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

UT Ranked #1 in Commercial Real Estate Yardage

-By Scott Lynn

UT REFIC

Every fall season, the University of Texas at Austin McCombs Real Estate Finance & Investment Center (REFIC) sponsors the National Real Estate Challenge where graduate student teams from the top business schools in America come to Austin to compete in front of a panel of senior commercial real estate executives. The competition showcases some of the very best future real estate talent in action, where they work as teams to present and make recommendations on a complex commercial property situation. For the attendee, the experience is equivalent to watching the best teams in a one-day, winner-takes-all college playoff tournament.

This year’s National Real Estate Challenge case study involved evaluating the feasibility of acquiring two separate assets: a suburban office building and a boutique hotel. Nineteen teams competed, and their school identities were kept secret—each team assumed a fictitious business name so no team had home field advantage. No cheating, favoritism, or unsportsmanlike conduct was allowed. Judges were all CRE professionals from a wide variety of disciplines and geographic locations. After a grueling, all-day competition and judging process, the winner was…

University of Texas at Austin McCombs School of Business

The University of Texas at Austin McCombs School of Business for the second year in a row!

Other teams who participated were:

  • 2nd Place: Kellogg School of Management at Northwestern University
  • 3rd Place: Columbia Business School
  • 4th Place: Kenan-Flagler Business School, University of North Carolina at Chapel Hill

Honorable Mentions:

  • University of Virginia Darden School of Business
  • UCLA Anderson
  • UC Berkeley Haas School of Business
  • University of Southern California

Whether a team placed or not, the experience and the relationships created by all participants is priceless. I highly recommend attending a competition if you’re interested in seeing what our top business schools are turning out in the way of future commercial real estate talent…phenomenal!

To learn more about the McCombs Real Estate Finance and Investment Center, go to https://www.mccombs.utexas.edu/Centers/REFIC.

The author, Scott Lynn, is the founding principal of Metropolitan Capital Advisors. Scott may be contacted at (972) 267-0600, or by e-mail at slynn@metcapital.com.

Posted on by admin in Commercial Real Estate Finance, CRE Market Comments Off on UT Ranked #1 in Commercial Real Estate Yardage

Price, Speed, Quality…Pick Two

A real estate attorney once handed me his business card. The back of the card revealed a simple but thought-provoking message:

 Price, Speed, Quality

Pick Two

Have you given much thought to the interdependent relationship between Price, Speed, and Quality in the world of commercial real estate finance?

Our firm is constantly barraged with an array of debt and equity requests, many of which are on a “FAST TRACK” to get bought, built, or both. Time is the critical factor. Everyone has to meet purchase contract timeframes that did not anticipate upcoming vacation schedules or holiday seasons. Oops, something has to give. You can’t have your cake exactly when you want it (Speed), expect it to taste great (Quality) and not be willing to pay for it (Price).

In the CRE world, capital is equivalent to cake… everyone wants to have it and eat it, too.  Capital comes in a variety of delicious flavors from low leverage debt to high sugar content equity. And of course, not all capital (or cake) is created equal…just ask Betty Crocker or Duncan Hines when the show gets stolen by a chef-prepared masterpiece with connoisseur ingredients and elaborate decorations. Similarly, capital can be infused with all sorts of additive options such as prepayment flexibility, no escrows, higher leverage, performance earn-outs, interest-only payments, buy-out options, etc., etc., etc. All of this yummy stuff will make your deal taste much better, but it comes (like everything in life) at a price and may affect the speed at which a transaction can be executed.

The situational components of a transaction usually dictate the nature of the most appropriate source of capital.

For example, faced with a maturity default, one of our Clients was able to negotiate a favorable discounted payoff (DPO) on his existing loan. The Client had to PICK TWO. He needed a new financing that could close quick (Speed) along with a high degree of certainty (Quality). MCA secured a bridge loan proposal in less than a week from a Lender with a one-man loan committee. The interest rate on this quick close bridge loan was almost twice as much as current long-term fixed rates; however, the amount of savings from the DPO offset the interest cost by a ratio of 10 to 1.

Ground up construction can usually afford one the time to carefully shop the capital markets so that Speed becomes secondary. What is important is the cost of capital (Price) that directly affects the project profitability along with identifying a financing source that will “hang in there” (Quality) when the project runs into the inevitable unforeseen circumstances. A forward-thinking developer will give himself plenty of time to find the right construction lender that offers the most favorable pricing matrix along with the most flexibility so that the financing can be tailored to the needs of the project.

