Basel III: What Is This, and Why Do I Care?

By Kevan McCormack So maybe you have heard about this thing called Basel III, and maybe you haven’t.  For those of you wondering what Basel Read more

GSA Leases – Lucrative but Risky?

By Sunny Sajnani, Senior Director The General Services Administration (GSA) is probably the largest tenant in the United States, providing space for more than 400 Read more

The Main Drivers of the Single Tenant "Build-to-Suit" (BTS) Fever.....

by Gabe Gonzalez The single tenant Build-to-Suit (BTS) market continues to be one of fastest growing sectors in terms of development, acquisition, and financing activity.  Read more

Development Cycle Already?

by Hook Harmeling It does not seem that we have been out of the Great Recession for all that long. If you blinked, you probably Read more

Preferred Equity – What the Heck Is It?

by Charley Babb We were recently engaged by clients to help monetize some of their trapped equity in an appreciating asset on which they had Read more

Credit Tenant Lease (“CTL”) Financing

By Brandon Wilhite At Metropolitan Capital Advisors (“MCA”), our clients’ financing requirements range from conservative low-leverage to more aggressive high-leverage and everything in between.  Due Read more

Seeing into the Future of Commercial Real Estate Interest Rates

By: Justin Laub                 You’ve come to the right place, folks. I’m going to give you exactly what you’ve been asking for. I’m going to Read more

REIT’s Are Upgrading and Entrepreneurs Are Reaping the Benefits

by Todd McNeill In the last 24 months the REIT’s have been busy adjusting their portfolios.  During the depths of the recession, REIT’s had access Read more

Variety (in Commercial Real Estate) is the Spice of Life

by Scott Lynn Four years ago, at the height of the Great Recession, a commercial real estate financier would have been hard-pressed to find a Read more

Using a Tax Equity Partnership Structure in Real Estate Development

A powerful tool for real estate developers is tax optimization. However, without a proper understanding of tax incentives, these benefits may not be utilized Read more

The Nuances of Underwriting Retail Real Estate

By Brandon Wilhite Every commercial property type has its own unique set of underwriting and investment criteria. While some of those criteria are common to Read more

Hospitality Financing in 2014

by Charley Babb The cold, harsh winter weather that has covered the country has finally begun to subside, and the hope of spring is on Read more

Senior Housing: Don’t Stop Till You Get Enough

By Kevan McCormack The Senior Housing Industry has been on a tear the last several years and shows no signs of slowing down.  The senior Read more

Chasing the Texas Oil Patch

By Brandon Miller Exploration and drilling are in full swing these days in the oil fields of the Permian Basin of West Texas and the Read more

Non-Recourse Construction Loans

By: Justin Laub “What’s the difference between Santa Claus and a non-recourse construction loan?” The answer: the non-recourse construction loan actually exists. That certainly wasn’t Read more

Office Construction Has Come Back Full Swing

By Gabe Gonzalez 2014 has started off with a bang.  We came back from the annual Mortgage Bankers Association Convention with a myriad of new Read more

Art of the Cash-Out Refinance

--By Sunny Sajnani, Senior Director In today’s credit environment, most borrowers are taking advantage of attractive interest rates... which remain very close to the all-time Read more

Commercial Real Estate Capital Providers….. Getting & Keeping Their Attention

By Scott Lynn Capital Providers, whether on the debt or equity side of the transaction, inherently have short attention spans...especially when it comes to receiving Read more

Equity Friendly Market in 2014

By Hook Harmeling It has been a long road back from the lows of 2009 in the Real Estate Equity Markets. We have gone from Read more

The Fed’s QE Exit – A Few Thoughts to Consider

By Todd McNeill The Federal Reserve’s announcement that it would begin curtailing its bond-buying stimulus program received a positive reception from the capital markets, but Read more

MCA Closes a $6,000,000 Self-Amortizing Financing Package For a 19 Property Leasehold Retail Portfolio

Dallas, Texas-based Metropolitan Capital Advisors (MCA), a financial intermediary specializing in the exclusive representation of investors, developers and property owners in the commercial real Read more

A Look at 2013 in Commercial Real Estate and Beyond

By Scott Lynn As the end of 2013 quickly approaches what better time to take a "Perspective Snapshot" of the commercial real estate capital markets? Read more

The Power of RECA (Real Estate Capital Alliance)

By Kevan McCormack Metropolitan Capital Advisors is a member of the Real Estate Capital Alliance ("RECA"). RECA is a professional association of 14 independently-owned commercial real Read more

New Market Tax Credits: The Basics of an Alternate Source of Financing

By Brandon Wilhite Under most circumstances, commercial real estate development projects are financed via some combination of equity and debt.  Lenders and investors will evaluate Read more

Metropolitan Capital Advisors Closes 3 Shopping Center Transactions Totaling over $27,300,000 over 3 Consecutive Days

DALLAS, November 2013 — Dallas, Texas-based Metropolitan Capital Advisors (MCA), a financial intermediary specializing in the exclusive representation of investors, developers, property owners and Read more

Basel III: What Is This, and Why Do I Care?

