one of his most famous ballads, The Times They Are a Changing. That is surely the case today, which makes it even more important for multifamily owners (and others) to get assistance from specialized experts.
One of our best customers had a 3-year bridge loan maturing for a multifamily property in a strong southern New England market. The property had weathered the storm pretty well through the pandemic but had not fully achieved the goals of its business plan. Fannie and Freddie offered options which would require a pay down of the current loan to achieve reasonable terms. We explained the challenges to several portfolio lenders, and one stepped up, even beyond our expectations. The new $21,000,000 loan resulted in a cash out above the current loan amount and provided a further earn out equal to approximately 10% of the loan amount. They also locked the interest rate at application at a much lower rate than a Freddie or Fannie loan would have provided at that time. There was no cost to rate lock if the lender ultimately did not approve the loan. So, being an Irish guy from a very large family, I decided to ask for a little more as I felt like I was on a roll. Read below for some more color.
The property is comprised of 3 adjacent buildings, two of which were much smaller than the 3rd building. Our customer is contemplating replacing the two smaller buildings with a larger building which would add many units to the property. We persuaded the lender to provide construction financing (if our customer elects to develop the property at a future time) and they also agreed to keep the primary mortgage in place and treat the construction loan as a 2nd mortgage. If for some reason they don’t approve the construction loan, we also have the ability to repay the full loan at par.
We have been assisting this customer for 20 years. We don’t like to do deals. We like to develop long term relationships.
Emmet Delany
Chief Executive Officer
March 2022 Newsletter:
Hi Friend,
One of our customers came to us with a highly opportunistic multifamily opportunity in Connecticut and expected a loan of 60% to 65% of the purchase price. The property was dated and tired. The rents were clearly below market. The in-place net operating income did not support a reasonable loan amount, probably only 60% of the purchase price using a traditional 1.25 debt service coverage ratio, with the best iteration of in-place results. They wanted higher leverage and the ability to lock the interest rate at application. Fannie and Freddie simply did not work as they wouldn’t get leverage much above 60% of the purchase price. So, our customer asked if we could get higher leverage with great pricing and liberal exit from a portfolio lender. We almost always exceed expectations, perhaps that is why we arranged approximately $800,000,000 in real estate investments and loans in 2021, in every part of the capital stack from senior debt to joint venture equity. So, would you like to know how we did in the above multifamily opportunity in Connecticut? Read below for the rest of the story, and sorry for teasing you.
We have a commitment for a $42,000,000 loan on an 80% loan to value basis, using a debt service coverage ratio of 1.0 (way below market expectations of at least 1.25 DSCR), locked the interest rate at 3.45% at application stage, got a few years of interest only payments and provided for $3,000,000 in additional earn out dollars. Remember, our customer was assuming a much lower loan amount based on traditional underwriting of a multifamily purchase. We also obtained a liberal prepayment penalty. This loan will close in the early part of April, so it is “hot off the press".
We often hear potential customers tell us that they know all the lenders in the market for the most part, so why should they seek our help? As the above story indicates, we far surpassed our customer’s expectations, and our customer already knew the identity of this particular lender. Please give us your challenging opportunities. It’s also okay to reach out to us to discuss how to address challenging concerns.
Emmet Delany
Chief Executive Officer
November 2021 Newsletter:
Hi Friends,
One of our long time customers came to us with a very challenging loan request for a commercial property in upstate New York. The collateral was a very large property with almost no comparable properties in the region, which was occupied by a single non-investment grade tenant. They were also seeking a sizeable cash out. Some of the CMBS lenders saw it as a great opportunity to provide CMBS debt with a wide spread over 10 year swaps as they believed the most aggressive lenders would shy away from it. These expensive CMBS lenders were offering spreads around far in excess of what we ultimately achieved for our customer. Many of such CMBS lenders thrive on loans where they can make greater profits on assets with some “hair” or at least perceived hair, as it is often described in the market. Yet, such CMBS lenders move away quickly once they see lenders competing on price.
Guess what? We persuaded a top shelf CMBS lender to provide an $87,000,000 loan, at an interest rate of 2.92% with payments on an interest only basis for the full ten year term. The loan was at PAR with no fees. Yes, that rate included our fee.
We continue to thrive in 2021, arranging capital in all parts of the stack from joint venture equity to senior financing, enjoying our best year in our 30 year history.
Emmet Delany
Chief Executive Officer
October 2021 Newsletter:
Hi Friends,
We continue to be on pace for a record breaking year, the best in our company’s 30 year history.
