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

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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

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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

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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

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.

Posted on by admin in Commercial Real Estate Finance, Construction, CRE Market, Multifamily Comments Off on Getting Creative: HUD 221 (D) (4)

MCA Closes $10,000,000 Permanent Fixed Rate Commercial Loan for Multi-Family Property

fixed-rate-commercial-loanDALLAS, November 15 — 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 estate capital markets, has arranged a $10,000,000 Permanent Fixed Rate Commercial Loan for the refinance of the Solaris Apartments – a 422 unit property located in northeast Dallas.

The Borrower purchased the property out of foreclosure in March 2011 and spent over $2mm on common area amenities and unit improvements.  Renovations included, but were not limited to, updating the clubhouse, pool/barbecue and playground areas, landscaping, replacement of wood siding, exterior painting, HVAC system enhancements, replacement of 100% of appliances, new flooring, new window treatments and new hardware throughout units.

In just over 12 months, the Borrower was able to increase collections at the property by more than 50%, while increasing occupancy by 10% and retaining a high percent of the existing residents.  This was accomplished through a combination of the renovation program, a la carte unit upgrades, bad debt reduction, and rental increases.  The Property has averaged is currently 93% occupied. The Solaris, FNA Nueva Vista, was purchased for $7M in March 2011. At purchase, the property occupancy was in the low 80’s, with T12 NOI after replacements of ($20k). Our first full month of operations in April 2011, revenue was $157,500 and NOI was $59k. By March 2012, revenue was in excess of $225k with NOI of $____. In less than 12 months, collections increased by more than 50%, all while moving occupancy up less than 10% and retaining a high percent of the existing residents. This was accomplished through a combination of value added unit improvements, common area amenities, a la carte unit upgrades, bad debt reduction, and aggressive rental increases.The Solaris, FNA Nueva Vista, was purchased for $7M in March 2011. At purchase, the property occupancy was in the low 80’s, with T12 NOI after replacements of ($20k). Our first full month of operations in April 2011, revenue was $157,500 and NOI was $59k. By March 2012, revenue was in excess of $225k with NOI of $____. In less than 12 months, collections increased by more than 50%, all while moving occupancy up less than 10% and retaining a high percent of the existing residents. This was accomplished through a combination of value added unit improvements, common area amenities, a la carte unit upgrades, bad debt reduction, and aggressive rental increases.

Although the property lacked the typical seasoning required in order to maximize refinance proceeds and return borrower equity, the Borrower wanted to lock in a long term interest rate at today’s historical lows and close before year end.  MCA was able to secure a permanent, non-recourse loan at 70% Loan-To-Value at a fixed interest rate for 10 years of 4.32% based on a 25-year amortization.  Proceeds from the loan were used to refinance an existing bridge loan, fund closings costs and return the borrower’s equity capital.  In order to overcome the seasoning issue, maximize proceeds and still close by year end, the loan was structured with an initial advance of $9mm with another $1mm to be released to the borrower once certain hurdles are met.

MCA Senior Director, Brandon Miller, was responsible for arranging the permanent fixed rate mortgage with an CMBS Conduit Lender.

 

Since 1992, Metropolitan Capital Advisors has closed in excess of $8.8 billion of debt and equity transactions. National Real Estate Investor Magazine has consistently ranked MCA as one of the top CRE Financial Intermediaries in the US.   MCA has already closed over $400,000,000 of commercial real estate financing during 2012.

Posted on by Scott Lynn in Multifamily, News 1 Comment

Multifamily Development – Everybody Wants In, but Only the Select Get to Play

by Hook Harmeling

multifamily-developmentMultifamily Development is as hot as it has ever been. Occupancies are up, rents are on the rise, and cap rates are close to the bottom. Even though unemployment is at 8.2% and many other economic indicators are well below average, the nationwide multifamily market has less than a 4.7% vacancy, which is about as good as it gets. Here in Texas occupancies are hovering around 94% to 95% with rental rates increasing on average of 5.7%.

DFW has averaged 13,000 new units per year since 2000, and yet there are currently only 5,500 units in the pipeline for new development. Dallas absorbed over 9,000 units in the first half of 2012, of which 2/3 of those units were absorbed in the 2nd quarter!  Higher occupancy and increasing rental rates signal that it is time to once again start building apartment properties. So why are we not seeing an explosion in multifamily development deals?  Several extenuating factors are affecting the latest development cycle.

Debt – The biggest reason is the banks. It is not that banks are not lending for multifamily units; indeed, banks are all actively looking for properly underwritten construction loans.  In fact, under the right circumstances, higher leverage is available.  MCA recently closed on a construction loan placement in Oklahoma City that exceeded 85% of project cost.

In the case of new construction, what it really comes down to is to whom the banks will lend. Our firm is actually seeing banks compete by driving down fees and pricing to get a piece of the most coveted development projects.  However, you better be a coveted borrower. While liquidity is still king, your resume needs to be deep with experience. The ability to show the lender that you have “been there and done that” speaks volumes to the bank since they want borrowers with proven track records.

In the case of our recently placed $20mm+ construction loan for a 300 unit project in Oklahoma City, the developer had just completed, leased up, and sold another 300+ unit project in the same market.  This sale validated the exit value of his proposed project.  The developer knew his building costs inside and out, and he had newfound liquidity on his balance sheet.

Equity – A large swath of equity providers have not yet woken up from their five-year hiatus, or they are still looking for existing product with a “D” in front of it…Distressed, Depressed, or Discounted Payoff.  Although the distressed acquisitions market has never really materialized as projected, there still exists a huge inventory of over-leveraged properties with maturing loans that opportunistic investors are waiting on the sidelines to devour as these properties transition to a potential distressed situation.

Simply stated, the number of equity providers that will consider a to-be-built Class A multifamily project is completely overshadowed by the available capital seeking opportunistic existing property acquisitions.  The stable of equity providers who will consider a new development transaction are seeing EVERY deal and are acutely aware that their type of capital is scarce.  As a result, equity capital providers are being selective with respect to sponsor quality/track record and are only pursuing projects with much better-than-average risk adjusted returns.

Product Type – The type of proposed multifamily project is also playing a huge factor in capping available supply.  At MCA, we’ve seen a number of proposed new Class A “Garden Style” projects with costs ranging from $90,000 to $110,000 per unit. But, the vast majority of equity providers don’t want to invest in suburban apartments. Rather, they prefer to ride the wave of new urbanism “close in live/work/play” environments where land costs, construction costs, and overall project costs alone dictate that not all the “Regular Joe” developers will be able to get on the playing field.  Most of the projects are either mid-size, high rise, or podium type projects with structured parking.  In any event, unit costs are considerably higher than the garden style costs of $90k to $110k per unit.

All of the dynamics seem to be playing right into the hand of the equity capital (and construction lenders) that are enlightened enough to make the jump from existing opportunistic deals to new ground up development projects.  These capital providers are trickling into the marketplace, albeit at a snail’s pace.  The first wave of completed and leased properties are just now entering the sales market where product-starved, cash flow-oriented institutional investors are gobbling up these assets at record low Cap Rates.  As more projects are completed, sold, and the exit strategy validated, undoubtedly more equity providers seeking higher returns will begin to evolve and enter the capital provider marketplace.  For the time being, however, capital will be focused on best-in-class developers.

If you are looking to get a deal funded, please fill out the contact form below and we’d love to talk to you about your deal:

Posted on by Scott Lynn in CRE Market, Multifamily 3 Comments