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Local Firm Tower Capital Off To a Successful Start Arranging $93 Million in CRE Financing

Commercial Real Estate Finance Phoenix

Last fall we featured Adam Finkel and Kyle McDonough in our Changing of the Guards story where we highlighted some of the valley’s most up and coming real estate professionals in brokerage, finance and development. In the beginning of 2015 Mr. Finkel and Mr. McDonough broke off from their respective firms to launch their new Phoenix-based structured finance company, Tower Capital. The firm specializes in debt and equity placement on behalf of commercial real estate investors throughout the country. They offer borrowers short term bridge solutions through their in-house private lending platform, as well as conventional financing through their commercial mortgage brokerage division.

First launched last February, the firm has completed close to $100 million in total loan originations in their first 12 months of operations, with multifamily representing 44% of total production volume, hospitality representing 41%, office comprising 14% and land at 1%. Commenting on their success, principal of the firm, Adam Finkel, said:

“We have found that hospitality has been a really underserved sector when it comes to commercial real estate mortgage banking and brokerage. There just aren’t that many people focusing on these properties when assets such as multifamily are much easier to finance given the amount of capital chasing those deals through the government sponsored entities like HUD, Fannie Mae, and Freddie Mac. In addition, we are experiencing banks, debt funds, and other lenders becoming full on hotel allocations given the amount of velocity in the marketplace over the past couple of years. The money is still out there if you know where to find it, it’s just getting more expensive.”

loan produ 

 

With over $38,000,000 in hotel loans over the past nine months alone the fledgling firm is quickly becoming one of the most active financiers in the hospitality sector in the state. They recently closed 869 keys across 6 properties, which included a Holiday Inn & Suites, two Comfort Inns, a Hawthorn Suites, Day’s Inn, and the Hotel Tucson City Center, an independent best known for the international gem show it plays host to annually.

 

Despite all of the hospitality activity, multifamily still remains a bread and butter asset class for the duo with 1,265 units financed in the past year.

The two principals of the firm, Adam Finkel and Kyle McDonough, had been close friends for the past 15 years prior to founding the company. Mr. Finkel previously held the position of Vice President at Johnson Capital, one of the largest independent commercial banking firms in the country before it was acquired in late 2014. Mr. McDonough was the director of a local bridge debt fund that placed private money loans for transitional assets during the Great Recession.

“Tower Capital blends both of our backgrounds together nicely,” commented Mr. McDonough, “Ultimately our goal is to produce the most cost effective financing terms and structure that will meet our clients’ investment objectives, whether that’s through a bank, CMBS, life insurance company, debt fund, or our own private money platform.”

Kyle’s sentiments are proven by the numbers. Out of the 19 transactions closed during their first 12 months, 13 different lending sources were utilized, showing their capital relationships run deep across multiple asset classes.

capital sourc

The firm prides itself on being nimble, creative and relentlessly keeping up on the ever changing capital markets climate and knowing at all times who the most active lenders are.  Be on the lookout for this dynamic pair to continue carving out a place in the commercial real estate finance world.

[button size=”medium” color=”#ffffff” background=”#000000″ radius=”0px” type=”flat” link=”http://cem-az.com/local-firm-tower-capital-off-to-a-successful-start-arranging-93-million-in-cre-financing/” newwindow=”true” ]Click here to view entire article[/button]


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

Commercial real estate financing from Tower Capital provides competitive solutions for professional real estate investors seeking loans.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]

Tower Capital arranges $38M in hotel loans in nine months

Tower Capital

Phoenix-based structured finance firm, Tower Capital, has arranged over $38 million in hotel loans over the past nine months and is quickly becoming one of the most active financiers in the hospitality sector in the southwestern U.S. It recently closed 869 keys across six properties, which comprised a Holiday Inn & Suites, two Comfort Inns, a Hawthorn Suites, Day’s Inn, and the Hotel Tucson City Center, an independent best known for the international gem show it plays host to annually. The firm has been active in acquisition financing, refinances, and ground-up construction across many different asset classes.

Tower Capital is a boutique structured finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. It offers borrowers short-term bridge solutions through its in-house private lending platform, as well as conventional financing through its commercial mortgage brokerage division.

First launched last March, the firm has completed close to $100 million in total loan originations, with hospitality representing approximately 41 percent of total production volume.