Once again, Price and Quality are usually under the microscope when considering the refinance of an existing, cash-flowing property to a permanent mortgage. After all, since the property is fully leased, of course the Borrower deserves the lowest cost of capital from a provider that differentiates itself by offering all that is needed to meet the Borrowers investment objectives. But keep in mind that the Price will start to move as you add quality ingredients such as flexible pre-pay, forward rate locks, and all the other things that make deals even more delicious.

Many situations require a strategy that relies on layering several pieces of financing to complete the capital stack.  “PICKING THE RIGHT TWO” can be challenging when dealing with multiple capital providers that have conflicting interests.

Our firm recently completed its own “Bake-Off Reality Show” when a Client showed up with a 60% leased retail/service center acquisition opportunity being purchased at a favorable basis with a good story about the lease-up play. Our Client was “firm” on earnest money with a distressed Seller insisting on closing the property sale in less than 6 weeks.

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Out came the mixing bowls, and we turned on the ovens!!!

We needed a favorably-priced, fast-closing acquisition loan (Price & Speed) along with a creamy, sweet tasting equity provider (a double dose of Quality) who understood the lease-up risk and long-term potential of the property.

Without revealing all of our kitchens secrets, we concocted a $16 mm triple layer masterpiece consisting of:

  • $10,400,000 Acquisition Loan priced @ 5% for 65% of the Capital Stack
  • $1,400,000 Mezzanine Loan priced @ 14% that pushed the debt to 75% of the Capital Stack
  • $4,200,000 Equity Partner providing 90% of the Equity for a 75% ownership stake

Our Client/Sponsor topped off our creation by investing 10% of the equity requirement as a Sponsor Co-Equity Investment.

Ding! Time’s up! Voila!

Six weeks later our Client purchased what is now the largest property in his portfolio with a 25% Promoted Interest. The first mortgage and mezzanine Lenders each made well-secured, appropriately-priced loans, and the Equity Provider is projected to make more than 2X on its investment. Everyone got their cake and got to eat it, too! Our Client/ Sponsor ended up with a nice slice of a much bigger cake.

Picking the right “TWO” with the appropriate capital provider is at the heart of driving a transaction to a successful closing. Naturally, our firm would insist it is always in your best interest to use a competent intermediary (preferably Metropolitan Capital Advisors) to guide you toward the right capital and to help you make the right TWO PICKS.

Contact any one of our Senior Directors at 972-267-0600 to discuss your next project finance assignment or visit our website at www.metcapital.com .

Posted on by Scott Lynn in Commercial Real Estate Finance 1 Comment

How Gypsies, Mobile Phones and Bad Grammar will Affect Commercial Real Estate

 

By Brad Donnell

The changing demographic landscape seems to be a hot topic these days.  It is usually referred to from the perspective of changing going-mobileethnicities and income levels.  There is another dynamic at play as well that will influence the commercial real estate markets for years to come.  A quick perusal of the internet yielded this telling commentary:

As a Gen Y-er I don’t even think of home ownership as part of the American dream. At 25, for me and several of my peers’, the “American Dream” is freedom of mobility, the excitement of an urban area, and building large and dynamic social networks. The ball and chain of home ownership poses a threat to all of those goals. I have moved each year since 2004. Often within the same city, we love change.

The world is much more global now, we want to travel, diversify investments, and meet new people. We are a non-committal group, used to having “our way.” Settling down with the white picket fence, like getting the gold watch after thirty years at the same corporation are aspirations that are forever in the past.”  – Caroline

I have spared you most of her “non-committal” to correct grammar in the above paragraph which also seems to be a trait of the Gen Y crowd.  My wife works with a gaggle of this lot and can attest to this same sort of gypsy-esque blather she hears from them.  None of them like or identify with the home ownership part of the American Dream, marriage or grammar.  Maybe it is the advent of smartphones and shorthand texting they grew up with that has spurred this sentiment.  I think there is something to be said for growing up with a phone at home that is actually wired to a plug that makes one feel anchored and gives a sense of permanence.

Many of the baby boomer crowd grew up with hard wired, rotary phones with two parents in the house.  If you needed to call someone, you went home to do it, not on the tollway doing 70 mph.  Their children, like me, understand the comfort of a traditional home and aspired in life to re-create that for their own children and enjoy that sense of being anchored.  As divorce became socially more acceptable and technology advanced to smartphones, the Gen Y crowd grew up without this sort of esoteric bond with home ownership.  The single-family mortgage disaster only helped to reaffirm their disdain for owning a home, while the job market disaster reinforced their antipathy toward long-term employment. It is no wonder the Occupy crowd has such a following of self-centered Pikeys crying about big this and big that, moaning about the mean old establishment and how horrible it is for anyone to make a profit.  Although I can empathize with them being dismayed about their future, there is something to be said for seeking refuge from the chaos in the world in your own home, the one place that you know is not changing.

