Public Private Partnerships…What are They Good For?

By Duke Dennis Over its 25-year operating history, Metropolitan Capital Advisors (MCA) has worked on numerous Public Private Partnership (PPP) transaction financings. PPPs have increasingly Read more

The Power of RECA (Real Estate Capital Alliance)

By: Scott Lynn and Andrew Hanzl Metropolitan Capital Advisors (“MCA”) is a member of the Real Estate Capital Alliance ("RECA"), a professional association of 18 Read more

Getting Creative: HUD 221 (D) (4)

By: Andrew Hanzl Take notice! The landscape is shifting: In anticipation of a market slow-down, commercial real estate lenders are dialing back their leverage and Read more

Private Lenders: Filling the Void

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Limited Service Hotels are, well…limited!

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TrumpCare and the Effect on Healthcare Commercial Real Estate Market

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UT Ranked #1 in Commercial Real Estate Yardage

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What is PACE Financing?

By Andrew Hanzl Global warming is now a widely accepted concern. As real estate professionals, what role can we play to ensure environmental sustainability? One Read more

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Risk Retention, Risky Business?

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It’s Senior Living Not Senior Dying

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Metropolitan Capital Advisors Arranges $5,512,000 Acquisition Loan For A 9.77- Acre Lot In Frisco

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Metropolitan Capital Advisors Arranges A $4,700,000 Construction Loan For UC Health Emergency Room (Arvada)

Metropolitan Capital Advisors, Ltd. (“MCA”) has arranged a $4,700,000 construction loan for UC Health Emergency Room, located in Arvada, Colorado. The 0.69-acre site is Read more

Ground Leases-Friend or Foe?

On the surface, a ground lease seems like a simple concept: a landowner grants permission for a tenant to use their land in exchange Read more

What Do Baby Boomers and Millennials Have In Common & Why It's Important in Commercial Real Estate

By Charley Babb What do Baby Boomers and Millennials have in common? They both like to spend money. While they may spend their money on Read more

The Economic Benefits of Walkability

By: Brandon Wilhite Starting with the Federal-Aid Highway Act of 1956, the way cities were developed in the United States began changing. Although it was Read more

Brexit – Immediate Effect on Commercial Real Estate?

— By Sunny Sajnani In late June 2016, a historic referendum was voted on approving the British withdrawal from the European Union (EU).  The immediate Read more

Hotels: What Inning Are We In?

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Public Private Partnerships…What are They Good For?

By Duke Dennis

Over its 25-year operating history, Metropolitan Capital Advisors (MCA) has worked on numerous Public Private Partnership (PPP) transaction financings. PPPs have increasingly become particularly significant in commercial real estate. This post is an explanation of what PPP’s are, reasons to use a PPP, and finally, some local examples of PPP projects.

For starters, you might wonder what a PPP is exactly. According to the National Council for Public‐Private Partnerships (NCPPP), a PPP is: “[a] contractual agreement between a public agency (federal, state, or local) and a private sector entity.   Through this agreement, the skills and assets of each sector (public and private) are shared [to deliver] a service or facility [to] the public.  In addition to sharing resources, each party also shares the risk and reward potential of the delivery…”

PPP’s are often used as a tool to allow developments that would otherwise not financially be feasible.  From a local municipality’s perspective, engaging in a PPP falls within the category of social good.  For example, a city, Dallas would entertain a PPP to induce private investment, job creation and/or redevelopment of targeted areas that are often in need of revitalization. According to the office of Dallas Economic Development, “[i]t is… to provide assistance only [to] projects where such assistance is necessary to stimulate private investment and job creation. [Additionally]. [p]rojects occurring in Target Areas are provided special consideration.”

public private partnerships

The Omni Dallas Hotel was developed through a public-private partnership.

So, why would a project need the municipality’s involvement?

