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

by Roger Wyche There will be approximately $96 billion of CMBS loan expirations during 2017. CMBS lenders, therefore, have been counting on refinancing  Borrowers to Read more

A Bridge (Loan) to Everywhere

By Charley Babb Do you remember John McCain’s famous “Bridge to Nowhere” speech from 2005? As the Arizona Senator, and then later as the Republican Read more

Limited Service Hotels are, well…limited!

By Todd McNeill In recent times, the Limited Service Hotel sector’s reputation has steadily declined in the eyes of the finance industry. Once the darling Read more

TrumpCare and the Effect on Healthcare Commercial Real Estate Market

By Kevan McCormack Since Donald Trump has taken office as President of the United States, he has been very busy “making good” on his campaign Read more

What is the TRUMP Effect on Commercial Real Estate? 4 Key Points

— By Sunny Sajnani There is no doubt that Donald J. Trump in the White House is a game changer for the real estate industry. Read more

Whither CRE Construction Lending?

By: Justin Laub The mantra of commercial real estate developers around the country when speaking of the state of construction lending these days might be: Read more

The Good, the Bad, the Texas High-Speed Rail Line

By Duke Dennis Brady Redwine of Texas Central Partners (TCP) recently addressed a group of Texas A&M real estate professionals about the high-speed rail line Read more

UT Ranked #1 in Commercial Real Estate Yardage

-By Scott Lynn Every fall season, the University of Texas at Austin McCombs Real Estate Finance & Investment Center (REFIC) sponsors the National Real Estate Read more

2017: Not a Forecast (Just Some Thoughts to Ponder) for the CRE Market

By Brandon Wilhite Accurately forecasting the commercial real estate market’s performance is a nearly impossible task. There are far too many variables to assess and Read more

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

Banks Reign in Leverage in Effort to Curb Apartment Construction

By Charley Babb My real estate career spans over three decades. Yet for the very first time, I have witnessed lenders exercise prudence and consequently Read more

Risk Retention in CMBS Starting to “Sink” in

By Todd McNeill The early signals of Risk Retention are reverberating through the commercial real estate capital markets.  Several conduit shops, including MC Five Mile Read more

Risk Retention, Risky Business?

By Scott Lynn Basel III, HVCRE…all these new lending regulations that mean lenders are loaning me less and charging me more. Good grief!!! And now, Read more

It’s Senior Living Not Senior Dying

By Kevan McCormack Everything in life and real estate evolves.  Static retail shopping centers evolved into vibrant entertainment venues where a family could spend an Read more

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

Metropolitan Capital Advisors, Ltd. (“MCA”) has arranged a land acquisition loan for a 9.77-acre tract located in Frisco, Texas at the northeast corner of Read more

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?

By: Justin Laub I recently returned from the Urban Land Institute’s national conference on hotels and resorts. The last time ULI held this event was Read more

Choppy CMBS Market Hoping For Resurgence

By Charley Babb CMBS issuance for the first quarter of 2016 was roughly half of the production for the same period in 2015. This has Read more

Commercial Real Estate Finance

Risk Retention, Risky Business?

By Scott Lynn

Basel III, HVCRE…all these new lending regulations that mean lenders are loaning me less and charging me more. Good grief!!! And now, Risk Retention Rules, well, what the heck is that?  Another new term you should be familiar with if you’re borrowing commercial real estate capital?  Indeed, the so-called “Risk Retention Rules” were adopted in late 2014, which will come into effect for CMBS and other asset-backed securities on December 24th, 2016. That is right around the corner, and the capital markets have been reacting.

risk-retention-commercial-real-estate

What is Risk Retention? Simply put, they are rules that require the issuer of CMBS securities to “retain risk in a bond offering significant enough to function as an incentive for the originator to monitor the quality of the loans being made”. The thesis is pretty simple; you’ll be darn careful about what you put into the sausage if you’re going to be required to buy and keep five slices of salami for every one hundred you sell.

Like all Rules, an EXEMPTION allows CMBS to pass off the risk retention piece (that is 5% of the salami) to an eligible third party, commonly known as the B Piece Buyer, who, by the way, must adhere to the risk retention rules, which means keeping the asset on their books and may even require the holder to post or pledge additional capital or reserves.

So, for now, Risk Retention has created two to CMBS players; Loan originators who intend to hold risk retention pieces and alternatively, those loan originators who plan to take advantage of the exemption and sell their risk retention pieces.

Adherence to and acceptance of the Risk Retention Rules has been the primary factor behind the recent CMBS market turbulence and pull back. CMBS origination volumes are down. Players are pricing the risk of keeping inventory on their books. The evolving pricing theme seems to be those that are keeping the risk are lending more conservatively, albeit at lower spreads. On the contrary, those selling off the risk might “stretch” for slightly more loan proceeds but will charge a spread that compensates for the extra risk on proceeds, as well as the risk associated with holding the investment on the books of the ultimate bond holder. No surprise; we’ve seen many of our friends on Wall Street and the CMBS world in motion lately as they are jumping ship to a platform that can buy their own B Pieces or they are out raising new FUNDS to buy the B Pieces or they have folded their tent altogether and exited the CMBS market because of the increasing regulation and low margins.

As the world turns, count on the CMBS world to do the same for the time being. Notwithstanding, CMBS remains a viable option for favorably priced, long-term, fixed rate debt, even with the market turbulence and changing regulatory environment.

Risky Business? Not so much, but risk retention is here to stay.

