Adam Finkel - 10 young business leaders to watch in 2021

Published: January, 15, 2021

"Here are 10 young business leaders to watch in 2021" reports Michael Gossie in Big Media's Business News outlook on 2021.

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About Tower Capital:
Tower Capital was founded to enable owners of commercial real estate to achieve their investment goals with the least amount of time, energy, and cost, while creating surety of execution and peace of mind.

Established in 2015 and headquartered in Phoenix, Arizona, Tower Capital provides customized structured financing to investors throughout the United States. We specialize in debt and equity placement ranging from $2 Million to $100 Million and have financed over $1 billion for our clients since inception. We focus on independent financial advising with an entrepreneurial mindset, market vigilance and personalized attention to every client.

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Kyle McDonough - PTK People & Projects to Know in Commercial Real Estate – 2021 Edition

Published: January, 2021

People & Projects to Know (PTK) Magazine, the annual publication that spotlights Arizona’s most influential commercial real estate professionals and the projects that define the landscape identified Kyle McDonough as one to watch as Tower Capital hit a total of $1 billion in successfully executed commercial real estate debt and equity transactions.

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Established in 2015 and headquartered in Phoenix, Arizona, Tower Capital provides customized structured financing to investors throughout the United States. We specialize in debt and equity placement ranging from $2 Million to $300 Million and have financed over $1 billion for our clients since inception. We focus on independent financial advising with an entrepreneurial mindset, market vigilance and personalized attention to every client.

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'Ground zero' for build-to-rent homes: Big-name developers enter the market in Phoenix, elsewhere

By Angela Gonzales – Senior Reporter, Phoenix Business Journal

Published: Tuesday, October 13, 2020

More developers — including some with hefty track records — are getting into the build-to-rent business at a time when the need for housing units in the Valley and other major metros is at an all-time high. Here's a sneak peek at some of the biggest names to enter the fray.

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How COVID-19 Impacts Real Estate Loans In Arizona

By Christina Estes

Published: Monday, July 27, 2020 - 5:05am

The economic uncertainty in this pandemic is affecting lending for commercial real estate projects.

If it’s not industrial or multifamily housing, local experts say it’s pretty tough to get financing right now. During a July webinar hosted by Valley Partnership, Adam Finkel with Tower Capital said there’s growing interest in single-family build for rent projects.

“It’s sort of a hybrid where you have, you know, the amenities of a multifamily property-maybe there’s a nice fitness center, a nice pool, you know, there’s a dog walk area but people don’t have the maintenance of a traditional single-family home,” he said.

Finkel said his company is working on a single-family build for rent project with just under 300 units in the West Valley.

Keaton Merrell with Walker & Dunlop in Phoenix said on the debt side he is not working on any office, retail or hotel projects at this time: "We’re mainly working on multifamily, we’re working on a lot of build for rent, both locally and nationally, and then we’re looking at some industrial."

Because so many banks are working with existing customers to avoid defaulting on commercial loans, Finkel said they’re hesitant to take on new borrowers. That could change, though, depending on what programs are approved in the next federal coronavirus relief bill.

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Tower Capital surpasses $1 billion in CRE financing since 2015

In June, commercial real estate finance firm Tower Capital successfully arranged three multifamily property loans totaling $44 million, which put the company over $1 billion in successful loan arrangements since its inception in 2015.

To reach this milestone, Tower Capital coordinated financing for:

• 143 loans

• 11,202 multi-family units

• 2,625 hotel keys

• More than 1.2 million square feet of office, retail and industrial real estate

“This is a huge achievement, especially for an independent firm like us,” said Adam Finkel, principal, Tower Capital. “Our lean team is able to execute deals as well as, if not better than, the big shops in town, and reaching the $1 billion mark is proof of that.”

Finkel managed all three deals that closed in June. Each property is located in Phoenix and together they make up 524 units. Finkel secured cash-out refinances for each, totaling $44 million at a 3.125% interest rate.

The professionals at Tower Capital have participated in almost every area of the commercial real estate industry including real estate brokerage, mortgage banking, securities, private lending, and development – across all real estate asset classes. The company was recognized by National Real Estate Investor as a ‘Top Financial Intermediary’ for total dollar volume of commercial real estate loans arranged. Tower Capital celebrated five years in business in March.

“I’m so proud of our team for reaching $1 billion in loans closed on the heels of our company’s fifth anniversary,” said Kyle McDonough, principal at Tower Capital. “It feels especially good to celebrate this win during such a tumultuous year.”

Despite the coronavirus pandemic’s effects on global markets, in 2020, Tower Capital has successfully arranged $248 million in financing for multifamily, hotel, land and retail properties.

REAL ESTATE | 14 Jul | AZRE

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Valley CRE lending bouncing back for some product types, expert says

Despite a slowdown when the Covid-19 pandemic hit and the stay-at-home orders that followed, commercial real estate financing in the Valley has continued to move forward, a Phoenix finance professional said.