We remain very active in raising equity through a variety of aggressive sources. We have some very creative structures which combine elements of JVE and PE, so that you can better protect your downside and limit the upside of the investor. We have some very compelling products, including stretch seniors which can sometimes reach the same upper level as preferred equity or mezz but without the challenge of intercreditor agreements.
Looking to build a large multifamily project and want to find the best senior stretch money? We work with funds that can go as high as 85% LTC for the right project. We are currently close to completing a $120,000,000 loan with one of these funds in a Southern New England market.
Finally, we arranged a $21,500,000 loan which included earn out features. One of our best customers had a challenging multifamily deal in Connecticut and the agencies were coming up short in dollars. We got them all of the funds they were seeking from a portfolio lender, locked a rate at application for a 7 year term (with no risk if it didn’t commit), at a rate equal or better than what was being offered by the agencies and with a far more liberal prepayment penalty than the dreadful yield maintenance or defeasance. It always surprises us that so few borrowers focus sufficiently on exit costs when borrowing funds.
Thanks to our customers for making this a great year.
Emmet Delany
Chief Executive Officer
August 2021 Newsletter:
$110,000,000 Loan Closing, Read How We Overcame Challenges-
One of our customers came to us to seek our help in refinancing a loan on a commercial property in a suburb of New York City. Their real estate portfolio has an aggregate value in excess of 2 Billion Dollars so they are very sophisticated. We agreed with them that the best source for this loan would likely be found in the CMBS market. They had already gone directly to the largest players in the CMBS market, so our options were limited. The loan had some real challenges including a large amount of dark space for the 2nd largest tenant; this tenant also had less than 3 years to go in its current lease.
We needed to beat the competition by reaching the full loan amount with the lowest interest rate spread; our lender was not ranked as high as the major competitors in terms of total volume of CMBS loans and our customer had never obtained a CRE loan from this lender. We also needed to include our fee in the spread. Guess what? We may have started out as the 7th horse in the race, but we exceeded our customer’s expectations by reaching the desired loan amount at a lower spread than every other lender (there were 3 rounds of bidding for all potential lenders). The other big lenders advised our customer that these terms would surely be retraded. Our customer closed on the full loan amount and at the quoted spread; they were not retraded one dollar or one basis point in terms.
We have been in the business for 29 years now and have arranged over $3 Billion in debt and equity for our customers, throughout all parts of the capital stack. We have been engaged on another $100 Million+ loan since the closing of the above loan. If you are in the market for a large CMBS loan, reach out to us as you have nothing to lose.
Emmet Delany
Chief Executive Officer
December 2020 Newsletter:
Hi Friends,
Do you believe that banks are not making construction loans for the most part, particularly in NYC Metropolitan/Tri State Area? One of our very experienced customers believed that was the case and we surprised them in arranging a $15,000,000 construction and interim loan for a Self-Storage project in New Rochelle, NY, which closed the day before Thanksgiving. We are used to exceeding expectations as we have often done in our 28 years of arranging financing for commercial and multifamily loans and investments, in all parts of the capital stack. The coolest parts of this loan were that we arranged our first loan with this same customer back in 1992 and that our customer had never even heard of the bank which provided the financing. I also went to high school at nearby Iona Prep in New Rochelle and later frequented a lot of “watering holes” in New Rochelle when I was a young lad and New Rochelle was teaming with great bars. So, this financing was also nostalgic.
How about CMBS? The CMBS market is on its way to its lowest volume since 2012 and only forecasting slight growth in 2021. It has also become even more rigid on the structure side. One of our customers brought us a large multitenant office park in Central New Jersey. They did not want CMBS debt due to its rigid prepayment structure and the asset did not fit the CMBS platform of today as there is a lot of lease roll in the first five years. The upfront reserves for rolls and the future cash traps would have resulted in very low leverage CMBS financing. Our customer, based in NYC, owns millions of square feet of commercial property in the NYC Metro area and was only able to find financing in a loan amount and spreads that made the deal untenable for them. They came to us and we, in turn, brought them a portfolio lender which believed in the under-market rent of nearly all of the roll risk in the next five years. This lender included some mezzanine as part of the base loan (but on a single source basis) at pricing far better than they expected and made the deal even sweeter for them. The total capital raise is just under $100,000,000.