The Author, Scott Lynn, is the Founding Principal of Metropolitan Capital Advisors. Scott can be reached at slynn@metcapital.com

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It’s Senior Living Not Senior Dying

By Kevan McCormack

Everything in life and real estate evolves.  Static retail shopping centers evolved into vibrant entertainment venues where a family could spend an entire day shopping, eating, and playing games or watching movies.  Multifamily evolved from the conventional three-story, garden style apartment buildings to the mixed-use wrap building with high-end apartments located over retail stores.

Senior Living facilities are evolving too.  No longer are senior living and assisted living facilities just providing the basic care needs of our elderly as they edge closer to death. Instead, a new concerted effort within the industry seems focused on not being satisfied with the status quo.  Owners and operators do not just want their facilities to be a place where residents go to live the last years of their life…they want their facility to be a place where a resident can thrive!

Senior Living Owners and Operators are evolving by integrating Wellness Programs and Occupational and Physical Therapy Programs into the daily routines of their residents.  They implement not only in the operational staffing and programs they put together but also in the overall design and circulation of a facility.  Recent market data indicates that including these programs improves function and promotes successful living among older adults.  For owners and operators, programs that extend the tenancy duration for your property is a mutually beneficial scenario.

What does it mean to integrate Wellness into your community?  It entails weaving Wellness activities into the daily lives and routines of the residents, sometimes without them even realizing.  There is a wide diversity of these programs, including daily walking programs; exercises focused on strength, balance and flexibility; fall prevention activities focused on balance; and safe driving classes.

Besides the Wellness aspects of daily living, Physical and Occupational Therapy programs are equally critical in contributing to a resident’s emotional and mental wellbeing.  By integrating programs such as tailored exercise classes / programs; intergenerational programs where residents share life experiences with the younger generation; gardening programs with raised garden beds for easy access; and learning programs with a cognitive therapy approach, a community will not only be helping residents improve their ability to function daily but also be increasing their personal sense of worth!

Communities that merge Wellness, PT and OT initiatives into their residents’ daily lives will be the facilities of the future.  We are already seeing this in action!  Those that resist this evolution will continue to be “behind the times”.

When developing your next Senior Living facility, it is helpful to have a finance partner that is well-versed and educated in all aspects of the Senior Living market.  MCA has been financing Senior Living and Healthcare facilities for 22 years.  To discuss the financing of your next senior living or healthcare project, contact Kevan McCormack at kmccormack@metcapital.com.

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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 for rent. This agreement seems easy to grasp, but if you look beneath the surface you will uncover some hidden details that often go unnoticed.

For starters, a ground lease allows the tenant the right to make improvements (e.g. build a hotel, retail shopping center, apartment complex, or even dig/drill) on land they do not own in exchange for annual rent. A typical lease term of a ground lease is between 50 to 99 years, with the tenant not only paying an escalating annual rent, but in most cases all the other expenses tied to the property. Ground leases have to be long term in nature to justify the tenant making improvements to land they will ultimately concede to the landlord upon the lease expiring.

Although it seems like there is not a lot of upside for the tenant, burdened by rent and other expenses to use land, there are a few benefits. For one, buying land can be expensive, especially when talking about development/acquisition deals in urban/populated environments. The ground lease agreement will enable the tenant to save upfront costs on land, which will free up capital for other expenses such as construction costs. Alternatively, maybe it is not a cost saving tactic, but simply the landlord is unwilling to sell a highly desirable parcel of land. Under this scenario, the tenant might be willing to engage because the project economics are too enticing to pass up.

The tenant will be saving costs upfront; however, over the long term, all these expenses attributed to a ground lease will most likely be higher than purchasing the land outright. Another disadvantage for the tenant is obtaining financing with an unsubordinated ground lease, because the landowner will have hierarchy of claims over the lender. The lender will not be able take control of the land upon default of the tenant, and therefore might lend less or not at all. Moreover, properties constrained with ground leases will continually lose value to reflect the landlord taking ownership of the improvements, as the lease gets closer to expiration. Lastly, the ground lease might be restrictive to how they develop the land or use it in the future, preventing the flexibility granted when the tenant owns the land free and clear.

Flipping the coin to the other party of the agreement, the landlord, also has upside and downside in entering a ground lease agreement. The first and most obvious advantage is the landlord still owns the land, making it a stable long-term investment, especially for family-owned land that needs to be put to economic use. Not only is the landlord collecting rent and most other expenses tied to the property, but the landlord is also benefiting from the appreciation in the land value as improvements are constructed on their land. Depending on how the lease is structured, the landlord might also retain control on how the land is developed in the future, requiring the tenant to seek approval before making dramatic changes to the property. Furthermore, renting out the land does not trigger a capital gains tax like it would during a sale; upon execution of the ground lease, no income tax event occurs until the landlord starts collecting rent.

While it might seem like the landlord is in the driver’s seat collecting rent with little to no downside, this isn’t entirely the case.  One big financial risk facing the landlord is the risk the borrower defaults on the loan. causing the landlord to lose the land, if the landlord is in a subordinate position to the lender.  Another down side for the landlord is that rent collected on a ground lease is taxed as ordinary income, which is taxed at a higher rate compared to the capital gains rate.  Lastly, borrowing against the equity built up in land under a ground lease can either be restricted or prohibited depending on the terms of the ground lease.

A ground lease agreement is more complex than initially meets the eye; therefore, obtaining financing for acquisition/development deals with ground leases can be difficult. Please contact any Senior Director at Metropolitan Capital Advisors to help you navigate the complex capital markets.

The Author, Andrew Hanzl, can be easily reached at Ahanzl@metcapital.com

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