“We have found that hospitality has been a really underserved sector when it comes to commercial real estate mortgage banking and brokerage, said Adam Finkel, principal of the firm. “There just aren’t that many people focusing on these properties when assets such as multifamily are much easier to finance given the amount of capital chasing those deals through the government sponsored entities like HUD, Fannie Mae, and Freddie Mac. In addition, we are experiencing banks, debt funds, and other lenders becoming full on hotel allocations given the amount of velocity in the marketplace over the past couple of years. The money is still out there if you know where to find it, it’s just getting more expensive.”

The two principals of the firm, Finkel and Kyle McDonough, had been close friends for the past 15 years prior to founding the company. Finkel previously held the position of vice president at Johnson Capital, one of the largest independent commercial banking firms in the country before it was acquired in late 2014. McDonough was the director of a local bridge debt fund that placed private money loans for transitional assets during the Great Recession.

“Tower Capital blends both of our backgrounds together nicely,” McDonough said, “Ultimately our goal is to produce the most cost effective financing terms and structure that will meet our clients’ investment objectives, whether that’s through a bank, CMBS, life insurance company, debt fund, or our own private money platform.”

-by HM Staff

[button size=”medium” color=”#ffffff” background=”#000000″ radius=”0px” type=”flat” link=”http://www.hotelmanagement.net/transactions/tower-capital-arranges-38m-hotel-loans-nine-months” newwindow=”true” ]Click here to view entire article[/button]


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

Commercial real estate financing from Tower Capital provides competitive solutions for professional real estate investors seeking loans.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]

Lender survey: Confident but cautious outlook

Hawthorn Suites – Tempe, Arizona

A shift in lender expectations suggests that financiers of U.S. hotels expect the current period of growth in hotel asset values to peak within the next year, according to the year-end release of the “2015 Hotel lender survey.”

HENDERSONVILLE, Tennessee, and NEW YORK—A shift in lender expectations suggests that financiers of U.S. hotels expect the current period of growth in hotel asset values to peak within the next year, according to the year-end release of the 2015 Hotel Lender Survey.

The third annual survey, conducted by STR, Inc., Hotel News Now and RobertDouglas, includes responses from more than 40 senior balance sheet lenders, CMBS lenders and providers of subordinate debt financing. Together, the participating lenders represent the source of a majority of all hotel debt with loan balances in excess of $10 million that was originated in the U.S. in 2015.
Compared with 15% in 2014, 45% of total respondents indicated that the aforementioned peak will occur within the next year. However, there is as much or more debt financing capacity available to hotel owners as not one respondent anticipated decreased hotel lending volumes during the next 12 months.
Overall, the survey suggested a cautious outlook of stable asset values, increasing liquidity for hotel finance and a potential spreading of widening credit risk.

[button size=”medium” radius=”0px” type=”flat” link=”http://www.hotelnewsnow.com/Article/17496/Lender-survey-Confident-but-cautious-outlook#sthash.owffhNNX.dpuf” newwindow=”true” ]Click Here to Read Entire Article[/button]


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

Commercial real estate financing from Tower Capital provides competitive solutions for professional real estate investors seeking loans.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]

Multifamily Investment Sales Market

Multifamily Investment Sales Market

This bull market continues to charge ahead.

By all accounts, the multifamily investment sales market has been on a bull run in recent years. The fact that the sector was the leader in the real estate recovery and continues to produce solid occupancies and rent growth has caught and held investor interest. And despite stiff competition and record sale prices in many metros, buyers’ voracious appetite for apartments has not diminished.

“We are getting demand across the board whether it is a $4 million to $5 million deal or $20 million to $30 million. It is pretty much insatiable,” says Richard Knutson, CCIM, senior managing director at Newmark Cornish & Carey in Emeryville, Calif. For example, Knutson recently brokered the sale of a 2009-built institutional-quality apartment building in Oakland, Calif., that attracted 23 qualified bids before closing at $24.7 million. The 76-unit property sold for $325,921 per unit, which is more than triple the current national average.

Multifamily has been the flavor of the month among investors for the past three years, and there is still an incredible amount of capital chasing acquisitions in this sector. Although apartment sales slowed in July, the $47 billion in multifamily transactions recorded during the first seven months of 2015 is up 32 percent compared to the same period in 2014, according to Real Capital Analytics.

Key drivers behind that robust sales activity are strong demand and a positive outlook for the sector. Vacancies continue to hold steady at 4.2 percent, according to Reis. And despite a surge in construction activity, Reis is predicting only a modest uptick in vacancies over the next five years to 5.5 percent.

