www.marejournal.com
4C — June 23 - July 13, 2017 — Mid-Year Review — M id A tlantic
Real Estate Journal
C reative F inance
By Frank Forte, Lucern Capital Partners Joint-Venture Equity and the Need for Creativity
A
s we continue to move in, what appears to be in a sideways pattern,
have seen more of what we have characterized as a slow burn. In this market, we are of the belief that it is more important to find opportunities with greater upside and cushion. Ultimately this sounds like common sense right? However we continue to watch competing firms purchase properties at valuations that are stratospheric, given the need to put cash to work, and the dearth of quality opportunities. As a result, we have recently expanded our offerings to joint- venture and preferred equity funding, thereby widening our network of quality sourced op-
portunities, while still being able to participate in the marketplace in a meaningful way. Having sat on all sides of the table, and not having an under- lying fund structure to answer to, is very desirable to potential joint-venture partners. To date we have worked out a unique structure for each deal that has allowed us to capitalize on high quality opportunities that others have passed on. Take for instance a recent 90/10 opportunity we funded for a highly distressed 80-unit multifamily community. Not only was the asset at 70% oc-
cupancy, but there was mas- sive environmental damage from a dry cleaner that once occupied a commercial space at the property, several hundred city violations, and incredible delinquency and mismanage- ment. The Sponsor who brought the deal to us had a significant amount of construction and redevelopment experience, and did not have the capital to execute the deal individually, but more importantly needed a strategic partner who could advise on asset management, financing, and overall strategy to tackle the highly complex
project. Upon drawing up an agree- ment that outlined each party’s role and responsibilities, we were able to offer the Sponsor a healthy promote in exchange for managing the $18,000/ unit rehabilitation, while our role would be focused on as- set management and strategic planning, setting up the prop- erty for maximum performance, and a clean exit, whether for agency refinance, or sale. We were able to bring a proprietary non-bank financial lender into the picture and negotiate a high leverage transitional loan, while negotiating an effective insurance policy with the state environmental department which absolves us from being financially responsible for dam- age (and clearing us for take-out financing), as well as setting up a remediation plan with the city for systematically clearing the violations – all at no additional cost burden to the transaction. In closing, we were able to source a high-quality opportu- nity that will be fruitful for all parties, while using our creativ- ity and core competency to drive a successful transaction. Lucern Capital Partners focuses on the Northeast, Mid-Atlantic, and Southeast markets, and currently owns other communities throughout New Jersey, Pennsylvania, and North Carolina. Frank Forte is currently a managing partner and principal of Lucern Capi- tal Partners, a value-add real estate private equity company headquartered in Lakehurst, NJ. n
there remains a significant amount of un- certainty be- tween buyers and sellers of when the pro- verbial music will stop, and who will be
Frank Forte
left without a seat at the table. This time last year the general consensus was that of a steep drop and correction, but as the market has revealed itself, we
Need a new capital partner?
Mid-Year Review
www.LucernCapital.com For Acquisitions & JV / Preferred Equity Opportunities Contact: Frank.Forte@LucernCapital.com With institutional roots and deep expertise, we are your ideal joint-venture and preferred equity partner for value-add multifamily acquisitions under $ 15 mm in the Northeast, Mid-Atlantic and Southeast markets.
a section of the Mid Atlantic Real
Estate Journal Phone: 781-871-5298 Fax: 781-871-5299
www.marejournal.com S ection P ublishers Linda Christman lchristman@marejournal.com Kimberly Brunet kbrunet@marejournal.com S ection E ditor Karen Vachon editor@marejournal.com
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