Adam Finkel, principal for Tower Capital, said the firm has still been active in refinancing deals due to low interest rates, while “about a dozen” loans the firm was working on for hotels were canceled. However, construction loans and financing to convert former hospitality buildings into residential use have remained strong, and Finkel said he expects more activity in those types of conversions as a result of the pandemic’s effect on the hospitality industry.

The firm recently arranged three loans for multifamily properties totaling $44 million, bringing the firm to over $1 billion in loan arrangements since it was founded in 2015. The firm as arranged 143 loans, accounting for over 1.2 million square feet of office, retail and industrial space, 11,202 multifamily units and 2,625 hotel rooms.

Over the duration of the pandemic, Finkel said he has seen an increase in acquisitions after the initial drop-off in March, and investors from cities with higher costs of living are again interested in looking at Arizona.

“People still want to move here,” he said. “People want out of higher density cities.”

With business interruptions due to Covid-19, Finkel said lenders have been willing and able to work with borrowers to allow for more time or other considerations with their loans.

“For existing owners looking to refinance, the timing has never been better,” he said.

Finkel said there is still a high level of uncertainty about the market and the pandemic through at least the end of the year, but he expects his company will continue to have a strong year.

“We have a great handle on who the current capital is in the market,” he said. “We had a lot of bridge lenders get out of the market and sit on the sidelines, so we have our finger on the pulse to see who is in.”

The firm now employs eight people and Finkel said they plan to continue growing slowly while still remaining nimble.

By Corina Vanek – Reporter, Phoenix Business Journal

Jul 13, 2020, 3:00am MST

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How to raise capital in today’s environment

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The effects of the coronavirus pandemic have caused instability and uncertainty in the global financial markets. Businesses are hanging on by the lifelines of PPP loans, while projections estimate the country’s unemployment rate will remain at, or greater than, 10 percent through 2021. For commercial real estate investors, financing will be particularly challenging for the next several months, especially in certain asset classes, such as retail and hospitality. Building confidence with a lender by knowing their hot buttons will increase a sponsor’s success in today’s more cautious environment.

Be overly-prepared

Adam Finkel is co-founder and principal of Tower Capital.

A well-prepared and detailed business plan will go a long way in gaining a lender’s trust. Lenders want reassurance that borrowers have done the research and prepared for potential shifts in the economy as the pandemic plays out. This includes accounting for additional capital expenditures and debt service reserves, along with showing more conservative valuations utilizing true market cap rates and demonstrating untrended rental growth for a period of time. In addition, lenders will want to know the deal works with a higher cap rate on the disposition and an interest rate stress of about 50-100 basis points above today’s rates for a potential takeout loan.

Likewise, sponsors must prepare to underwrite for more conservative leverage. While the maximum loan-to-cost (LTC) ratio for many CRE loans pre-COVID was 75-80 percent, borrowers should expect 65 to 75 percent LTC, depending on the asset class.

Liquidity is king

Whether construction, bridge or a stabilized asset, lenders are placing more focus on a sponsor’s liquidity and global cash flow from other investments. In the past, lenders have typically wanted a borrower to account for an amount equal to at least 5-10 percent of the loan amount in cash and/or marketable securities, in addition to the down payment. This acts as insurance if an unforeseen major property repair is needed. Because of COVID-19, investors and capital partners alike fear a sudden loss of rental income due to tenants vacating or not paying rent, which could inhibit a borrower’s ability to cover debt service and other expenses. Therefore, special attention is being paid to the borrower’s cash position and the overall strength of their portfolio.

Flaunt your resume or find a partner

In the pursuit to relieve lender concerns, borrowers with prior experience will come out ahead. Showing that you had past successes with the particular asset class will mitigate the lender’s risk and strengthen your application.

If a borrower lacks prior experience, acquiring a loan will be challenging in the current environment, especially for ground-up developments. However, tapping a partner can help in multiple ways. In addition to leveraging their past project experience and borrowing history, a partner can help fill in other weak points in a borrower’s creditworthiness, such as insufficient net worth or liquidity. The downside, of course, means splitting the returns with your partner.

Lenders want reassurance

Though raising capital has become increasingly difficult in the past 60 days, the bottom line is that uncertainty and risk are at an all-time high. Lenders have become increasingly more cautious with their funds, waiting for the dust to settle. Borrowers must prepare thoroughly and offer reassurance by tailoring their underwriting and packages to today’s environment.

Adam Finkel is co-founder and principal of Tower Capital. Over the course of his career, Adam has overseen the successful placement of nearly $1 billion in debt and equity financing on behalf of his clients throughout North America. He has a diverse background in both finance, as well as commercial real estate leasing and sales. Adam has earned the designation of Certified Commercial Investment Member (CCIM), and he’s a member of the Forbes Real Estate Council.