“We have a growing population; people will always need a place to live, and Amazon.com is not going to change that,” says Thomas McConnell, CCIM. “This is an asset class that cannot be replaced by technology.” A managing partner at Redwood Realty Advisors in Hasbrouck Heights, N.J., he adds that apartments sales remain “hot across the board” in New Jersey for all types of apartments. Nationally, buyers run the gamut from institutions and foreign capital to syndications and local investment groups.

One of the frustrations in multifamily is that the amount of available for-sale product can’t keep up with the buyer demand. “Unfortunately, there is a lot more demand in the market,” McConnell says. For example, Redwood Realty recently introduced a listing for a 40-unit apartment building in a high barrier-to-entry market in Morris County, N.J. The 1940s-built property generated 15 signed confidentiality agreements in the first day.

High Prices, Low, Low Cap Rates

Given the buyer demand that exists at all levels from class A trophy properties to value-add class B and C assets, it is no surprise that investors are paying a premium to win deals. Both multifamily rents and sale prices are in record territory across many metros. As of July, the average capitalization rate nationally on all apartment properties valued at $5 million and above was 6.1 percent, according to RCA.

In particular, prices have soared across primary markets such as New York City, San Francisco, and Chicago. Pricing for the six major metros is now 163 percent higher than the lows we saw in 2009 and just over 100 percent higher in garden style assets, says Reid Bennett, CCIM, senior vice president at Sperry Van Ness—Chicago Commercial and national SVN multifamily council chair. “There was a small blip in July in terms of pricing on a national level, but we’re still seeing prices for multifamily assets across the board pretty much 21 percent to 27 percent higher than the peak values in 2007,” he says.

Competition is especially heated for high-end class A properties. “Especially with the class A deals, we’re seeing 40 to 60 offers come in on a single asset,” Bennett says. “That leaves 39 to 59 buyers that didn’t acquire the deal looking for another opportunity and potentially stretching their acquisition criteria, perhaps dropping [to lower] asset classes.”

Steady economic growth, strong rental demand, and soaring rents are adding intensity to an already highly competitive investment market. “After 30 years in the business, even I have sticker shock at rents and sales values being achieved in the San Francisco East Bay area,” Knutson says. For stabilized class A buildings in that area, the going-in cap rate, which is based on existing rents, is at sub-4 percent, he says.

Many investors are underwriting deals aggressively, anticipating higher rents. Investors look at the going-in cap rate, but what they are really buying is where they think the cap rate is going to be when they get rents to market levels, Knutson adds. For example, he brokered the sale of a 1950s-built apartment building in Oakland, Calif., in May that sold for $5 million or $147,059 per unit. The going-in cap rate was 3.7 percent, but with anticipated rent increases the cap rate will likely be closer to 5.5 percent. In addition, the buyer borrowed money at a rate of less than 4 percent, which will give him good cash flow on a nice asset, Knutson says.

“Cap rates have compressed. However, they do seem to have leveled off in the majority of markets that we are in,” McConnell says. In northern New Jersey, for example, class A cap rates have compressed approximately 100 basis points to 4.5 percent from the five-year average of 5.5 percent. Cap rates for class B and C properties in the area are hovering close to their five-year average at 7 percent, he says. Yet buyers are still willing to push cap rates lower for assets in extremely high barrier-to-entry locations. “There are many desirable submarkets in New Jersey in which a B or C asset can easily trade for a sub-5 cap rate,” McConnell says.

The Search for Higher Yields

Certainly, there is still plenty of money chasing the relative safe haven of well-located class A assets in major metros. However, buyers are increasingly looking for opportunities that offer higher returns, whether that is new development, renovations, or target markets in secondary and tertiary metros. “Buyers are looking elsewhere for opportunities in growing markets,” says Joe Rubin, CCIM, owner of JG Realty Advisors in West Palm Beach, Fla. “I am working with a ton of buyers who can’t pay the prices in Orlando or Tampa. So, they are looking at Sarasota, Fort Myers, or even Melbourne or Lakeland, which are all becoming very hot markets,” he says.

Rubin is also seeing more activity from investors buying 1980s- or 1990s-built properties. Investors upgrade interiors with more upscale finishes as well as modernize property amenities in order to push rents higher. For example, investors are re-doing pools to make them more resort style or converting existing tennis courts to multiuse sport courts.

Tertiary market Albuquerque, N.M., has seen a jump in sales activity in the past two years with more room for growth fueled by both local and outside investors. Albuquerque has an abundance of very small apartment properties; about 45 percent of its total inventory contains four units or less. As a result, the city mostly attracts small, “home-grown” investors from the local market, as well as investors from western markets, such as California or Las Vegas, that are looking for higher yields, according to Todd Clarke, CCIM, CEO of NM Apartment Advisors in Albuquerque.