What about more difficult deals in NYC, given its economic challenges? One of our customers has a maturing mortgage on a commercial property in Queens. The existing lender is a well-known NYC bank which traditionally just extended these kind of loans but is now experiencing problems with its portfolio. The property has some significant short-term roll risk where a new lender needed to really believe in the property and market. The banks based in or near NYC declined the opportunity to refinance this loan. One of the largest commercial mortgage firms in NYC brought them a lender before us, which never reached the finish line. We found a lender (not a bank) which has offered very attractive fixed rate financing, with flexible prepayment terms and a cash out amount well above the existing mortgage. The loan amount is just under $12,000,000. Our customer just accepted this application on the Friday after Thanksgiving.
So, show us your challenges. Our company continues to be most focused on broadening our customer base and exceeding our customer’s expectations.
Emmet Delany
Chief Executive Officer
March 2020 Newsletter:
Hi Friends and Customers,
As you know, the commercial debt markets are in complete disarray. Below is a combination of notes that we have received from some of the best traders and experts in the CMBS, Multifamily and other markets, with some commentary from us.
We are in unchartered waters, even a worse state than the collapse of the markets in 2008. A significant number of investors (including hedge and opportunity funds) started their panic selling of CMBS participations in mid-March, which resulted in a near death spiral. The market crashed earlier this month, and many investors will have to sell to meet margin calls and redemptions. Mortgage real estate investment trust AG Mortgage Investment Trust Inc. said in a statement last week that it failed to meet some margin calls and doesn’t expect to be able to meet future margin calls. The company said it was in discussions with its counterparties about forbearance agreements. Leading market experts are forecasting a continued disaster. The pain continued with Invesco Mortgage Capital, a real estate investment trust that invests in CMBS loans, saying it will no longer be able to fund margin calls.
CMBS is essentially a non-functional market as there is virtually no liquidity. The four securitizations in the market in mid-March were all pulled with zero bids. At this point, there is some hope to try and restart in May/June, but this is just a best guess. As of now, no CMBS loans will close until the markets show liquidity.
Most of us think that the larger sales of investment properties in NYC always reach the finish line. Guess what? It has been reported that SL Green’s deal to sell the former Daily News Building in Manhattan for $815,000,000 fell through because Deutsche Bank backed out of their CMBS loan. Citigroup is also in a real pickle because it made a 2 Billion Dollar Loan to Blackstone and an MGM spinoff for their billion dollars + casino property, which was intended for the CMSM market. There is no market for this loan.
We will provide an update on the Freddie Mac and Fannie Mae multifamily markets next week. Both have raised prices significantly this month though there has been some pullback last week. New loans will require significant reserves. Fannie and Freddie delivered a forbearance concept for current loans, but neither is that helpful in our view. Fannie Mae, in its generosity, is granting forbearances on a limited basis but you can’t evict any tenants until you pay back in full the complete amount of the forbearances. That could be a train wreck for your multifamily property.
We do have portfolio lenders which are interested in making commercial and multifamily loans but only on a select basis. We are here to help if you have those kinds of opportunities. They won’t be easy to access on a direct basis so you will likely need help from us or companies like us, more than at any time in the past 12 years. That said, our customers continue to come back to us, not just for access to capital markets, but for our ability to find solutions to difficult issues and to create the best structure for each loan. We also have a great reputation as being “finishers.”
We are acting as advisors to several of our customers (and new customers) as they traverse these very troubled waters. If you just want to chat or “kvetch” (as they say in NYC), we are always available to chat. Stay safe, stay healthy and know that we will get through this, albeit with some pain to be shared by all.
Emmet Delany
Chief Executive Officer
November 2019 Newsletter:
Dear Friend,
We were asked to arrange $15,000,000 of equity in connection with the purchase of multiple mixed use, non-contiguous properties in Milford, Connecticut. Our task was particularly tough because the properties each had their own challenges and our customer had different exit strategies for the many properties. We also had to make sure that the equity structure worked with our lenders as we had 6 different loans. This was the equity investor’s first investment with our customer; excellent execution was critical because this was a purchase which had relatively short windows of time before our customer had to go hard on a significant cash investment in the deal. While this made our assignment difficult, we reached the finish line with no retrades. The waterfall structure was also very favorable for our customer, despite many complexities. My early life experience of growing up in a big Irish family with seven sisters and brothers was also helpful in dealing with multiple properties, each with different challenges!
Why not reach out to us if you have equity needs or if you just want to discuss potential opportunities? It is one thing to have sources (and we have many); we excel at matching your needs with our pool of potential investors and then reaching the finish line. We have a great reputation as a “finisher” or “closer” in the multifamily and commercial real estate business. We’ve been at it for 27 years.
Happy Thanksgiving!