By Kevan McCormack

So maybe you have heard about this thing called Basel III, and maybe you haven’t.  For those of you wondering what Basel III is, keep reading.

Basel-III-capitalBasel I was originally established in 1988 by the Basel Committee on Banking Supervision (“BCBS”) in Basel, Switzerland.  G-10 countries enforced this accord as law beginning in 1992.  Basel II was agreed to in June 2004 but has since been essentially replaced by Basel III.  Basel III, agreed to on September 12, 2010, is a voluntary, global regulatory standard on bank capital adequacystress testing, and market liquidity risk.  As an expansion of the Basel I and Basel II deliberations, Basel III was formed as a direct response to the financial crisis of 2008.  Basel III’s main focus is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage, thus minimizing the risks associated with potential “bank runs” while helping the global financial market become more resilient to future system shocks.  Both of these goals do two things: they reduce the amount of money available to be loaned and create an upward pressure on the cost of borrowing.

These new regulations can have a significant impact for small and medium businesses’ access to capital, but as it directly relates to commercial real estate, there a couple of important items for real estate investors and developers to keep in mind as these regulations become fully implemented in our capital markets over the next few years.  Commercial real estate loans are categorized as High Volatility Commercial Real Estate (“HVCRE”) for all development, acquisition, and construction commercial real estate loans except:

i.            1-4 family residential loans; and

ii.            commercial real estate loans that:

  1. meet applicable regulatory LTV regulations;
  2. have at least 15% cash equity based on “as-complete value”;
  3. have the cash equity required to remain in the deal until loan converts to permanent loan, is sold, or is retired.

Banks classifying commercial real estate loans as HVCRE will have to change their risk-weighting for those loans from its current level of 100% to 150%.  This will impact banks’ Solvency Ratio and potentially reduce their overall lending capacity, leading to credit rationing amongst bank clients.  The end result is a tightening of market liquidity and, ultimately, reducing GDP potential.  A recent OECD study estimated that these regulations could be responsible for a decrease in GDP of 0.05% to 0.15% annually.

While these standards will be phased in by many countries over varying degrees of time, for the U.S. banking system, Basel III will not be fully implemented until 2019; however, there are some pretty significant standards taking effect on January 1, 2015.  Keep this in mind when you visit the capital markets again next year and wonder why there may be less willingness to push leverage for your new development.  We also expect there to be more importance placed on deriving a proper “as-complete value” where achieving a higher value may not be in the Borrower’s best interest.

For the past twenty-three years, Metropolitan Capital Advisors has completed over $5.5 billion of loan placements with banks.  MCA understands the intricacies of the bank debt markets and is well-equipped to advise our clients on the best available capital offered by the banking community.  To further discuss your CRE capital requirements, please contact our Senior Directors, or visit our website at www.metcapital.com

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GSA Leases – Lucrative but Risky?

By Sunny Sajnani, Senior Director

shutterstock_77071990The General Services Administration (GSA) is probably the largest tenant in the United States, providing space for more than 400 federal government agencies, bureaus, and commissions with more than 1 million employees and contractors.  As of April 2014, the GSA’s leased inventory totaled 198 million square feet held through more than 8,600 GSA leases.  Its annual rent payment obligations represented more than $5.6 billion.

Metropolitan Capital Advisors (“MCA”) has recently completed several debt placements for GSA-accepted properties.  Assignments have ranged from refinancing construction loans into permanent mortgages to acquisition Guidance Lines of Credit (GLOC).  These properties are occupied by a wide array of GSA tenants within various sectors of both state and federal government.  Financing GSA-leased buildings is not an easy task because the government agencies play by a different set of rules.

Leases with government entities are very different from typical commercial leases. Government lease contracts must adhere to a complex set of policies, standards, and regulations set by federal statutes, executive orders, and laws.  The landlord must make various certifications that are not typically required for commercial leases, and meeting the lengthy list of mandates required during the leasing process can impact both cost and the overall transaction time.

For example, the GSA controls the leased space and can bring tenants in and out of the space during the lease term, which allows the GSA to manage leased space.  The GSA must comply with the Federal Acquisition Regulations, which means that rental payments for government leases are made in arrears instead of in advance like typical commercial lease payments.  Also, security deposits are not applicable to federal leases.