Multifamily properties in Albuquerque are selling at about 6 percent cap rates with the potential for cap rates to drop even lower, Clarke says. A fair amount of that compression will be driven by the fact that investors are not so much cap rate buyers as value-add buyers, meaning that investors anticipate that they will be able to come in, make changes to the property or the management, and increase rents, he says.

One of the hot investment opportunities in Albuquerque is revamping existing housing properties to cater to millennial renters, Clarke says. “Our city has been very big on recruiting millennials and catering to them. So, for the first time since the 1980s, we have seen a lot of product coming online that is geared just to this one demographic.”

For example, Clarke recently sold a property to an out-of-state buyer that is getting the highest one-bedroom rents in the city at about $1,195 per month. It has no amenities — no swimming pool or clubhouse. “Those really aren’t the millennial amenities. The millennial amenity is location. They want restaurants, grocery stores, mass transit, and this property fits all of that,” he says. Some investors also are coming in and converting older properties to trendy condo-style units with a more artistic design aesthetic that appeals to young renters, he adds.

At $1.35 to $1.85 per square foot, rents in Albuquerque for those new millennial units are a far cry from the rents being charged in major metros. Rents that top the $2 psf mark would support a different construction type, such as mid-rise apartments. “There is a lot of enthusiasm in the marketplace for what may be coming, and I think we are right on the cusp of seeing more interesting product come into the market,” Clarke says.

Nationally, development is back in full force with an estimated 230,000 new units expected to come online this year, according to Reis. So far, absorption has been keeping pace with that new supply, which is a testament to the strong demand that exists in the market. Investors also are keeping a close eye on potential interest rate hikes and how that may impact underwriting and deal flow. But, for now, there doesn’t appear to be any major events on the horizon that could derail the current momentum.

“There is still so much capital in the market. I have five to six groups that call me weekly to ask for new deals, when typically I would be bugging them,” Bennett says. Investment groups that have raised capital are under pressure to deploy that money. “I don’t see an end to the buyer pool, and I don’t see interest rates doing much until after the election,” he says. The amount of capital in the market combined with strong fundamentals may mean that multifamily’ s bull run continues for at least another 18 months.

by Beth Mattson-Teig

[button size=”medium” color=”#ffffff” background=”#000000″ radius=”0px” type=”flat” link=”http://www.ccim.com/cire-magazine/articles/324045/2015/11/multifamily-investment#sthash.Oz1yaJLr.dpuf” newwindow=”true” ]Click here to view or download entire article here[/button]


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

Commercial real estate financing from Tower Capital provides competitive solutions for professional real estate investors seeking loans.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]

Commercial Real Estate Finance Phoenix

Commercial Real Estate Finance Phoenix

Commercial real estate (CRE) is income-producing real estate that is used solely for business purposes, such as retail centers, office complexes, hotels and apartments. Financing – including the acquisition, development and construction of these properties – is typically accomplished through commercial real estate loans: mortgage loans secured by liens on commercial, rather than residential, property.

Just as with residential loans, banks and independent lenders are actively involved in making loans on commercial real estate. In addition, insurance companies, pension funds, private investors and other capital sources, including the U.S. Small Business Administration’s 504 Loan program, make loans for commercial real estate.

Here, we take a look at commercial real estate loans: how they differ from residential loans, their characteristics and what lenders look for.

Individuals vs. Entities

While residential mortgages are typically made to individual borrowers, commercial real estate finance is often made to business entities (e.g., corporations, developers, partnerships, funds and trusts). These entities are often formed for the specific purpose of owning commercial real estate.

An entity may not have a financial track record or any credit history, in which case the lender may require the principals or owners of the entity to guarantee the loan. This provides the lender with an individual (or group of individuals) with a credit history and/or financial track record – and from whom they can recover in the event of loan default. If this type of guaranty is not required by the lender, and the property is the only means of recovery in the event of loan default, the loan is called a non-recourse loan, meaning that the lender has no recourse against anyone or anything other than the property.

