Finance is what makes the world go around. Think about it for a moment. The secret to most developers and owners' success has been their ability to surround themselves with great talent that enabled them to optimize the use of "other people's money" or "OPM" for their benefit. Our longevity in this business has been the long and trusted relationships with all types of organizations who have their own specialized area of finance that work to weave their expertise around the needs of our clients. This allows us to become a single point of reference for our clients to rely on regards to their personal and corporate financing need(s). We coordinate access to senior, mezzanine, priveate equity, non-recourse, private lenders, insurance lenders, structured finance, long-term fixed rates, long amortizations, etc. to achieve the needs of our clients for needs from $1 million to $1 billion dollars. The fact that we are not confined under one umbrella or brand allows us to deliver the best solution(s) for our clients.
Our access to national and regional lenders around the US creates a competitive pricing advantage for our clients. In today's COVOD-19 world that we are all living in rates, amortizations, product types, coverage-ratios, etc., are constantly being adjusted and you need a representative who is capable of protecting your interests when it comes to organizing the right fit for your project. We are often surprised where some of the competitors come from during our project assignments. In the end, the best rates and terms become the effort of our network and the benefits thereof enable you to achieve the liquidity and cash flow targets necessary to attract investors to your projects.
With banks now retrenching, mezzanine debt lenders are suddenly stepping back into the front lines of middle-market deal funding. Many have brand new funds and can lend at debt multiples that buyers need to get their deals done. Whereas a bank would have provided a debt facility of $10 million including a line of credit of $3 million and a term loan of $7 million last year; this year the banks can only do a line of credit of $3 million and a term loan of$2 million, creating nice $5 million openings for enterprising mezzanine debt lenders flush with dry powder.
The mezzanine debt approach is different from a bank. Their lack of a personal guarantee from the buyer forces them into more rigorous cash flow and balance sheet underwriting. Whereas a bank may look to overall asset values and high-level financial analysis, the mezzanine debt lender will care more about the company’s ability to manage its working capital and produce cash flow.
Most mezzanine lenders over the last 10 years self-selected into one of two camps. Those that do PE-backed deals and those that do independent deals. Independent oriented mezzanine lenders are the ones being most aggressive right now, as they see a great entry point to generate good returns. Mezzanine debt is likely to continue to have a strong run into 2021 and beyond, as long as Covid -driven economic volatility is a reality. The underwriting rigor and flexibility of the mezzanine lenders will serve them and their independent buyers well during this uncertain time.
Non-Recourse Debt---Important Notice--As of December 2020, Hospitality and Non-Grocery-Anchored Retail is not currently Available for CMBS Funding
Why do we think CMBS Non-Recourse Financing is so important? Because in today's credit markets things change quickly. Change can come in many ways for owners of income-producing real estate. While credit conditions can change, also can the guarantor structure change when a primary guarantor passes away or becomes incapacitated due to dementia, coma, etc. Having a pre-qualified line of credit succession is critical if these events were to occur in what we experienced in 2008. Take the Great Recession in 2008 for example performance suffered and many hotel owners lost their properties because the assets couldn’t generate enough income to cover their loans. Owners subsequently found themselves in a position where their properties were worth less than their loan amount. Banks not only foreclosed on their borrowers and liquidated the assets, but they also sued the borrowers for their personal guarantees. Good borrowers with previously strong track records were forced into personal bankruptcy.
In hindsight, if the loans had been non-recourse, only these owners’ properties would have been in jeopardy. As a result, they would have had the option to give up the property without any additional personal liability and without permanently tarnishing their credit. With today’s volatile markets and uncertain domestic and global landscape, wise owners will learn from the past and arm themselves with the risk-protection that non-recourse financing offers.
Credit has changed considerably in the last twelve months while rates have come down to historic lows. As of December 2020, financing in this category can be below 3% for those with qualified properties. Contact us today to determine if this might be a solution for you.