6A — April 13 - April 26, 2012 — Financial Digest — Mid Atlantic Real Estate Journal
www.marejournal.com
C REATIVE F INANCING
By Mark Scott, Commercial Mortgage Capital Finance 2012: Improving market conditions & increasing liquidity to real estate capital markets
L
iquidity has certainly returned. Not to the days past of high loan-
staged fundings. But the lending environment is much improved over 2009 and 2010. Borrowers are seeking to lock in today’s low rates as inflation continues to rumble on the horizon. Lenders are eager to put their money to work yet are structuring loan transactions to satisfy bank loan committees and the watchful eyes of bank regulators. Of the $410 million placed by our firm last year, less than 15% were straight, non recourse, 10 year term, 30 year amortizing loans. Over 40% of our closings involved
interim 3 to 5 year financ- ings. In one such loan the of- fice property was 53% leased to a strong credit tenant and the building was in lease up (72 % leased overall) after a recent renovation and reposi- tioning, The lender funded to a low 1.02 debt service cover- age based on the strong credit lease and allowed the bor- rower to receive additional loan proceeds based on new leases and also funded the required tenant work letters on the unleased space. An interesting retail/multi- family financing allowed the borrower to payoff his exist-
ing construction bank loan by posting additional collateral. The “additional” collateral consisted of several single family homes under construc- tion which would be released when he sold them and used part of the proceeds to pay- down or “balance” the highly leveraged retail/multifamily loan we originated. An example of credit sup- port suspenders was used on a large newly constructed New York City multifam- ily property. The borrower sought to lock in low rate fixed rate 15 year financing. Leasing has just begun. The
lender evaluated the strong rental market, the credit wor- thiness of the borrower and accepted a borrower guar- antee until a satisfactory rental achievement level was obtained and maintained for a period of time. Once rental achievement was met, the guarantee was released. Recently we closed a “for sale” condominiumfinancing. We believe it is the first of its type in New Jersey since the housing bust began in 2008. This transaction was structured with the borrower contributing the land and structure to be renovated “free and clear” as well as an additional building on the site. The low loan per square foot ($250) relative to the projected net sales price near $600 psf allowed the lender to be comfortable with the financing. The bor- rower is progressing rapidly to renovate the subject, begin marketing and deliver units to buyers. We are currently closing a permanent loan on a reno- vated multifamily property in southern New Jersey. Here the developer bought a defaulted note with higher rate “opportunity fund” mon- ies, foreclosed on the asset, emptied out the property of non-performing tenants and renovated the subject. Eager to replace the high cost oppor- tunity money we structured an immediate funding based on the completed units and structured an additional two fundings subject to comple- tion and rental achievement. This allows the borrower to achieve his goal of retiring the high cost opportunity money and lock in long term fixed rate money at today’s great rates. Lenders, brokers and de- velopers all need to think creatively to reach necessary proceeds levels while comply- ing with lenders and regula- tors tighter credit standards. 2012 promises to be one of improving market conditions and increasing liquidity to the real estate capital mar- kets. Mark Scott is a manag- ing partner of Commercial Mortgage Capital based in Livingston, NJ. Opened in 1996 CMC has originated and closed over $4 Billion in multifamily, retail, office and industrial financing. ■
to-value in- terest only 10 year bul- l e t l o a n s (circa 2004- 2 0 0 7 ) bu t highly struc- tured loan transactions with bells,
Mark Scott
whistles and suspenders. The easy money of the past is gone and now loan docu- ments frequently include words like recourse, rental achievement, earn-outs, and
Success is a done deal.
$1,600,000 Tilton Times Plaza RETAIL - 50,000 SF PERMANENT LOAN EGG HARBOR TOWNSHIP, NJ
$6,832,000 Lionville Shopping Center
$1,600,000
Lantern Hill
OFFICE/BANK PAD - 21,000 SF FIXED RATE LOAN DOYLESTOWN, PA
RETAIL - 29,074 SF PERMANENT LOAN EXTON, PA
Capital Markets DEBT | EQUITY | INVESTMENT SALES
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Philadelphia Office 1600 MARKET STREET, SUITE 1300 PHILADELPHIA, PA 19103 215.496.3000
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Joseph Sweeney MANAGING DIRECTOR 215.496.3067 jsweeney@northmarq.com
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