The question of a project’s viability usually boils down to one of two issues: either the costs are too high or the income is too low, thus making the project not worth investment.  This frequently occurs in low-income areas (i.e. typically targeted areas) or alternately, when construction costs are running rampant.  To qualify, “[p]rojects seeking economic incentives (via a PPP) must provide written assurance that ‘but for’ the incentives sought, the proposed project will not occur, or would otherwise be substantially altered so that the economic returns or other associated public purpose secured by the city’s incentives would be reduced.” If the project meets one of the three stated criteria, one way to overcome financial/economic hurdles is to enter a PPP.  If your project does meet one or more of the criteria above it could qualify for a PPP and receive one of the following real estate incentives:

  • Tax Abatements
  • Tax Increment Financing
  • New Markets Tax Credits
  • Historic Tax Incentives
  • Chapter 380 Grant Program
  • Freeport Tax Exemptions
  • Municipal Management Districts

These incentives can help a project achieve either lower overall costs or higher net income towards the bottom line –  both of which would result in greater returns to investors. This in turn would then be able to entice private capital to invest in and undertake the project.

PPPs are typically for public use. They include: infrastructure (roads or public transportation), schools, libraries, public meeting spaces (convention centers), support facilities, water facilities, hotels and urban redevelopment.  Local (North-Texas area) real examples are:

  • Texas Live!: A $1.25 billion stadium & mixed-use district featuring dining, entertainment, hotel and a convention facility adjacent to the new Texas Rangers Ballpark.
  • AllianceTexas Development: AllianceTexas is an 18,000 acre mixed-use development in North Fort Worth that includes the world’s first industrial airport and the nation’s largest inland port.
  • Irving Westin Convention Center Hotel: a $100+MM, 350-key high-end hotel that will support the Irving Convention Center.
  • The Star in Frisco: A $1.5 billion mixed-use development featuring the Dallas Cowboys’ practice facility, a planned Omni Hotel, sports medicine center, and more than 200,000 square feet of restaurants and retail stores.

When considering a new project, you should identify whether it meets adequate criteria to be considered for a PPP.  If it does, you could qualify for one or multiple incentives to turn your project from an average investment into a home-run of a deal!

The author, Duke Dennis, is a Senior Analyst in the Dallas office of Metropolitan Capital Advisors.  To learn more about PPP’s and how they can be financed Duke can be reached at ddennis@metcapital.com (972) 267-0600.

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The Power of RECA (Real Estate Capital Alliance)

By: Scott Lynn and Andrew Hanzl

Metropolitan Capital Advisors (“MCA”) is a member of the Real Estate Capital Alliance (“RECA”), a professional association of 18 independently owned commercial real estate finance intermediary firms. The firms are comprised of more than 70 producers located across the U.S. RECA allows members to better serve their clients by providing access to a wider range of financing relationships to follow transactions in markets across the country. Capital providers have certainly taken note of RECA. In 2016, RECA members closed a combined $4 billion of commercial real estate finance transactions; this represents a collective closed production level that puts RECA amongst the Top 15 finance intermediaries in the country.

RECA members are carefully recruited and evaluated by a Membership Committee to ensure they are highly experienced commercial real estate financiers who add value to the overall association through the following: experience of a variety of property types, deal structures, and capital provider relationships. Although most of our members have, at one time or another, been associated with large national platform brokerage or finance companies, they prefer to serve their respective clients through a more hands-on, entrepreneurial, and client-centric approach.

RECA member weekly conference calls feature guest speakers and provide immediate access to an audience of over 70 finance member brokers for capital providers to present their latest programs and deal structures to. RECA members share to-the-minute capital market information via a proprietary database. In addition, RECA members share transaction specific information to assure that all prospective financing requests are presented to the most viable sources of capital, whether they are a debt or an equity placement (or anything in between).

The best example of the power of the RECA network is seen when individual members reach out to the RECA Group for assistance on specific transactions. For example, MCA recently received a request to raise both the senior debt and joint venture equity ($15.34 million of total capital) for a client, to help them acquire an office building in a suburb of Philadelphia, PA.  As a Dallas based firm, we weren’t particularly familiar with the Philadelphia office market! Thankfully for us another member of RECA was ready, willing, and able to offer guidance. Gregg Wallace of AMA Financial LLC, based just minutes from the subject property, immediately offered his assistance. MCA decided that the best way to service our client was to enter into a co-brokerage agreement with AMA. MCA and AMA then brainstormed a list of capital sources and went out to the capital markets. Gregg had the ground level experience in Philadelphia that we needed to sell in the local market. He was available to tour the property at a moment’s notice. Working collaboratively, MCA and AMA were able to secure a 71% LTC acquisition loan for the amount of $11,440,000, as well as an additional $3,900,000 from a joint venture equity partner.