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The Rise and Fall (and rise again) of Interest Rates

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Shifting interest rates are the never-ending, hot-button topic in the world of investing, and rightfully so. Changing rates not only affect our portfolios, but the entire U.S. economy. In commercial real estate, learning more about the factors that influence interest rates can both ease anxieties and lead to becoming a savvy investor.

The Basics
The interest rate that borrowers will pay on a loan is determined by a simple formula: Index Rate + Spread = Loan Interest Rate. The spread is a number calculated by the perceived risk of the loan or supply and demand in the market.

In the U.S., commercial real estate lending is predominately influenced by four indices: Federal Funds Rate, LIBOR, Prime, and US Treasury rates.

Federal Funds Rate
Although the Federal Funds Rate is not directly used to price commercial real estate loans, it is the primary tool our central bank, the Federal Reserve, uses to influence interest rates, control inflation, and manage the overall economy. Specifically, it is the rate that other banks charge each other for overnight borrowing.

Federal banking regulations dictate that banks must keep in reserve a certain percentage of their deposits to cover customers’ withdrawals. If the bank does not have these funds on hand at the end of the day, they must borrow the money from other banks. Although the two banks involved are free to negotiate the exact interest rate charged, it typically reflects the federal funds rate.

Changes in the Federal Funds Rate can heat up or cool down the economy by increasing or decreasing the cost of capital that trickles down to borrowers. The availability of less expensive capital boosts investment and adds liquidity to the financial market, spurring growth. Higher rates will have the opposite effect as investors choose to save instead of seeking new opportunities.

Prime Rate
The Prime rate is the rate that banks in the US charge their most creditworthy customers, typically large corporations, who offer the least amount of risk of default. It is a key lending rate on which banks base most of their variable interest, including personal and small business loans, credit cards, and interest-only mortgages. Commercial real estate construction loans financed through banks are typically interest-only and based upon a spread over the Prime rate.

The Prime rate generally moves in accordance with the federal funds rate and has historically been 300 basis points (or 3%) above the federal funds rate. The most widely used Prime rate is published daily in the Wall Street Journal and is an average of the largest banks’ prime rates.

LIBOR
Short-term commercial real estate bridge loans and floating rate loans are often priced over the 30-day LIBOR index.

The London Interbank Offer Rate, most commonly referred to as LIBOR, is the index preferred by international and large banks who have a concentration of foreign customers. These major global banks estimate what it would cost to lend to one another for short-term loans, and LIBOR is the average of those estimates.

LIBOR rates are offered with seven different maturities, but the 30-day is the most common in commercial real estate. The loans based on this index change monthly.

In 2017, the U.K.’s top regulator tasked with overseeing LIBOR announced that the benchmark will be phased out by the end of 2021. In the US, the Federal Reserve is recommending the Secured Overnight Financing Rate (SOFR) as a replacement, which has been published since April 2019.

US Treasury Rates
Treasury bills, notes, and bonds are debt instruments sold by the US government to raise money. Each treasury is sold at auction with a fixed face value and interest rate. They offer investors different lengths of maturities and rates of return. Treasury bills mature within one year, Treasury notes mature in 10 years or less, and Treasury bonds have maturities up to 30 years. Under normal conditions, longer-term Treasury securities have a higher yield than shorter-term Treasury securities.

When the economy trends negatively, Treasury yields typically decrease due to higher demand. This is because Treasuries are considered to offer the lowest risk to investors because they are backed by the full faith and credit of the US government. Conversely, when the economy positively, Treasuries become cheaper and their yields rise because there is less demand from investors who are willing to take greater risk for a higher return on their money through alternative investments. These can include higher yielding corporate bonds, equities in the stock market, mortgage backed securities, real estate or a variety of other investment vehicles.

Long-term fixed-rate loans, such as CMBS, Fannie Mae, Freddie Mac, HUD and many life insurance company loans, are priced over US Treasuries, the 10-year being the most common.

Summary
It is important for investors to have a basic understanding of interest rates, especially if they are financing commercial real estate properties. The US Prime rate, Treasury rates, and 30-day LIBOR, are the most common indexes used to price commercial real estate loans, while the Federal Funds rate is the benchmark from which many other rates are based. The index used to calculate the final rate paid by the borrower is dependent on multiple factors including the category of lender, property type, status of the asset and time horizon for the loan. Although many of the rates discussed are highly correlated, they do not always move together.
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How to raise capital in today’s environment

The effects of the coronavirus pandemic have caused instability and uncertainty in the global financial markets.

Businesses are hanging on by the lifelines of PPP loans, while projections estimate the country’s unemployment rate will remain at, or greater than, 10 percent through 2021. For commercial real estate investors, financing will be particularly challenging for the next several months, especially in certain asset classes, such as retail and hospitality. Building confidence with a lender by knowing their hot buttons will increase a sponsor’s success in today’s more cautious environment.