Another major obstacle to overcome by both landlords and lenders is that many GSA leases have annual appropriations clauses.  Basically, if the government was to cut funding for any particular section of the federal or state budgets, the GSA has the right to cancel its lease on an annual basis if there are no longer funds available to service the lease!  So, why would any landlord accept this?  Because GSA tenants rarely move!  GSA data indicates that for every year between 2001 and 2013, an average of 95% of GSA leases remained in place or were renewed.  That being said, landlords (and lenders) still need to be comfortable that the purpose of the tenant and the sector of government it serves will be necessary for the foreseeable future.

Based on these nuances (and others) related to GSA leases, purchasing and financing GSA buildings also has a different playbook versus financing regular commercial single-tenant leases.  Cap rates can vary greatly depending on the lease term remaining, GSA use, and location.  Although perceived as risky, experienced real estate professionals who understand the GSA space can underwrite and take advantage of market opportunities for new GSA needs and rolling leases.

MCA Senior Directors have deep experience financing all types of leases, including GSA leases.  Depending on the lease terms and property characteristics, the cast of lenders that play in the GSA space can vary greatly.  Terms can vary as well with a wide array of options in leverage, recourse, rate structures, maturities, required reserves, etc.  For advice on how to refinance or acquire your next GSA property, contact a MCA Senior Director or visit our website at www.metcapital.com.

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The Main Drivers of the Single Tenant “Build-to-Suit” (BTS) Fever…..

by Gabe Gonzalez

The single tenant Build-to-Suit (BTS) market continues to be one of fastest growing sectors in terms of development, acquisition, and financing activity.  Over the past eighteen months, Metropolitan Capital Advisors has secured over $100 million in capital for clients to develop and/or acquire Build-To-Suit (“BTS”) and other Triple Net (“NNN”) tenant properties. Some recent examples build to suit commercial real estateof closed transactions include:

  • A $1,800,000 (85% of project cost) acquisition/development loan in northwest San Antonio for a to-be-built In-N-Out Burger.  MCA closed the loan with a local bank that agreed to burn off recourse upon completion.  The interest rate was 4.40% with 12 months I/O, followed by a 25-yr amortization.  The bank allowed the developer to contribute their fees as equity.
  • A $1,100,000 loan in Dallas for a single tenant warehouse facility leased by UPS.  While only a five-year lease, MCA delivered a 10-year fixed-rate loan at 4.75%.
  • A $1,000,000 refinance for a Shoe Carnival in Moore, Oklahoma.  Shoe Carnival was already in its option periods; however, the lender offered a structured, non-recourse loan at an interest rate of 4.67%.

So, what exactly is driving this wave of demand for these types of properties from the tenant and investor perspectives?

Tenants prefer Built-to-Suits (BTS) because they get superior locations with the best visibility.  Tenants have greater flexibility to design their store layouts, create maximum efficiency, and customize their parking solutions.  Moreover, tenants don’t have to worry about who their retail neighbors may be, and they can quickly address any repairs to their specific property.

From the investor perspective, high-leverage financing is available for passive investors who want to “clip coupons.”  Many investors in the BTS market are investors seeking a 1031 Exchange.  The 1031 Exchange market is as active as it was in 2005.  Recent tax changes accelerated demand for BTS and NNN properties.

As the demand for BTS and NNN properties has increased, alternative net-lease properties have emerged, such as fitness centers, educational facilities, and special medical buildings.  Non-institutional investors who have veered away from the overcrowded investment-grade NNN market have been willing to acquire gyms, charter schools, day-care centers, and medical properties, even in secondary and tertiary markets.  This strategy has allowed investors to acquire properties at higher cap rates (8.0% +) versus what the investment-grade leases are trading for in terms of cap-rate. Furthermore, buying alternative net-lease properties allows investors to diversify their portfolios in terms of tenants.  However, purchasing these alternative NNN properties requires additional due diligence into the operations of the business behind the tenant.  In some cases the special-use nature of these assets makes it challenging to quickly re-tenant or to repurpose the property.  A keen understanding of the specific business at hand is important to determine the risk involved in the purchase of the real estate.

In the competitive BTS / NNN environment, the cost of capital is tantamount to achieving projected returns.  Metropolitan Capital Advisors has relationships with a myriad of capital sources to ensure you get the best execution at the lowest cost of capital.  Please contact Gabe Gonzalez (ggonzalez@metcapital.com) or any of the Senior Directors at MCA if you are contemplating acquiring or developing a single tenant Built-to-Suit of any size, use, or credit.

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