"Issues and Solutions"
These most recent examples of “Issues and Solutions” reflect the nature of the market since the start of the great recession, which negatively impacted the operating history of most real estate assets and the financial capabilities of many borrowers/sponsors, but also created opportunities to profit from short pay situations and assets being sold at a discount from their former values either as real estate or loans.
REFINANCE OF LARGE PORTFOLIO OF VERY GRANULAR ASSETS
Result: $310,000,000 Bridge Loan with Significant Property Improvement and Leasing Costs
NEBO Capital identified four non-bank lenders capable of doing the entire portfolio. All of these lenders were able to get comfortable with the assets, the borrower, and the business plan. The selected lender was the most flexible on structuring the transaction, and the lender we had the most confidence in their ability to perform. The structure negotiated allowed for all the “good news” money as well as some corporate overhead and working capital. In addition there was a realistic partial release capability which eliminated exit fees in almost all circumstances. This allows the borrower the ability to increase the occupancy and value of certain properties and then sell them or refinance them on a long term basis.
A prominent investor had lost some properties in the difficult time period after the financial crises and became un-bankable by money center banks, which were the obvious source of capital for these assets and a portfolio of this size. The assets themselves were not performing as well as they could, due to both the market and distractions of his attention on the most stressed assets, and his consuming cash flow on legal and other issues instead of spending on the subject properties. At the time of his existing portfolio loan maturity the refinance was supportable by cash flow but the assets would have remained vulnerable to depreciation without “good news” money.
POOR HISTORICAL INCOME AND UN-SEASONED TENANTS
Result: $4,700,000 Permanent Loan
We very quickly identified a non recourse lender who had experience lending in the area and was comfortable with the smaller non-credit start-up tenants and understood the market rents in the area were quickly exceeding the rent rates of his recent leasing and the values per square foot in the area supported a less than 50% loan to value loan. The final loan terms were a very low rate, non-recourse loan with a customized amortization schedule and term to meet the borrowers needs.
The existing loan on a well located, jewel box, mixed use retail/office building was coming due just as the financial panic was subsiding. The building lost or had move-outs at lease maturity of most of its larger tenants during this time and showed a trailing 12 months operating statement that would not typically qualify for a replacement loan without a substantial loan pay-down. The new tenants had only been in occupancy a short time and were all non-credit start-ups. In addition the sponsor's financial statement and recent tax returns were negatively affected by the recent downturn of the economy and would not bear additional contingent liabilities.
SHORT TIME FRAME AND NICHE PROPERTY
Result: $1,500,000 Mezzanine Loan
A value add investor had gone hard with his deposit on a broken condo deal that he intended to rent and hold before selling units. The building was the best in class building in a secondary market, for which there were no comparable quality properties. The investor had obtained a bridge loan but was running out of time to fully fund his syndicated equity and came to us to find the gap equity.
We quickly identified a mezzanine lender (rather than equity) who loved the project and knew the senior lender well, so was comfortable using the due diligence material of the senior lender to underwrite a mezzanine loan that closed in short order, saving the at-risk deposit and allowing a deal (that was very successful) to close.
NO COMPARABLE SALES AND LACK OF SPONSOR CASH
Result: $5,000,000 Joint Venture
An investment group with strong skill sets in residential land development had identified a fully improved tract land parcel for which there was no market for from homebuilders at any price at the time. While the group had identified a project that would be one of the first to benefit from a recovered market, and it was very cheap, they only had 5% of the cost to buy the asset and hold it over the time they thought it would take to monetize the asset.
We knew of a few equity sponsors who might like the thinking of the sponsors and their evaluation of the opportunity but none of theses groups had done an opportunistic land play before. One of the groups we took it to provided 95% of the total money as equity on terms that made sense for both parties.
WEAK FINANCIAL STATEMENT AND NON PROFIT BORROWER
Result: $3,000,000 Bridge Loan
We were introduced to a charitable organization that expanded its physical facilities just as the worsening economy caused a drop in revenues from donations. The building costs were financed at low leverage by a high rate line of credit, which was being called.
While the donations to this organization had dropped, all indications were that they would soon equal or exceed those the organization had achieved historically. Faced with the new economy, the organization was running leaner and the new building was providing more revenue from services they could now offer. A number of local banks understood the story and were able to provide extremely good rates and terms but one lender we knew liked non-profits and was clearly the right fit as they wanted a relationship with the organization.
LENDERS NOT UNDERSTANDING THE BUSINESS PLAN OF BORROWER
Result: $2,250,000 Rehabilitation Loan
A client of NEBO had a successful business finding very out of favor retail and multifamily assets to renovate. The client found a very sub-performing apartment building in a transitional area of a secondary market. He was putting down a strong down payment and had the skill set to turn the property around but all of his bank lenders could not get comfortable with how the property looked and performed as is.
NEBO has relationships with many private lenders and even with the issues the banks had identified and the fact that his loan required disbursements for a substantial amount of construction, we found a private lender in this market who understood the opportunity and lent on the strong upside post renovation.
HAD TO CLOSE FAST OR LOSE DEPOSIT AND DEAL
Result: $1,875,000 Equity Investment
An investor who had in the past relied on a short list of high net worth investors for his equity found that many of them were no longer willing or able to continue investing in real estate. He had found a good value-add industrial play where the overall market was still not doing well but his sub market was. He had a lender but the lender could not close in time and his deposit was at risk.
NEBO found an equity fund that had recently invested in this market and understood the sub market and was willing to provide as equity 90% of the acquisition money and have the loan close post acquisition, but remain in the transaction as the equity partner.
COMPLEX MULTI-COLLATERAL TRANSACTION WITH A REQUIREMENT TO CLOSE FAST
Result: $1,750,000 High Leverage Loan
A referral source brought to us a hotel company who had an opportunity to buy back an asset at a discount and had a lot of capital and deposits tied up in the deal. They had secured a participating loan but were short some of the capital needed and their only collateral was a mixed bag of equity high in the capital stack and junior to debt as well as management income.
NEBO knew a high net worth family in the hospitality business who could understand the complex collateral, and they funded a hybrid corporate guaranteed loan/real estate mezzanine loan that allowed the transaction to close.