Be overly-prepared
A well-prepared and detailed business plan will go a long way in gaining a lender’s trust. Lenders want reassurance that borrowers have done the research and prepared for potential shifts in the economy as the pandemic plays out. This includes accounting for additional capital expenditures and debt service reserves, along with showing more conservative valuations utilizing true market cap rates and demonstrating untrended rental growth for a period of time. In addition, lenders will want to know the deal works with a higher cap rate on the disposition and an interest rate stress of about 50-100 basis points above today’s rates for a potential takeout loan.

Liquidity is king
Whether construction, bridge or a stabilized asset, lenders are placing more focus on a sponsor’s liquidity and global cashflow from other investments. In the past, lenders have typically wanted a borrower to account for an amount equal to at least 5-10 percent of the loan amount in cash and/or marketable securities, in addition to the down payment. This acts as insurance if an unforeseen major property repair is needed. Because of COVID-19, investors and capital partners alike fear a sudden loss of rental income due to tenants vacating or not paying rent, which could inhibit a borrower’s ability to cover debt service and other expenses. Therefore, special attention is being paid to the borrower’s cash position and the overall strength of their portfolio.

Flaunt your resume or find a partner
In the pursuit to relieve lender concerns, borrowers with prior experience will come out ahead. Showing that you had past successes with the particular asset class will mitigate the lender’s risk and strengthen your application.

Lenders want reassurance
Though raising capital has become increasingly difficult in the past 60 days, the bottom line is that uncertainty and risk are at an all-time high. Lenders have become increasingly more cautious with their funds, waiting for the dust to settle. Borrowers must prepare thoroughly and offer reassurance by tailoring their underwriting and packages to today’s environment.
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Here’s how CRE lending is shifting due to coronavirus

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It seems that there has been a shift in the past week from a focus on flattening the curve to how we begin to open up society and the economy again. Although there may be some signs for optimism given the recent stock market rally and new medical data suggesting the infection rate is slowing, the looming possibility of a second wave of infections will continue to keep the populace on edge.

Liquidity Lies in Multifamily

Adam Finkel is co-founder and principal of Tower Capital.

The capital markets have evolved drastically in the past five weeks. Lenders have all but ceased operations as they manage assets, focus inward on their current portfolios and avoid originating any new loans. The CMBS market has effectively been shut down, while many banks have had to divert resources to manage the overwhelming demand for SBA loans. Financing for hotels and retail is essentially non-existent.

Demand, however, remains healthy for industrial and office projects in good locations with strong tenants. By far the most liquidity available is for multifamily, fueled by Fannie Mae, Freddie Mac, and HUD. Agency spreads have been reduced significantly from a few weeks ago, following the Fed’s announcement that it will buy unlimited amounts of Treasuries and agency mortgages, and remain an important source of financing for this asset class.

Lenders now require holdbacks for principal and interest payments, while some will demand additional reserves for property taxes, insurance, and capital improvements. These funds will be released after the borrower can show stable debt service coverage for a period of time, which will differ from lender to lender. Overall, investors in any asset can anticipate lower leverage and more conservative underwriting thresholds.

Most bank and life company rates are now pricing in the 4% range or higher, which accounts for anywhere from 50-150 basis point increase over pre-COVID levels. Many lenders are sitting on the sidelines because of difficulties in being able to properly underwrite current NOI and future cashflows. Additionally, any lenders, especially in the bridge space, who depend on CLO’s or warehouse lines are essentially out of the game.

The bright side is, lenders are prepared to work with their current borrowers during these challenging times, no matter the asset class. It is important for borrowers to be proactive, communicate openly with their lenders or servicers and determine an effective action plan.

Rent Collections Remain Steady — For Now

Aside from hospitality and retail, most landlords have reported better than expected April collections. One of the largest multifamily lenders in the country recently reported collections in the 92-95% range across their portfolio. Owners of office space are experiencing a pause in tenant expansions and will likely have to offer more concessions to maintain occupancy.

Listings across the board, however, are temporarily being pulled from the market, while some sellers are refinancing and holding their properties. The deals that closed recently have done so by pure inertia – they were already well into the transaction.

Longer escrow periods are causing uncertainty, leading sponsors to underwrite deals with higher vacancies and no anticipated rent increases. Whereas a typical escrow may have been 45 to 60 days, they are now 90 to 120 days. The uncertainty is making it challenging for investors, lenders, and appraisers to underwrite future cash flows.

Conclusion

With the prospect of reduced rental income, higher interest rates, and lower lender leverage, property valuations will surely be negatively affected. How much and for how long is still unclear. One thing is certain: the longer the economy is shut down, the deeper the damage and the longer it will take to recover.

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