This generation of noncommittal vagabonds is a renter by choice for life, which is a critical consideration for investors in commercial real estate.  Like frogs hopping from one lily pad to the next, they change jobs, move to other cities and bounce through short-term careers with regularity.  The mobility of communication pervades their lives and dissuades them from seeking or needing a permanent home from which to communicate.

In the past, single-family housing concentrations would clearly dictate what the income levels were for a specific part of town.  It was relatively easy to look at the median home price and be able to back into what kind of disposable income would be available to buy televisions, lawn mowers and hamburgers.  Retailers could commit to the stability of a neighborhood knowing the population and income of the surrounding housing stock was not going to change dramatically during the term of their lease.  That disposable income was likely to remain stable, which would give them the certainty they needed to make a long-term commitment and investment.

Commercial-Real-Estate-Bad-GrammarIn the new and fickle renting environment however, this long-term certainty does not exist.  Retailers have a much harder time committing to an area if the renters with the disposable income they are seeking decide to move to the next hotter part of town.  The highly transient nature of the relatively liquid Gen Y and Millennial crowd can empty out of an area virtually overnight like a swarm of locusts moving to a neighboring corn field.   If you mix in the increasing desire to stay single, you really have the makings of an ambulatory society.

Currently, just 51 percent of all adults who are 18 and older are married, placing them on the brink of becoming a minority, according to a Pew Research Center analysis of census statistics. That represents a steep drop from 57 percent who were married in 2000.  In 1960, for example, when most baby boomers were children, 72 percent of all adults were married. The median age for brides was barely 20, and the grooms were just a couple of years older.

“In the 1950s, if you weren’t married, people thought you were mentally ill,” said Andrew J. Cherlin, a Johns Hopkins University sociologist who studies families.  Marriage was once mandatory. Now it’s culturally optional and it is seen as an obsolete social environment.

For the multifamily developer, this is a mixed bag.  Demand for rental units is only going to increase as people shun marriage and homeownership.  The downside though, is your tenants may pull up their tents in 6 months and move to LA to enter their  eighth career once they get the text about “ima buss 2git beers 4 u2 cuz LA is sw33t & da chicks B way2 h0t!”.

Clearly, multifamily will remain the most favored asset class for years to come as the 20 – 30 year olds are likely to shun home ownership for quite some time, if not forever.  Despite a much larger turnover of tenants, occupancies should stay high even once home lending settles back down to a more normalized process.  The goal of ownership is simply gone for most of this crowd, even if mortgage companies go back to the practice of financing anyone with a warm body.

The location of multifamily projects does need to take into serious consideration the mindset of these tenants.  Gen Yers are simply not going to hang in the suburbs with those dreaded home owners lest they get the same disease and wind up just like them.   If you go back and read Caroline’s quote, it specifically references the desire to be in an “urban” area (i.e. far away both mentally and physically from those nasty white picket fences and all they represent).

Retail and office developers have a much harder time trying to chase these address-adverse folks.  A person with a transient mentality is not going to want to go to an office, but rather work from home.  That same person is also not going to want to go to a store to buy something they could instead order off the Internet.  Only by virtue of the immediate need for self-satisfaction will brick-and-mortar retail stores continue to exist.  The Gen Yers will forever be torn trying to weigh which immediate gratification means the most to them, the immediate ordering or the immediate getting.  At least they do not like to cook, so pizza delivery joints that allow ordering over the Internet or through a smartphone app should enjoy a bang-up business.  Maybe S&P or Fitch can start to rate these pizza joints, as they are likely to become the cornerstone of retail centers in the future much like grocers have been.  Dude, U gots a strip wif bangin pie! Dat cap rate mus be B-Lo 7 pur¢ 4sho!

The fundamental dynamics of income stability and socialization are changing substantially for commercial real estate, but in different ways for different property types.  Some will be the beneficiaries of this shift but others may find the same obsolescence marriage seems to have.  The non-online socialization and sense of home that suburbs afford are no longer attractive for many of the Gen Y/Millennial crowd whose only exposure to that way of life are the re-runs of Happy Days or The Brady Bunch they happen to stumble into on YouTube while searching for Halloween costume ideas they can order from Amazon.com.  The shrewd real estate investor should take into consideration not only the obvious demographic changes in the market, but the more subtle sociologic and generational changes as well.

Posted on by Scott Lynn in CRE Market 14 Comments