Emmet Delany
Chief Executive Officer
February 2019 Newsletter:
Dear Friend,
Are you interested in finding ways to benefit from the new Opportunity Zone Program (“OZP”) which was passed as part of the 2017 new tax laws, or in learning more about the program? It is much broader than prior Enterprise Zone programs which have been enacted by the federal government over the past 35 years. As with prior programs, it is meant to spur investment in low income areas throughout the country. Below is a brief summary:
1. What Funds are Best to Invest? If an investor has a long term capital gain from any source, those funds can be invested into a “Qualified Opportunity Fund” (“QOP”). The tax on the gain can be deferred if you hold onto the new investment for 10 years. You will also pay no tax on the gain from the new asset. So, say you have a $3,000,000 gain and a very low basis in the asset. You can invest the gain in a QOP and will only owe 85% of the tax which would have been due but for the new investment.
2. Isn’t This Similar to 1031 Exchanges? No, 1031 exchanges (for real estate) require that gains from real estate be invested in like kind real estate properties. You can invest ANY capital gain into a QOP, including gains from stocks or other investment, so it is much broader;
3. Are there other tax benefits? Yes, you will not have to pay tax on the profits from the new investment in a QOP if held for 10 years. So, you will not be taxed on any gain realized from the sale of the new property but will only pay tax equal to 85% of what would have been due if you did not invest in the QOP.
4. I Would Like to Own a Property in an Opportunity Zone (or already own a property), so what can I do at this time? You now have a whole new class of investors who will be desirous of investing in real estate projects in OZPs. We can help you in this search.
5. How Can We Help You? We are not tax advisors or professionals. Rather, we are just really smart guys doing business together for the last 27 years, who have helped our customers capitalize many adaptive reuse and ground up projects, including those with historic tax credits as part of the capital structure. Perhaps this is also why our competitors call us for help when they have exceptionally complex deals.
Give me a call if you want to chat and find out the many ways to better capitalize your real estate deals. I look forward to hearing from you.
Emmet Delany
Chief Executive Officer
December 2018 Newsletter:
Dear Friend,
We have had a really good year in 2018, including four loan closings in the last month. The loans included a construction and interim loan for the adaptive reuse of a commercial building in Queens (New York City), which has been vacant for close to 60 years and a refinance of a multifamily loan in West Haven, Connecticut. There were significant challenges in both deals, which ultimately allowed us to continue our reputation at being great finishers.
It always astonishes us that some of the biggest players in our business treat loans like a menu at diner; the pitch is often, tell me what you want and we’ll get it for you because we do a lot of business. Seriously? The focus should be on fully understanding the property, the market, the economics, the borrower, reason for borrowing, desired structures and the many issues in each loan. We should be able to tell you from early in the process of the challenges and potential solutions to each problem. A potential customer should be confident that we fully understand the property and its issues before they agree to engage us for a particular task. One of our customers just sold a large multifamily property where one of these large firms arranged the loan for the buyer. Guess what happened on the closing date? The net funds were wired to the title company until the lender demanded that the funds be returned as there were unresolved issues. Really, this did happen after the funding of the loan! Our customer was on his way home to enjoy a fine cognac and instead needed aspirin.
Our construction and interim loan in NYC was for an old abandoned courthouse which is being converted into medical use in the Rockaways. We were a bit nostalgic being in the Rockaways as some of our Irish ancestors first settled in the Rockaways after coming over from across the pond (found some good pubs during our due diligence). We had to work through a multitude of challenges, including getting a fully leveraged loan even though there was no preleasing. The property was also on the National Historic Register so the property was awarded historic tax credits. We were able to obtain two loans from the same lender, one secured by the real estate and the second secured by the receivable of a portion of the historic tax credits. The loan secured by the receivable of the tax credits was far less expensive and simpler than going to a different lender.
The second loan was a $16,850,000 loan for a multifamily property in West Haven, CT. This property had uneven revenue results over the last few years and was by far the best property in the market. It was also very close to Long Island Sound and caused us the work through some complex flood zone issues. Yet, our final loan amount was higher than what we applied for in our application.
Happy Holidays to all of our friends and colleagues. May 2019 be prosperous for all and more importantly, include good health for all. We are confident that it will be even more prosperous for you if you find a way to work with us in 2019. We will continue our mantra of looking for customers and mutually beneficial relationships in 2019, not deals. We have been in business since 1992 and our first customer in 1992 closed two loans with us in 2018, pretty cool.
Emmet Delany
Chief Executive Officer
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