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

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 solution is to upgrade our residential and commercial buildings to become more energy efficient, incorporate renewable energy, and include water conservation mechanisms that reduce the carbon dioxide emissions. All these changes will significantly help the fight against global warming.

Currently, the United States produces a staggering amount of excess carbon dioxide emissions. Let me put this into perspective: the buildings in the United States alone, create more carbon dioxide emissions than any other country in world, except China. Furthermore, 40% of carbon dioxide emissions in the United States are attributed to buildings, surpassing both the industrial and transportation sectors. This is a pressing issue but upgrading older buildings is easier said than done. The initial process may seem complicated and costly but the resulting reduction in operating costs and positive impact on the environment is worth the trouble.  The U.S. Green Building Council has estimated that green buildings will lead to $1.2 billion in energy savings, $150 million in water savings, $715 million in maintenance savings, and $55 million in waste savings, between 2015 and 2018.

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To make this eco-friendly transformation easier to implement, a means of financing known as PACE (Property Assessed Clean Energy) lending is currently available throughout the United States. PACE financing pays for 100% of the costs (no initial cash outlay) associated with retrofitting older buildings with environmentally friendly improvements, as well as outfitting new buildings with eco-friendly improvements. Some of the upgrades that can be financed through PACE include roofs, heating/ventilation, lighting, water pumps, insulation, and solar panels. The improvements are repaid over 20 years with an assessment added to the property’s tax bill. The local tax authorities simply add a line item to the properties tax bill, which automatically transfers to new owner upon the building being sold.

PACE Financing is available on almost all property types: office, multifamily, residential, agriculture, hotels, retail, industrial, non-profit, and even residential properties. On retail properties with triple net leases the tenants might be burdened by increased real estate taxes. But their utility bills will be considerably lower, resulting in more net savings. The building owner will benefit from all the energy efficiency savings in the common areas throughout the building. For gross leases (multi-family, hotels, etc.) all the energy efficiency savings flow directly to the bottom line for the building owner.

Since its inception in 2005, 750 commercial buildings, representing $250 million in total improvements, have benefited from PACE Financing. 32 states currently have legislation supporting PACE. 16 states currently have active projects.  PACE Financing is available in major markets including Los Angeles, Washington D.C., San Francisco, Austin, St. Louis, and Cincinnati. The availability of PACE in markets is increasing by the day.

The funding for PACE projects are raised from private investors, banks, and investment funds, collaborating in partnership with local governments. The companies raising the capital for PACE financing will lead building owners through the programs guidelines. Furthermore, they will offer engineering reports showing potential energy savings and assist in project management.

PACE assessments are ranked above mortgages, causing building owners to seek lender consent before engaging in PACE financing. For a number of reasons, over hundred mortgage lenders have allowed PACE assessments to take a senior line position. For one, the assessment will mostly likely increase the properties net operating income because the reduction of the operating costs far outweighs the increase in property taxes. Two, the increased cash flow will increase the building’s value to the lender. Finally, PACE financing does not accelerate upon default, which means only the portion past the due date is senior to the lenders claim. Currently, the vast majority of PACE financing projects are being approved by lenders.

PACE financing is an innovative and growing method to fund environmentally friendly improvements. Environmentally friendly practices are something that all owners should consider. If you are interested in obtaining PACE financing, or any other type of debt/equity financing please feel free to contact Andrew Hanzl, the author, at ahanzl@metcapital.com. Andrew is a Financial Analyst in the Dallas office of Metropolitan Capital Advisors.

If you would like to learn more about PACE financing, please go to www.PACEnation.us.

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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 slow down new construction supply. As the majority of local and national multifamily investors have realized, Denver has been one of the most robust and successful national markets to emerge after the Great Recession. It appears that the experience of the lending community in Denver is typical of most major markets across the United States.

Apartment absorption is keeping pace with new supply delivery.  The Denver vacancy rate of 5 percent suggests a quite stable market. This market could potentially accommodate the additional supply needed to meet the strong demand for multifamily units in the metropolitan area. Coupled with the expected growth in jobs to forty three thousand per year and population growth of fifty two thousand people per year indicates that demand will remain strong. Rents will continue to grow, albeit at a slower pace year after year. However concessions are still largely non-existent.

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Yet despite these encouraging trends, lenders are cautiously considering whether to fund new multifamily construction loans. While the door isn’t completely shut, many banks are reserving their balance sheet for their most reliable customers. Others have reduced loans to no more than 60-65 percent of the total approved cost of the project. In addition, non-recourse for any portion of the loan has become extremely rare.

