How are boutique lenders setting themselves apart?
Commercial real estate has
come a long way in three years. In 2011, financing was scarce and transactions
were difficult to close. Now, lenders are ready to step off the sidelines. But,
to their surprise, the field is quite crowded.
“There is a tremendous
amount of capital in the marketplace, which is increasing every day,” says
Elizabeth Braman, CCIM, chief production officer with ReadyCap Commercial. “In
order to compete, lenders are gravitating toward niches where they can
specialize and avoid competition.” These niches include small-balance loans,
equity for development, and nonrecourse financing for unstabilized properties,
To find creative solutions
for closing these transactions, it pays to know the financing firms that
specialize in them. CIRE magazine talked to representatives from three boutique
firms about best practices for securing financing and why they prefer to work
What types of commercial
real estate deals does your firm favor?
Elizabeth Braman, CCIM:
ReadyCap Commercial specializes in small-balance commercial loans made
nationwide, from $500,000 to $10 million. We offer conventional, bridge, and
owner-user financing for apartments, office, retail, industrial, self-storage
and mixed-use purchases and refinances. We realize that many good loans have a
story that needs to be heard, and we offer two-to-three-year bridge loans, and
five-, seven-, and 10-year conventional products.
As a non-bank lender we
offer more creative financing solutions, like lending to nonrecourse borrowers,
foreign nationals, unstabilized properties, empty buildings, and those projects
needing capital for rehab, leasing commissions, and tenant improvements. We can
assist in financing for discounted payoffs and maturity defaults and look at
storied borrowers and properties — for example, borrowers with little liquidity
or properties requiring tenant improvements — with a greater focus on the
strength of the real estate. For our quick close transactions this year we’re
rolling out an express program to address borrowers’ need for speed. And over
the next few months we are looking forward to rolling out our Small Business
Administration programs for owner-users.
Robert Lee: Silver Portal
Capital specializes in raising equity capital for private real estate
developers and operators, unlike most capital firms that primarily raise debt
capital. We believe that the overall market is getting better; however, the
favorable deals are those that can still be acquired below replacement cost and
have value that can still be added through skilled sponsorship and experienced
Most of our time is spent
on securing multiyear, multiasset equity capital for operators who are adding
that value to reposition or improve existing real estate. However, we are starting
to see more development across the country, especially in urban infill
multifamily projects, senior housing, and even hotel development. Most of our
clients have had a lot of success, and primarily raised capital through friends
and family but are now at the level where they need larger institutional
capital to help take them to the next level.
Jerry Dunn: A10 Capital, a
full-service and nationwide lender, focuses on financing unstabilized
commercial properties on a nonrecourse basis. Our loans typically come with a
tenant improvements/leasing commissions future funding facility to fund up to
100 percent of the lease-up cost. Loan terms are up to five years to provide
sufficient time for borrowers to execute their lease-up plan. Our loan sizes
range from $1 million to $15 million per property, with larger loans considered
on a case-by-case basis. Property types include office, retail, industrial,
multifamily, and self-storage and are typically A and B quality located in the
top 150 MSAs.
We recently funded the
acquisition of an 80,000-square-foot class B-plus office in the Southeast. The
prior owner had over-leveraged the property with a $15 million commercial
mortgage-backed securities loan. The property lost tenants, and occupancy
ultimately fell to 30 percent, resulting in a loan default. Our borrower
acquired the property from the special servicer for $6 million. To partially
fund the purchase, we structured a $4 million nonrecourse loan, which also
included a $2 million future funding facility to fund 100 percent of the
projected costs to re-tenant the building. The borrower had a “tenant in tow”
to bring occupancy up to 50 percent at closing. The borrower was a principal of
a global commercial real estate brokerage firm and nonrecourse was crucial to
Have your firm’s lending
constraints changed during the past few years?
Braman: We’re new to
market having opened our doors one year ago. This means we don’t have any
legacy loan issues and are aggressively lending across the country. We’re a
subsidiary of a real estate investment trust, externally managed by Waterfall
Asset Management, and will look to do our first securitization in early 2014.
The good news is that, in our opinion, values have already hit the bottom in
nearly all major MSA markets, so we’re lending at the right time. .
