What is it that gets real estate deals financed today?

By Kevan McCormack

As finance intermediaries, the partners at Metropolitan Capital Advisors are exposed to a variety of new and exciting commercial real estate deals on a daily basis. Once we find a transaction that is worthy of serious consideration, the property is underwritten, the numbers are crunched, and then our deal radar kicks into overdrive as we search for the special aspect that makes the deal truly stand out when presented to capital providers. We call this redeeming characteristic(s) the “Hook.” We have to brush aside the sponsor’s claims, “this is the best deal in the market today,” and prove their assertions to ourselves.

the-hook-in-cre-financeIdentifying the “Hook” is extremely important with respect to our ability to successfully execute the financing assignment. What are some examples of the “Hook” we finance intermediaries are looking for when considering a new assignment? Read on:

  1. The Sponsor has a great track record in the product type and has the resume to back it up;
  2. The Developer / Sponsor has risk-mitigated the project by accomplishing substantial pre-sales or pre-leasing;
  3. The majority of the rent roll has quality tenants with good financial statements;
  4. The market is essentially at full occupancy with increasing rents and no inventory being added;
  5. The Sponsor has formed a meaningful strategic partnership with a nearby business partner that has a significant going concern in the success of the project being financed;
  6. The Sponsor has secured a true take-out / forward purchase contract from a reliable buyer who has put up significant hard earnest money with no “outs” in the contract other than delivering the building;
  7. The Sponsor will sign personal recourse and has a large balance sheet with a substantial amount of liquidity in proportion to the financing request and his existing contingent liabilities;
  8. The Sponsor is putting in all of the Cash Equity himself (i.e. no JV Equity Partners);
  9. The land owner has agreed to contribute the land to the project as part of the equity;
  10. The Sponsor is looking for extremely low leverage for that property type;
  11. The Sponsor is making such an incredible buy that there is no way the lender will get hurt;
  12. The product type being developed has extremely high barriers to entry, which the Client has already overcome!

We are asked frequently to secure financing with all the “bells and whistles” our Clients hear other property owners are getting done.  Reality is that it is the things our Clients do not know about their neighbor and his deal that had a more meaningful impact on his ability to secure such great financing.  It is often not enough to say that the asset class is “hot.”  We need a hook!

To get capital providers’ attention takes finesse both in deal structuring and presentation.  Given the amount of volume MCA closes each year, we are adept at helping our Clients not only identify but communicate the “Hook” to our audience, whether Lender or Equity Provider.  To discuss your next project financing, contact Kevan McCormack at kmccormack@metcapital.com.