What is the Deal with FNMA and Freddie Mac??

By Todd McNeill There has been a lot of speculation going around on the current status of FNMA and Freddie Mac in the marketplace.  As Read more

RECON / ICSC 2015 Takeaway

By Scott Lynn What was the "MOOD" in Vegas this year? That is the #1 Question that colleagues and friends ask following the annual trek Read more

Retail Tenants in Mixed-Use and Lifestyle Developments: An Underwriting Paradox

By: Brandon Wilhite With the resurgence in interest in living in denser, urban walkable environments, development patterns across the country are shifting from single-use developments, Read more

The IRR Waterfall: Splitting Real Estate Profits - Lenders, Investors, and Developers

How can equity investors in commercial real estate transactions shield themselves from downside risk, provide enough incentive for the development partner, manage the upside, Read more

How to Turn a Dud into a Stud: Using Legislation to Reduce the Liability and Costs Associated With Groundwater Contamination

By Duke Dennis What do parties to a real estate transaction think when they hear that the property acquisition they have been working on has Read more

Mile High City’s Industrial Real Estate Hits New “High”

By Charley Babb The vacancy rate for commercial real estate industrial space in Denver is hovering at just over 4%, which is a historically low Read more

How Can MCA Make You a Better Sales Broker?

Here at Metropolitan Capital Advisors, we get asked all the time by our clients if we broker the sale of commercial property. The answer Read more

The Shifting Landscape of CMBS Power

By Todd McNeill The balance of power is moving around the CMBS playing field in 2015, and loan originators seem to find themselves with the Read more

Commercial Real Estate Capital Markets Are Liquid; Development Accelerates during 2014

By: Scott Lynn The recovery of the commercial real estate capital markets has gone full cycle since the depths of the Great Recession in 2008.  Read more

Borrowers Are Not A Commodity

By Kevan McCormack Commercial Real Estate development by all accounts is a simple business concept (over simplified below): 1)    Find a Location; 2)    Design a Building; 3)    Secure Read more

Metropolitan Capital Advisors Arranges $5,375,000 Equity JV & Interim Construction Financing For A Retail Shopping Center in Huntsville, Texas

DALLAS, DECEMBER 2014 — Dallas, Texas-based Metropolitan Capital Advisors (MCA), a financial intermediary specializing in the exclusive representation of investors, developers and property owners Read more

Is Blackstone Calling the Top Again?

by Charley Babb Blackstone Group, the private equity giant, appears to be revisiting its pre-recession game plan of acquiring undervalued real estate assets and then Read more

Commercial Real Estate Investments and Phantom Income: More Than You Bargained For

By Brandon Wilhite Any prudent commercial real estate investor will take into consideration the tax implications as an important part of his or her investment Read more

Is Now the Right Time to Invest in Real Estate?

By: Justin Laub I recently sat down with a friend in the oil and gas industry who asked me, “Is it a good time to Read more

The Non-Basic Food Groups in Commercial Real Estate

By Sunny Sajnani As a real estate professional, we always hear about the four basic food groups of commercial real estate: multi-family, office, retail and Read more

Off-Market or Selectively Marketed in CRE Deals

by Hook Harmeling As we emerged from the Great Recession, there were “deals” everywhere. Excellent locations, quality buildings, good tenants and, yes, even good sponsors Read more

Paradigm Shift or Lack of Financing in the Red-Hot Apartment Demand Surge?

By Todd McNeill While perusing recent press on the strength of the market for new apartment developments, the following thought occurred to me:  Is the Read more

Metropolitan Capital Advisors Arranges $5,800,000 Land Loan and Subdivision Development Financing for Prestonwood Polo Club in Oak Point, Texas

Dallas, November 2014 – Dallas-based Metropolitan Capital Advisors (MCA), a financial intermediary specializing in the exclusive representation of investors, developers and property owners in Read more

Could Downtown Apartment Development Max Out in North Texas and Other Major Markets?

As featured in the November Newsletter from Bisnow.com There are 9,000 multifamily units in the pipeline in Downtown and Uptown, but skyrocketing land prices, rising Read more

Metropolitan Capital Advisors Closes A $10,950,000 Permanent Fixed Rate Mortgage For A Retail Shopping Center In Greeley, Colorado

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

Metropolitan Capital Advisors Exhibiting at International Council of Shopping Centers Texas Conference, Nov. 12 - 14, Booth 771

See the Metropolitan Capital Advisors Team at Booth #771If you are in the commercial real estate industry, you've most likely heard of or attended Read more

The Urban Renter: Who Art Thou?