Loan Repayment Schedules

A residential mortgage is a type of amortized loan in which the debt is repaid in regular installments over a period of time. The most popular residential mortgage product is the 30-year fixed-rate mortgage. Residential buyers have other options, as well, including 25-year and 15-year mortgages. Longer amortization periods typically involve smaller monthly payments and higher total interest costs over the life of the loan, while shorter amortization periods generally entail larger monthly payments and lower total interest costs. Residential loans are amortized over the life of the loan so that the loan is fully repaid at the end of the loan term. A borrower with a $200,000 30-year fixed-rate mortgage at 5%, for example, would make 360 monthly payments of $1,073.64, after which the loan would be fully repaid.

Unlike residential loans, the terms of commercial loans typically range from five years (or less) to 20 years, and the amortization period is often longer than the term of the loan. A lender, for example, might make a commercial loan for a term of seven years with an amortization period of 30 years. In this situation, the investor would make payments for seven years of an amount based on the loan being paid off over 30 years, followed by one final “balloon” payment of the entire remaining balance on the loan. For example, an investor with a $1 million commercial loan at 7% would make monthly payments of $6,653.02 for seven years, followed by a final balloon payment of $918,127.64 that would pay off the loan in full.

The length of the loan term and the amortization period will affect the rate the lender charges. Depending on the investor’s credit strength, these terms may be negotiable. In general, the longer the loan repayment schedule, the higher the interest rate.

Loan-to-Value Ratios

Another way that commercial and residential loans differ is in the loan-to-value ratio (LTV): a figure that measures the value of a loan against the value of the property. A lender calculates LTV by dividing the amount of the loan by the lesser of the property’s appraised value or purchase price. For example, the LTV for a $90,000 loan on a $100,000 property would be 90% ($90,000 ÷ $100,000 = 0.9, or 90%).

For both commercial and residential loans, borrowers with lower LTVs will generally qualify for more favorable financing rates than those with higher LTVs. The reason: They have more equity (or stake) in the property, which equals less risk in the eyes of the lender.

High LTVs are allowed for certain residential mortgages: Up to 100% LTV is allowed for VA and USDA loans; up to 96.5% for FHA loans (loans that are insured by the Federal Housing Administration); and up to 95% for conventional loans (those guaranteed by Fannie Mae or Freddie Mac).

Commercial loan LTVs, in contrast, generally fall into the 65% to 80% range. While some loans may be made at higher LTVs, they are less common. The specific LTV often depends on the loan category. For example, a maximum LTV of 65% may be allowed for raw land, while an LTV of up to 80% might be acceptable for a multifamily construction. There are no VA or FHA programs in commercial lending, and no private mortgage insurance. Therefore, lenders have no insurance to cover borrower default and must rely on the real property pledged as security.

Note: Private mortgage insurance (PMI) is a type of insurance policy that protects lenders from the risk of default and foreclosure, allowing buyers who are unable to make a significant down payment (or choose to not to) to obtain mortgage financing at affordable rates. If a borrower purchases a residential property and puts down less than 20%, the lender will minimize its risk by requiring the borrower to buy insurance from a PMI company. See How To Get Rid Of Private Mortgage Insurance.

Debt-Service Coverage Ratio

Commercial lenders also look at the debt-service coverage ratio (DSCR), which compares a property’s annual net operating income (NOI) to its annual mortgage debt service (including principal and interest), measuring the property’s ability to service its debt. It is calculated by dividing the NOI by the annual debt service. For example, a property with $140,000 in NOI and $100,000 in annual mortgage debt service would have a DSCR of 1.40 ($140,000 ÷ $100,000 = 1.4). The ratio helps lenders determine the maximum loan size based on the cash flow generated by the property.

A DSCR of less than 1 indicates a negative cash flow. For example, a DSCR of .92 means that there is only enough NOI to cover 92% of annual debt service. In general, commercial lenders look for DSCRs of at least 1.25 to ensure adequate cash flow. A lower DSCR may be acceptable for loans with shorter amortization periods and/or properties with stable cash flows. Higher ratios may be required for properties with volatile cash flows – for example, hotels, which lack the long-term (and therefore, more predictable) tenant leases common to other types of commercial real estate.

Interest Rates and Fees

Interest rates on commercial loans are generally higher than on residential loans. In addition, commercial real estate loans usually involve fees that add to the overall cost of the loan, including appraisal, legal, loan application, loan origination and/or survey fees. Some costs must be paid up front before the loan is approved (or rejected), while others apply annually. For example, a loan may have a one-time loan origination fee of 1%, due at the time of closing, and an annual fee of one quarter of one percent (0.25%) until the loan is fully paid. A $1 million loan, for example, might require a 1% loan origination fee equal to $10,000 to be paid up front, with a 0.25% fee of $2,500 paid annually (in addition to interest).