This is just one of several examples of collaboration throughout the RECA network of firms on a daily basis.

To learn more about the Real Estate Capital Alliance, visit the RECA website at www.reca.us, or contact Scott Lynn of Metropolitan Capital Advisors at slynn@metcapital.com or Gregg Wallace of AMA at gwallace@amafinancial.com.

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Getting Creative: HUD 221 (D) (4)

By: Andrew Hanzl

Take notice! The landscape is shifting: In anticipation of a market slow-down, commercial real estate lenders are dialing back their leverage and exercising greater caution with lending practices. This isn’t necessarily however, a cause for concern – your deal can still go through. The financiers at Metropolitan Capital Advisors (“MCA”) understand how to dig deep, get creative, and still make successful deals in this changing market! In fact, we are currently working on a highly leveraged loan request to develop a large multi-family project in a secondary market in Utah. We consider this a request to tackle headfirst in the challenging current environment! We know that the capital is available if we are creative in our approach and look for it hard enough. We searched far and wide, showing this particular deal to over 50 capital sources including: local, regional, and national banks; life insurance companies; and, agency debt. We even considered sourcing a piece of preferred equity in our pursuit to complete the assignment.

If you are currently seeking a similar loan to facilitate the development of an apartment complex, you may want to think outside the box and consider the Housing and Urban Development (“HUD”) 221 (d) (4) loan program. Guaranteed by the U.S. Department of Housing and Urban Development, this category of loan is the highest leverage, lowest cost and least liability (non-recourse) fixed rate loan currently available. The leverage is far more aggressive than is available at conventional banks – most currently max out at 75%, (if you are lucky!)  where the 221 (d) (4) program leverage starts at 83.3% LTC for market rate properties and tops at an astounding 90% LTC for rental assistance properties.  Additionally, it offers a 40-year fixed and fully amortizing term with interest rates between 3.95% and 4.30% (as of March 2017).  Further sponsors are also given a three-year interest only period during the construction phase (making this effectively a 43-year loan).
HUD-SECTION-221D4

The single combined structure (construction + permanent) eliminates both the interest rate risk at takeout as well as the payment of additional fees upon conversion.  The program is not only available for development deals, but also for existing properties requiring substantial rehabilitation. It caters to all project sizes, starting from loans as small as $2 million. Although there is technically no limit, loans over $40 million are subject to more conservative leverage and DSCR restrictions. Another advantage of the 221 (d) (4) program is that the loans are non-recourse (subject to standard carve outs) during both the construction and permanent phases. This feature is rare amongst other sources of capital. Forty years is a long time to own a property and therefore sponsors are often concerned about disposition. Buyers are able to fully assume 221 (d) (4) loans subject to FHA approval and a small fee.

Clearly the program has a lot of upside for sponsors, however, it does come with some disadvantages. Like with most things that involve the Government, the process is time consuming, thorough, paperwork intensive, and, comes with additional fees. Let’s take the example of the timing for affordable and rental assisted properties: it is typically a 5 to 7 month timeline from loan start to close.  For market rate properties the timeline is closer to a year (8-12 months). It usually takes 90 days just to secure a soft commitment that basically says they ‘like’ your deal! Unlike bank loans, HUD loans are absolute asset based, which require a longer time to scrutinize the location, pro-forma rents and expenses, and the experience of the sponsors. Another issue with the program is that it is fee intensive, 5.3% of the total loan amount is paid up-front.

Nonetheless, despite the higher fees as compared to traditional bank financing, the attractive structure and low interest rate is well worth the additional costs. Furthermore, the properties are carefully monitored to ensure they are performing on an ongoing basis. HUD loans require an annual audit of operations. The tighter monitoring of the cash flow results in less frequent distributions to equity investors; restricted to every 6 months or annually – where banks permit distributions monthly or quarterly.

Although not often considered for multi-family development, the HUD 221 (d) (4) program offers tremendous benefits for sponsors willing to wait for approval. Navigating the process can be overwhelming, but an experienced mortgage broker can help and simplify the process tremendously. If you would like more information about HUD financing, or help securing other forms of capital please contact Andrew Hanzl at ahanzl@metcapital.com.

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