By: Scott Lynn One trip down the tollway to Uptown/Downtown Dallas leaves me in utter amazement at the amount and quality of high-density multifamily projects Read more

Development Is As Hot As the Texas Heat

By Gabe Gonzalez It seems like construction cranes are part of everyone’s skyline these days.  Even secondary markets such as Waco, Lubbock, and El Paso Read more

The Local Bank vs. CMBS Boxing Match, Special Texas Edition

By Justin Laub             On one side of the ring we have your Local Banker from Texas. He’s wearing a polo shirt from the country club Read more

Metropolitan Capital Advisors Closes $5,560,000 Construction Loan For Speculative Industrial Project In Oklahoma City, OK

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

What is the Deal with FNMA and Freddie Mac??

By Todd McNeill

There has been a lot of speculation going around on the current status of FNMA and Freddie Mac in the marketplace.  As most everyone is aware, both FNMA and Freddie Mac were placed into Conservatorship shortly after the Great Recession.  Soon thereafter, Congress was urged by Obama to wind down the affairs of FNMA and Freddie Mac.  In the midst of the back and forth between those who want to keep government subsidized mortgages and those who do not want government intervention in the mortgage market, an annual cap of $30 billion dollars was placed on the agencies.  Thus, once $30 billion dollars of mortgages were issued in any one year, these agencies were not allowed to loan any more for that fiscal year.

shutterstock_15108172With the surge in multifamily construction and sales, the agencies have reportedly reached $30 billion already in 2015.  As of April 2015, FNMA led new multifamily production at $14.9 billion while Freddie Mac registered new volume of $14.3 billion.  This translates to a 231% increase for FNMA and a 266% increase for Freddie Mac.  It is widely expected that the agencies will reach the $30 billion cap by 3rd Qtr. of 2015.

There are several factors that have contributed to increased lending from the agencies, such as the overall demand for apartment units and the all-time historical low interest rate environment.  Another factor is that the agencies approached their cap in late 2014 but delayed some of the closings until early 2015 to accommodate the cap issues, translating to an enormous 1st qtr. volume from the agencies.

In an attempt to slow the volume, both agencies increased spreads by 50bps, making current rates for 10-year fixed mortgages around 4.5%.  The jury is still out as to whether this has worked to slow the origination volume.

Both agencies have petitioned Congress to increase the $30 billion cap by $5 billion.  It is believed that this cap will be increased.

There are exclusions to the Cap that these agencies can make mortgages at will.  These include:

  • “Targeted affordable housing”, which are properties that have affordable units that equal to 50% or greater. If a property has affordable units but that are less than 50% of the total units, the agency is able to count 50% of the loan towards the Cap;
  • Small Multifamily properties – those properties with 5-50 units;
  • Manufactured Housing;
  • Affordable Senior Housing – The same % of residents that are 80% or below of the average medium income “AMI” can be deducted from the Cap total;
  • Unsubsidized Market Rate Affordable – The same % of residents who are 60% or below the average medium income “AMI” can be deducted from the Cap total;
  • Unsubsidized Market Rate affordable in high-cost or very high-cost markets – The same % of residents at or below 80% of the average medium income “AMI” can be deducted from the Cap total. These markets include certain submarkets of Boston; Los Angeles; Miami; New York City; San Francisco; Bridgeport; Chicago; Riverside/San Bernardino; Washington, D.C.; Seattle; San Jose; and San Diego.

As you can see, the exclusions for the Cap encourages more volume in affordable/workforce housing.

Previously, Freddie Mac and Fannie Mae loans in these redefined high- and very high-cost areas were generally in the capped category.  By excluding these loans from the cap, the agencies are able to provide more liquidity to these high-demand housing markets.

The immediate effect of all this has translated to increased multifamily lending volume from the CMBS sector.  The long-term effect is unknown, however, with less credit available in the multifamily sector surely leading to higher borrowing costs.  Should Congress pass a bill to eliminate FNMA and Freddie Mac, the costs to borrower will assuredly go up. Some would argue that property values would go down via a cap rate increase to absorb the higher borrowing costs.