Prepayment

A commercial real estate finance may have restrictions on prepayment, designed to preserve the lender’s anticipated yield on a loan. If the investors settle a debt before the loan’s maturity date, they will likely have to pay prepayment penalties. There are four primary types of “exit” penalties for paying off a loan early:

  • Prepayment Penalty. This is the most basic prepayment penalty, calculated by multiplying the current outstanding balance by a specified prepayment penalty.
  • Interest Guarantee. The lender is entitled to a specified amount of interest, even if the loan is paid off early. For example, a loan may have a 10% interest rate guaranteed for 60 months, with a 5% exit fee after that.
  • Lockout. The borrower cannot pay off the loan before a specified period of time, such as a 5-year lockout.
  • Defeasance. A substitution of collateral. Instead of paying cash to the lender, the borrower exchanges new collateral (usually Treasury securities) for the original loan collateral. High penalties can be attached to this method of paying off a loan.

Prepayment terms are identified in the loan documents and can be negotiated along with other loan terms in commercial real estate loans. Options should be understood ahead of time and evaluated before paying off a loan early.

The Bottom Line

With commercial real estate finance, it is usually an investor (often a business entity) that purchases the property, leases out space and collects rent from the businesses that operate within the property: The investment is intended to be an income-producing property.

When evaluating commercial real estate loans, lenders consider the loan’s collateral; the creditworthiness of the entity (or principals/owners), including three to five years of financial statements and income tax returns; and financial ratios, such as the loan-to-value ratio and the debt-service coverage ratio. For more information, read 7 Steps To A Hot Commercial Real Estate Deal and Find Fortune In Commercial Real Estate.

By Jean Folger
View Full Article: Commercial Real Estate Loans http://www.investopedia.com/articles/personal-finance/100314/commercial-real-estate-loans.asp#ixzz3lPG1yvwo


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

Commercial real estate financing from Tower Capital provides competitive solutions for professional real estate investors seeking loans.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]

RealShare National Investment & Finance Conference – Part 2

RealShare National Investment & Finance Conference

The afternoon sessions focused largely on the state of the economy and the drivers affecting it.

The opening RealShare National Investment & Finance Conference session was titled Power Panel: Direct from the C-Suite and was moderated by Lew Horne, President of CBRE Greater LA/Orange County Region. Panelists included Warren De Haan, Founder & Managing Partner of ACORE Capital; Ken Perry, President & CEO of The Swig Company; Fred Schmidt, President & COO at Coldwell Banker Commercial; Lydia Tan, SVP at Bentall Kennedy; and Thomas Whitesell, Managing Director at Capital Source.

Despite the geopolitical issues facing Europe, the Middle East, and Africa, the global markets have been strengthening overall. There was a 40% increase in investment activity from 2013 to 2014, with America responsible for about half the volume last year at $545 billion. The top 6 markets were London, Tokyo, San Francisco, Sydney, New York, and Dallas. The commercial real estate market in the US is benefitting largely from employment drivers in energy, education, medicine and technology.

Overall, most asset classes have seen gradual decreases in vacancy, however, each sector faces its own challenges. All time high stock market prices have helped the wealthy to become wealthier and at the same time the country’s poor are provided with greater subsidies, which puts additional squeeze on the middle class and is illustrated through consumer shopping habits. Both high-end retailers as well as discount brands have seen revenues pick up, while those catering to the middle classes struggle. The shift from brick and mortar to online shopping by consumers is a dynamic continuing to affect the retail industry, causing less demand for traditional retail space. Retailers are shifting their focus towards supply chain and how to best accomplish same day fulfilment to their customers. Consequently, the industrial sector has benefitted from increased demand for warehouse and fulfilment centers. The office sector is facing challenges of its own. While it seems that a strengthening economy has ushered in new job growth, the average square foot per employee has decreased to 175 square feet, which has minimized space absorption to some extent. In multifamily, millennials will continue to be a driving force for the next 20 years as developers and property owners cater to their specific tastes, which include smaller unit sizes but with nicer finishes and a greater number of property amenities.

Overall across all sectors the debt markets seem to be driving valuations. Lenders are dropping their minimum debt yield requirements to win deals, which lead to additional loan proceeds and higher prices. The debt markets are providing investors with strong risk adjusted returns in comparison to other alternatives, such as the bond market. With capital readily available and looking to be deployed, the frothiness experienced in today’s capital markets environment should continue for the foreseeable future. There was a consensus that some slowdown in capital might be healthy. The only reason why some deals are making sense for investors is because capital is so cheap and this causes inflated pricing. The last downturn was due in part to a lack of discipline by investors and there is a concern that the same mistakes are already being repeated.

