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Real Estate Capital Basics – Hybrid Structures

Yazan: RECI | 01 August 1990 | No Comments
Categories: Uncategorized

During the past several decades, inflation whittled down fixed-rate mortgage portfolios burdened with below-market rates and terms.  At the same time, property owners enjoyed favorable leverage and substantial profits for increasing property values.  As a result, funding sources unwillingly provided financing terms insufficiently benchmarked to inflationary cycles.  Thus, hybrid financing structures were devised to provide [...]

Real Estate Capital Basics – Standby Commitments

Yazan: RECI | 01 July 1990 | No Comments
Categories: Uncategorized

  
Standby Commitments are temporary financing tools required for obtaining construction loans on speculative, to-be-built, or major renovation projects.  Based on a predefined set of terms and conditions, the standby issuer [lender] provides a commitment to finance a to-be-built project at a future date.  Relying on this commitment as a takeout funding, a construction lender provides [...]

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Las Vegas, NV - February 6, 2010 - According to industry leaders gathering in Las Vegas this week, debt capital is readily available for 2010.  Optimism is in the air and the mortgage lenders are starting to offer more generous terms and conditions.  In summary, timing is excellent for select borrowers in securing debt based on the following conditions:  (1) Recovering economy, (2) Ample supply of capital and (3) Limited supply of financeable real estate assets.  The following highlights summarize the 2010 state of the realty capital markets including an overall outlook and overall funding program offerings:  Back to Basics:  As lenders workout of their legacy problems, new funding goals surface which are clearly more ambitious than 2009. Still underwriting of actual numbers w/o projections, yet inflation fears exist. Most lenders are Indifferent to spreads, but not competition. Valuing real estate properties in a declining market still a challenge. More allocation of funds available above target amounts if deal flow is of sufficient quality Underwriting Dynamics:  As has been the case last year, high-quality projects in major markets backed by excellent sponsorship and cash flow characteristics are most desired—especially based on low leverage of 65% of value.  Location/Property Types: Major MSAs strongly preferred for optional pricing and leverage.  Otherwise a substantially most costly financing with lower leverage. Preferred property types ranked in order:  (1) Multifamily, (2) Credit-Tenant lease of all property types, (3) Industrial, (4) Retail, (5) Office - however medical office ranks equal to Industrial and (5) Lodging. Pricing (Permanent Fixed-Rate Loan): Agency pricing for apartments starts in the low to mid-5% range for 5 year or greater term. Life company pricing starts mid-5% to 6% for 5 years or more term mostly targeted for commercial property pricing (agencies are more competitively priced) More entrepreneurial funds start at 7% or more targeting secondary markets, smaller fundings, older properties and lodging assets. Add a pricing premium of 25 to 50 basis points for loans below $5 million. Yield differential disappearing - typical ($5 to $50 million) vs. larger loans. Forward funds available up to a year based on 6 o 8 basis points premium per month.  Leverage: Above 65% LTV on a select basis combined with lower spreads. Values based on the lower of: (a) purchase price, (b) appraised value or (c) lender imposed capitalization rate.