by Brandon Miller, Senior Director
As a financial intermediary firm that focuses 100% of its attention on representing Clients in the real estate capital markets, Metropolitan Capital Advisors (“MCA”) takes great pride in our ability to quickly and efficiently cover a wide array of Capital Providers to bring our Clients a multitude of viable financing options. In better times like 2005-2007, finding Capital Providers was not an issue but we maintained our discipline to still provide our Clients several term sheets knowing that that the “cream will always rise to the top” rather than telling the Client to take the first deal that came along. We also knew from our experience that having a backup is essential in the event a deal goes sideways with the first choice.
Now let’s fast forward to 2011. Getting one viable term sheet in many cases is the goal and even that is not a given. Capital, albeit plentiful, is much more selective than in the past so when it is ready to transact, Borrowers and Sponsors are tripping over each other to get their hands on the money. MCA recently joined an alliance of finance intermediaries located throughout the United States to share information and ultimately help other alliance members successfully place deals. Amazingly, our “black books” of Capital Sources – at least those that are actually putting money out – are very similar from Texas to the Northeast to the West Coast. Even though the world feels small at the moment, we know in reality there is a whole universe of Capital Providers out there that may be on the sidelines today but ready to play tomorrow.
Our approach to a financing assignment has not wavered. The key to success in each transaction is finding the one or two ingredients that may differentiate the deal from others and then leaving no stone unturned during the marketing process. Let’s face it, we as Sponsors and Financiers tend to think our particular deal is “the next greatest thing since sliced bread” but capital sources have another 10 or 20 packages on their desk claiming the same. Once you understand the factors that will make a deal viable, the financing assignment boils down to a game of probabilities and permutations.
In the frothier years like 2005-2007, we conservatively estimated our chances of getting an equity provider willing to issue a term sheet in the range of 25%, meaning that a sourcing list of 20 potential capital sources would net 4 Term Sheets. On debt assignments, the odds increased to about 50%. Unfortunately those odds do not apply in the current market. In fact, we have successfully closed a few transactions recently that were a result of marketing to at least 40 to 50 capital sources just to find one willing to step up. It takes a commitment from the Financier to know a deal inside and out, understand what their Clients expectations are and have the resilience to handle rejection from Capital Sources. We have a saying around the office that “a No from a Capital Source just means you are one step closer to a Yes” and that persistence has led to success.
The marketing process is very fluid. It is rare that any deal gets placed with one phone call and much is learned as the declines from Capital Sources pile up. Through this process, the presentation of a deal is sharpened and the marketing efforts are narrowed. More often than not, the deal will end up getting done with a Capital Source that was not on the initial marketing list. There is a wide variety of commercial real estate Capital Providers in the United States and no two have the exact same set of parameters. Moreover, rare is the case that a transaction will meet all of a Capital Source’s parameters but rather the strengths of the deal (i.e. those that differentiate it from others) speaks their language the best. Therefore, it is best to leave no stone unturned when it comes to a financing assignment, especially in today’s very uncertain and unstable economy. If you are lucky, you might even find a financing proposal that exceeds your expectations!
Want to learn more, contact Brandon Miller, Senior Director