The last panel of the day was In Search of Yield: The Outlook for Investment. The moderator was Michael Zietsman, Managing Director at JLL and the panel featured Geoff Davis, President of HREC Investment Advisors; Paul Feinstein, Managing Director of Wealth Management at UBS, Christopher Flick, SVP at PIMCO; and Lynn King-Tolliver, SVP at Heitman Capital Management.

Lynn King-Tolliver started the discussion by noting that the market overall is showing a healthy construction pipeline that seems to be in line with demand. She believes that the market has another 24 -36 months of growth before there is an adjustment, however it is uncertain what the trigger will be. Christopher Flick of PIMCO shared the sentiment that there is room to grow but is worried about the market’s reaction to an increase in interest rates. The panel showed some agreement that when the next downturn does arrive, it will not be as long or as deep as what was experienced during the Great Recession. It was difficult to form a consensus on exactly where we are in the current cycle but one thing was certain – the USA is well ahead of Europe.

It is no secret that US-based institutions have been facing tremendous competition from foreign investors looking for a safe haven to plant their money, contributing to cap rate compression and increased property values. However, unlike in the past, foreign capital is not just sticking to gateway markets. They too are beginning to chase yield in secondary markets. Foreign investors also tend to gravitate towards office and hotel assets and are less comfortable in the multifamily space, as evidenced by much less foreign capital in that sector.

Despite a smaller turnout than expected, the RealShare National Investment & Finance Conference was informative and provided some solid networking opportunities. For part 1 of this blog, please click here.


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

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RealShare National Investment & Finance Conference – Part 1

RealShare National Investment & Finance Conference

We recently attended the Realshare National Investment & Finance conference at the Omni Hotel in in downtown Los Angeles. There were a number of topics covered including the current state of the capital markets, loan programs and underwriting standards for various types of capital sources, the overall economy in relation to commercial real estate, and where institutional investors are finding yield.

In today’s market capital is readily available and aggressively chasing deals and there is no shortage of options for borrowers. Understanding the investor’s goals and objectives is key to securing proper loan program with the right lender.

Four panel discussions in particular were of most interest to me, and which I would like to focus on in this blog.
The first was titled: Winning Deals: What’s New in the Capital Stack? The panel members included: Philip Block, SVP of RealtyMogul.com; Jeff Hudson, CEO of George Elkins Mortgage Banking Company; Alexa Mizrahi, Loan Originator at Lone Oak Fund; Jason Fritton, Co-Founder & CEO of Patch of Land; and Barbara Morrison, Founder and President of TMC Financing.

The main focus of the panel discussion centered around the nuances between Life Company execution versus CMBS, SBA parameters, and the growing presence of family offices in the capital markets.

For those investors looking to lock in long-term debt, both life insurance companies and the conduit (CMBS) market are extremely competitive options. CMBS is able to provide higher leverage, at around 70% to 80% LTV depending on the type of asset, and is open to financing properties in smaller and tertiary markets, as well as older or “C” class properties. They can offer interest only payments, sometimes for the entire life of the loan, and typically have a 30 year amortization schedule, providing maximum cash flow to the borrower. Life insurance companies are typically maxed out at 65% LTV, have shorter amortization periods (20 – 25 years) and prefer larger core markets and class “A” and “B+” assets. However, in today’s extremely competitive lending environment it was noted that life companies are not as core-oriented as they once were and are more open to listening to “stories” for properties that may have not traditionally fit within their credit box. Despite the lower leverage and additional asset and location fickleness, life companies do provide some advantages over CMBS. Life companies tend to price about 10 – 25% inside CMBS, they do not have the reserve holdback requirements found in CMBS loans, they offer greater prepayment flexibility with a Yield Maintenance or step-down structure versus the defeasance commonly found in CMBS, have less cumbersome loan documents, and there is no 3rd party loan servicer which can be a point of frustration for many CMBS borrowers.

