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Ben Kadish is the president and founder of Maverick
The Right Financing
Commercial Mortgage Inc. and is a mortgage banking
professional with more than 34 years of experience.
Kadish’s primary focus is funding commercial mortgages
ranging from $1 million to $40 million for income-producing
properties. Reach him at (312) 268-6000, (312) 953-4344
or at email@example.com.
for Your Deal Is out There
Finding new sources of capital in an evolving market is a challenge that can be met
By Ben Kadish
When developing in a super-hot market location, local
lenders may be hesitant to increase supply where lots
of other projects are going. This requires nonbank or
A union-sponsored pension-fund advisor may be willing to provide a 75 percent loan-to-cost (LTC) advance
at a time when commercial banks have pulled back to
advance rates in the 60 percent LTC range. Sourcing the
loan from a nonbank lender allows the borrower to use
local banks for other projects in the pipeline.
Commercial banks may be tightening their lending standards, but capital is still available if you know how and where to find alterna- tives. Many banks are being conservative
because of leasing challenges and fears of oversupply in
some markets — particularly with respect to market-rate
multifamily construction in downtown locations.
At this stage of the real estate cycle, having a vast
network of nonbank financing sources that will lend on
a national basis is necessary to meet the varying needs
of a diverse client base. The challenge for commercial
mortgage brokers is to match sophisticated lenders
with the financing requests of borrowers for any
acquisition, redevelopment, construction or permanent
loans, regardless of the location. Mortgage brokers
need to be prepared to look outside the market where
the property is located and work with lenders such as
private equity players, family offices, debt funds and
life insurance companies.
To make these deals happen, you may need to
convince investors of the appeal of a submarket or make
a case for a new loan type. Following are some hypothetical examples that demonstrate the types of nonbank or
out-of-market financing sources that can help mortgage
brokers and their clients close more deals.
Challenge: An investor seeks financing for a redevelopment in another market. Traditional bank lenders
are oversaturated in this market or are cautious of an
investor that doesn’t have deep relationships there.
Solution: Match out-of-state developers with
out-of-state financing, such as a debt fund or life insurance
company. When neither party has preconceptions about
the market, a strong pro forma backed by research and
results in other markets is essential for the investor to
evaluate the deal.
In addition to debt funds, life insurance companies
are another avenue for borrowers to access capital. Life
companies have played a role in funding high-quality,
low-leverage deals for many long-term property owners. With fixed-income investments stagnating, life
companies are seeking ways to increase returns and
balance traditional investments, and are increasingly
turning to real estate investments.
Challenge: An active developer that has other existing
projects financed with middle-market banks needs
financing to complete a new construction project in
one of the hottest development areas in the country.
Traditional in-market lenders have filled their quota of
new-construction lending in this market.
Solution: Post-recession, cities on the coasts and other
major markets — including San Francisco, Seattle, New
York, Chicago, and Austin, Texas — have experienced
a building boom, particularly in the multifamily sector.