This could not have come at a worse time with the robust multifamily market in high gear.  With so much uncertainty in the multifamily lending market, it is critical to be advised by an intermediary that understands and has a handle on all the current information that is changing rapidly.  Metropolitan Capital Advisors has access to numerous agency and CMBS lenders and can secure information rapidly on how a deal may be treated in the market for permanent fixed-rate mortgages.  We welcome the opportunity to review your multifamily finance requirement, and we are highly confident in our ability to execute the best financing options with (or without) the agency lenders in the market.

The author, Todd McNeill, is a 16-year veteran and principal of Metropolitan Capital Advisors.

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RECON / ICSC 2015 Takeaway

By Scott Lynn

What was the “MOOD” in Vegas this year? That is the #1 Question that colleagues and friends ask following the annual trek to the RECON/ICSC Conference.

Recon 2015If attendance is any gauge of the so-called “mood”, those numbers up…over 35,000 commercial real estate folks from across the globe. And, the attendance numbers have been steadily increasing over the past four years, mirroring the recovery in the economy. Whatever the official attendance numbers are for this show, add at least another 10% or more for those who never make it to the convention floor preferring instead to hold court in the many lobby bars or working the endless party circuit.  The hotels were packed, cab lines were long, forget about it if you didn’t make a dinner reservation, and people were spending money. I guess you could say that the mood was very good.

The positive mood transcended to the convention floor…at least it did in our booth, which we shared with two Texas-based, retail-focused brokerages along with an owner/property management firm. Most of the time it was standing room only. Everyone reported increased leasing activity especially from grocery concepts and restaurant chains.

Site plans are changing.

Gone are the multitude of giant “Power Centers”. Tenants seem to be gravitating to the “urban” redevelopment projects being built next door to or in conjunction with multifamily and office. Tenants, Users and Developers are adapting quickly to the “Live, Work, Play” development. Mixed Use is no longer a “push back” but rather is “preferred” by any measure based on the property/project offerings at the show.  That is a big contrast from the development cycle of ten years ago when many new development deals were driven by a Target or Kohl’s, both of whom , for the time being, have substantially reduced the velocity of new store openings.

Lifestyle, Specialty, Entertainment and Food Service-oriented retail development projects (or redevelopment deals) seemed to dominate most of the visible display boards in the booths we visited.  In our booth there were nonstop visits from national restaurant chains as well as new grocery concepts hungry to get a foothold in the Texas market or to pick off those prime sites in hot development markets.

Notwithstanding the positive mood along with a healthy velocity of tenant activity, the economic metrics of retail property markets remain strong with respect to occupancies, absorption and rental rates.  Even with the spattering of new development activity, most of this new space is heavily pre-leased.  Property owners, investors and capital providers have all jumped on the commercial retail band wagon eager to buy and finance. Cap rates have been pushed downward while retail property values are on the upswing.

Property owners are in a quandary determining if now is the time to sell given the uncertain interest rate environment, and, worse yet, the lack of viable product to buy at good prices forces them to pause and think about what they would do with the money if they did sell. The lack of quality assets to buy continues to keep prices moving upward. Pulling the sell trigger can be a tricky decision.

L to R: MCA Directors – Scott Lynn, Brandon Wilhite and Charley Babb

L to R: MCA Directors – Scott Lynn, Brandon Wilhite and Charley Babb

The conference was heavily populated with a smorgasbord of capital providers, including single tenant net lease financiers, CMBS, Life’s, banks, and entrepreneurial and institutional equity investors. With stable/increasing prices and an abundance of cheap debt, providers in all strata of the capital stack are showing a willingness to push leverage, especially for existing properties with stable rent rolls or new development (and redevelopment) supported by pre-leasing.

We ran into a few capital sources willing to go to 100% of cost on some national non-rated tenants. There were several banks and construction lenders that were eager to look at new development, but there has to be good story, the sponsor needs to be quality and prepared to put your tenants under a microscope in terms of credit underwriting.

On a final note, we heard a lot of chatter about increasing construction costs are catching everyone by surprise. Some deals have to be repriced at higher rental rates or skinned down to nominal profit to get the numbers to work.  Escalating costs will surely keep a lid on new development or spec construction.