Another popular source of capital is the Small Business Administration (SBA). The purpose of the SBA is to encourage job creation. It lends to owner-users who occupy at least 51% of their property, and can finance both new construction and existing properties. It allows borrowers the ability to obtain up to 90% LTV financing, along with offering longer term, fully amortizing loan programs. The SBA used to only lend to borrowers with a net worth less than $5 million but has recently removed that restriction, opening up this source of capital to a wider pool of borrowers. With a focus on owner-users, it is surprising that the SBA is also very active in the hospitality space. The caveat is that the hotel must be owner managed. Another fact that many people do not realize is that the SBA will only refinance short term debt of 3 years or less, so for borrowers facing a long term loan that is maturing, the SBA is not an option, even if they meet all the other criteria.

Life companies, CMBS, and the SBA have been active in the commercial real estate lending space for quite some time, however the newest and most dynamic source of capital are family offices. Family offices are sprouting up across the country and are typically created by high net worth individuals emanating from other businesses or industries who are looking to put their money to work through commercial real estate lending and investing. Family offices provide real estate owners and operators with both debt and equity for their projects. They are often much more creative and flexible than traditional sources of capital and can even offer credit enhancements to sponsors who lack balance sheet strength, usually in consideration for some degree of back-end profit participation. Tower Capital has built relationships with a number of family offices that have been able to provide capital to our clients where traditional lenders have either not found a way to get comfortable with the transaction or have not been a good fit given the intricacies of the deal.

The next panel of interest was Debt for Every Deal: Lessons in Lending. The panel was moderated by Robert Hodge, Senior Director for Marcus & Millichap and included Karine Clark, Senior Director of Lending at Bolour Associates; Eric Ealy, Western Regional Director for Freddie Mac; Adam Petriella, EVP at Coldwell Banker Comercial Alliance; Kevin Pleasant, Regional Manager for Comercial Mortgage Lending at Chase; Michael Sanchez, Vice President of Colony Capital; and Jeffrey Weidell, President of NorthMarq Capital.

Chase Bank’s commercial mortgage lending division is mostly active along the west coast, Chicago, and Boston. They are a high volume lender and I was surprised to learn that for such a large financial institution their average loan size is only about $2 million. If your deal fits within their credit box, they can be an extremely competitive source of very low interest rates. Mr. Pleasant noted that the low interest rate environment has created a lot of demand for early refinances and that he expects spreads to possibly tighten in 2016.

Given the amount of multifamily volume we transact at Tower Capital, I was extremely interested in the insights offered by Eric Ealy, Western Regional Director for Freddie Mac. As early as late April, there were concerns that both Fannie Mae and Freddie Mac, two of the main sources for multifamily financing in the U.S., were already approaching their annual lending quotas of $30 billion a piece. This lead to a substantial increase in spreads in order to slow down the pace of originations and got a lot of people nervous since both the agencies have been such an attractive source of low interest, non-recourse financing. Mr. Ealy assured the crowd that Freddie Mac “has plenty of money to lend.” To combat the quota problem Freddie Mac has adjusted what is now covered under the caps. Small balance loans under $5 million, affordable and manufactured housing, properties under 50 units, and legacy loans which are already in Freddie Mac’s portfolio will not count towards the $30 billion cap. In fact, at Tower Capital we are currently seeing very aggressive pricing for these categories; as much as 40 basis points below normal pricing. Mr. Ealy noted that Freddie is already at about $33 billion in total loan volume this year and he expects that number to reach upwards of $45 billion by December 31st.

With total market transactional velocity already reaching peak 2006 – 2007 levels, the agencies aren’t the only lenders who have been busy. Jeff Weidell of NorthMarq, stated that the life companies are already becoming constrained and anticipates many of them reaching their quotas well in advance of the year’s end.

The general census of the panel was that underwriting is still remaining fairly disciplined, and the influx of capital to the market will continue to put pressure on interest rate compression. The panel has also noticed more cash out requests by long term owners who are taking advantage of today’s still historically low interest rate environment.

Stay tuned for next week where we will cover the insights offered by Warren De Haan, Founder of ACORE Capital; Paul Feinstein, Managing Director of Wealth Management at UBS, Christopher Flick, SVP at PIMCO, and many more during panel discussions titled: Power Panel: Direct from the C-Suite and In Search of Yield: The Outlook for Investment.


About Tower Capital:
We are a Commercial Real Estate Finance firm specializing in debt and equity placement on behalf of commercial real estate investors throughout the country. We offer borrowers short term bridge solutions through our in-house private money platform, as well effectuating conventional permanent financing through our commercial mortgage brokerage division.

[button size=”medium” color=”#ffffff” background=”#a61e22″ radius=”0px” type=”flat” link=”http://www.towercapllc.com/” newwindow=”false” ]View our Commercial Real Estate Finance[/button]