Lee: Yes, capital is
harder to obtain than pre-2008, but much easier than 2011. Co-investment
requirements for real estate owners and operators have increased. If the
transaction is larger than $50 million, then the equity will be more flexible,
as long as the sponsor-contributed general partner equity is meaningful. But
the days of 1 percent co-investment are over. Because of the funds that are
more prevalent in today’s debt markets, there are more bridge, mezzanine, and
preferred equity players, which provide more flexibility in capitalizing deals
than before. For example, we were able to recapitalize a necessity-based
shopping center developer last year who had become stuck during the downturn
with over a half-dozen deep value-add redevelopments. We were able to secure an
equity partner and a bridge lender who gave the operator the ability to buy the
assets back from the bank — out of bankruptcy — and inject the equity and debt
needed to turn the projects around and provide a nice return for all investors
Dunn: A10 Capital was
founded in 2008 to fill the void in the banking industry created by the credit
crisis and banks’ limited commercial real estate appetite due to regulatory
pressure. So we don’t have any legacy loans and have been aggressively
originating loans in the past few years. Over that period, we’ve increased our
maximum loan size per property and closed loans up to $20 million. We’ve also
added a stretch loan-to-value product for borrowers requiring higher leverage.
And our interest-only payments are competitive with bank and CMBS mortgage
What advice can you offer
commercial real estate professionals who are seeking financing for their
transactions and projects?
Braman: It is critical to
understand the strengths and weaknesses of a transaction and to present them
completely. Many borrowers have had issues getting financing over the past few
years and are reticent to tell lenders what issues they’ve had, but they always
come up in a proper underwriting. It is always better to structure the deal
from the start than to wait until the deal is with a credit officer. Almost all
deals in major markets can get financing these days, perhaps just not on the
rates and terms borrowers want.
Lee: We work with a lot of
companies that have a lot of experience as brokers and investors. The groups
that have the most success in obtaining joint venture equity or debt for their
projects have taken the time to package their track record and define a clear
strategy based on their past experience. If the track record is there, we can
help with the rest. I would also recommend securing 5 percent of co-investment
capital from your network of friends and family and provide fresh examples of
some post-downturn deals. Do your research, know your market, and take the time
to do some due diligence before taking the projects to capital. With many
capital groups, you only get one shot at a first impression.
Dunn: For unstabilized
properties with a story, it’s important to work with a lender who specializes
in that situation. Also, borrowing on a nonrecourse basis is cheap insurance
and provides peace of mind, especially when financing a property with vacancy
issues and suboptimal net operating income.
How does your firm benefit
from its partnership with CCIM Institute?
Braman: ReadyCap has
enjoyed a great relationship with the CCIM Institute in our first year. We
advertised in CIRE magazine, which helped to bring our products to the real
players in the market. I personally used CCIM Institute as a resource for
recruiting as well as bringing in business. When I look to enter a market I
reach out to CCIMs via MailBridge and local chapters to get the lay of the land
and get the right connection and make our presence known. Wherever I go, I
reach out to CCIMs and get the best introductions to decision makers and
knowledgeable deal makers.
I use the CCIM education
concepts to train my staff and encourage my loan officers to get involved with
their local chapters. Last year I spoke at a CCIM Los Angeles Chapter event and
brought one of my staff who met some valuable contacts. We use STDB all the
time for market data. In short, I constantly use CCIM education, technology,
and networking to advance my business.
Lee: A lot of CCIM
designees work with real estate operating companies that have a need for equity
or debt on projects today. Traditionally, everyone had a few capital
relationships. In this market, real estate professionals see the value in
working with experts, like us, who spend all day every day working with capital
of all sorts. As a boutique investment/merchant banking group, we also refer
business out to CCIMs because we may be working with an operator who needs help
with leasing or with sourcing new deals. CCIMs typically add value in their
market knowledge, analysis skills sets, and through their relationships in
specific product types or markets.
Dunn: A10 Capital
recognizes that the CCIM Institute is the hallmark of excellence in the
commercial real estate industry. Our partnership with CCIM allows us to tap
into the unlimited knowledge base of the Institute and its members through
STDB, CIRE Magazine, the CCIM Quarterly Market Trends report, and direct
two-way contact with CCIM designees through MailBridge. As a national lender,
access to market-specific information can be invaluable.
Through participation in
local, regional, and national events sponsored by CCIM, we are able to identify
and connect personally with decision makers who can benefit from our lending
program, furthering our business development opportunities. Our staff members
who hold the CCIM designation garner instant credibility and recognition with
other professionals in the industry for their accomplishments and expertise.
Rich Rosfelder is
integrated marketing manager for CCIM Institute.