All in all, 2015 RECON/ICSC was the most robust gathering since prior to the 07/08 downturn. But, don’t worry, it was far from bubbling out there.

The author, Scott Lynn, is the founding Principal of Metropolitan Capital Advisors.  Scott can be reached at slynn@metcapital.com or 972-267-0600.

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Retail Tenants in Mixed-Use and Lifestyle Developments: An Underwriting Paradox

Retail Tenants in Mixed-Use

By: Brandon Wilhite

With the resurgence in interest in living in denser, urban walkable environments, development patterns across the country are shifting from single-use developments, such as a retail power center or an office park, to mixed-use developments consisting of retail, residential, office and restaurants. This trend is fueled by both younger and older generations alike.  Young Millennials have no desire to spend significant portions of their days in their car and want to live in close proximity to both their place of work and their favorite neighborhood hotspots.  Likewise, empty nesters are finding themselves no longer wanting to maintain their 3 or 4 bedroom houses now that their adult children have moved out and want to downsize, ridding themselves of the burden of maintaining a pool or yard.

A large part of the appeal of urban living is the proximity to the lifestyle and leisure, such as restaurants, coffee shops, bookstores or gyms. Urban dwellers are particularly drawn to new, unique and innovative businesses that are often independently owned. A restaurant owned and operated by a local chef is generally more likely to be patronized than a generic national chain restaurant. But, therein lies the problem…

Lenders and investors often focus on the credit of tenants when underwriting commercial real estate.  The stronger the credit of the tenant(s), the lesser the likelihood that they will default on their lease payments, thereby reducing the risk to both investors and lenders. However, focusing on credit in an urban mixed-use development can create an interesting paradox.  The local restaurant owner may not necessarily have bad credit, but his balance sheet is often not sufficient for a lender who is underwriting a loan whose debt service will be paid by that tenant’s rental income. This is less of a problem in a refinance or acquisition when a lender can look to the historical performance of a property and its tenants. However, when underwriting a new development, a lender won’t have that luxury.

Our team at Metropolitan Capital (“MCA”) has quite a lot of experience in working through this issue for our clients.  Here are a few strategies we have found to be helpful in getting lenders comfortable with these types of tenants:

  • Sell your tenant’s background and resume. If your tenants have a proven track record of success, this can go a long way. Is their business a proven concept or a new one? How many other businesses have they started, and how have they performed?
  • Sell your tenant’s concept and why it will be well-received in the development’s location. If kebabs are the hot new trend and your tenant has a quick-serve kebab concept to serve the neighborhood workforce population who have previously had to drive 5 or 10 minutes to get their kebab fix, then that is a compelling recipe for success and should be emphasized!
  • Sell the depth of the market. Tenants’ going out of business is unfortunately a fact of life. However, urban developments or redevelopments can typically be found in supply-constrained markets, which can often mean that space can be very quickly leased to any of a number of tenants who have been waiting for an opportunity to find space in that market. A highly coveted market is a huge risk deterrent.

If all else fails, it may be time to consider some financing options in order to get your deal done, which may be less attractive initially but will still allow you to execute your business plan. One option may be to de-lever down in the 50% to 60% Loan-to-Cost range in order to get the lender comfortable with the risk.  At lower leverage, a tenant default is less likely to negatively affect the borrower’s ability to service their debt.

Another option may be a private (non FDIC-insured) lender.  A private lender can often get you to your desired loan proceeds, albeit at a higher interest rate. Depending on the borrower’s confidence in their tenants, this may option may enhance risk, as a tenant default is more likely to negatively affect the borrower’s ability to service the debt at a higher interest rate.

While the above options may be less attractive initially, they are often an effective temporary strategy to get your development financed and to get your tenants in occupancy.  Once the development has been built and your tenants have established successful track records, you will have an easier path to obtaining traditional bank financing.

Obtaining financing for what many banks consider to be “non-traditional” developments can often be tricky. MCA’s experience can prove to be invaluable in assisting borrowers to navigate through this process. For further information on how Metropolitan Advisors can help you finance your next mixed-use development, please contact Brandon Wilhite at bwilhite@metcapital.com or visit our website at www.metcapital.com.

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