"Issues and Solutions"
These most recent examples of “Issues and Solutions” reflects 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 borrower/sponsors but also created opportunities to profit from short pay situations and assets being sold a discount from their former values either as real estate or loans.
POOR HISTORICAL INCOME AND UN-SEASONED TENANTS
Result $4,700,000 Permanent Loan
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 sponsors financial statement and recent tax returns were negatively affected by the recent downturn of the economy and would not bear additional contingent liabilities.
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.
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 which 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 which at the time there was no market for from homebuilders at any price. While the group had identified a project that would be one of the first to benefit from a recovered marker and it was very cheap they only had 5% of the cost to buy and hold 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 has 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 which expanded its physical facilities just as the worsening economy cause 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 and that faced with this 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 and had 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 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 investor for his equity found many of them were no longer willing or able to continue investing in real estate and 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 Hi 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.