Construction costs are on a upward climb but at a stable, steady pace. A relaxation in the commodities markets has further abetted the situation. However labor shortages remain and they are a challenging component of the equation.

Without a commensurate reduction in land and constructions costs, the obvious (and likely intended) outcome is that the lower leverage places exert pressure on and therefore constrain equity returns. Thus, the risk-reward dynamics will be put out of equilibrium, slowing down development. The slowing development will give the market a fighting chance to absorb the delivery of new units in the existing pipeline. This will preferably reduce the potential over supply. These so-called “soft landing” reaps benefits for both developers and lenders alike. However these have rarely happened in our economic history. Rather, developers continue to take on debt as long as banks are willing provide it and thus all contribute to their own loss.

So this time around, as we approach the likely end of this expansion cycle, businesses will exercise more prudence. But what does one do if their project really should be built due to the submarket metrics? We have been able to assist our clients by procuring a tranche of preferred equity to offset the reduction of loan proceeds from construction lenders in the overall capital stack.

For example, we recently closed a transaction where the total project cost was $40 million. The senior construction loan was limited to sixty five percent of the cost or $26 million. The sponsor was able to replace the $4 million reduction from their proforma debt level with preferred equity that carried a 12% coupon that accrues throughout the construction period and is repaid upon refinancing at stabilization. While the weighted cost of debt is somewhat higher, the resulting leverage can provide for an economically viable project and garner acceptable returns for the equity investors.

For more information on how Metropolitan Capital Advisors can assist you with capitalizing your next development project or property acquisition, contact Charley Babb in our Denver office at 303.647.1122 or e-mail Charley at cbabb@metcapital.com .

The Author, Charley Babb, is a Senior Director and Principal in the Denver office of Metropolitan Capital Advisors

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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 BNY Mellon, Redwood have exited the CMBS market. Other prominent shops include Freedom Commercial Real Estate, GE Capital, KGS-Alpha Real Estate and Liberty Island all of whom cited changing regulations and market volatility as the reason for their exit.  On Dec 24th, the Dodd-Frank Risk Retention Act will be in full effect. Every CMBS securitization shall now contain a 5% risk retention piece.  As is the norm on Wall Street, certain traders are attempting to make the best out of a turbulent situation.

The first securitization that had a risk retention piece was in August 2016. It was well received by investors. Three banks, Wells Fargo, Bank of America and Morgan Stanley, chose to retain the risk piece in this offering.  The spreads on all classes of bonds in this securitization traded well below expectations compared to those securitizations that did not comply with risk retention rules.  It appears that CMBS participants with the largest balance sheets (or access to the largest balance sheets) will be the survivors of the new era.  According to Trepp, between November 2016 to June 2017, $12 billion of securitized mortgages will be coming due. If the CMBS lending sector faces a disruption during this period, the consequences could be immense.  The industry is keenly watching these securitizations and working on integrating “best practices” to maximize profits and ensure market stability.

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Large balance sheets isn’t all that the survivors of the Dodd-Frank Risk Retention Rules will possess.   They will also demonstrate the willingness and patience of investors and lenders as they will have to hold these risk retention strips for a minimum of 5 years with no hedging or ability to liquidate.  Currently, there are four different ways to satisfy the Risk Retention:

  1. a bank retains a vertical slice of the capital stack,
  2. a bank retains a horizontal slice of the debt,
  3. a L shaped slice where a bank takes a combined horizontal & vertical slice of the debt and,
  4. Sell to a B-piece investor that retains a horizontal slice.

A new question arises. Will there be a difference in credit quality of deals where risk retention is retained by a bank or sold to a third party B-piece investor? The general consensus is that banks may be more willing to retain risk retention on higher quality pools while selling the risk retention on lower quality pools.  This would be similar to the recent securities completed by Wells, B of A, and Morgan.

For the surviving players in the CMBS market, this may unfairly benefit the giants while harming the smaller contenders.  Walker & Dunlap, Ellington Management, Jefferies LoanCore, Ladder Capital, Rialto Capital and Starwood Mortgage are all exploring how to maximize the risk retention piece of the securitizations.  This gives us insight into who will be prominent entities in the CMBS market in the near future. By February 2017, we predict the market will have better understood who will emerge unscathed. Coincidentally, February 2017 will herald the Mortgage Bankers Association’s annual CREF (Commercial Real Estate Finance) conference. The conference in San Diego, has  traditionally been used to  announce new lending programs and production goals for the forthcoming year.  Till then, the end of the year 2016 has us holding our breath. What will the new year bring? That’s the question on our minds.

The author, Todd McNeill, is a Principal/Director at Metropolitan Capital Advisors in Dallas.  Todd can be reached at tmcneill@metcapital.com.

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