By Scott Lynn
Capital Providers, whether on the debt or equity side of the transaction, inherently have short attention spans…especially when it comes to receiving the due diligence information required to fund a deal. The Capital Provider’s mindset works exactly like an electrical current taking the path of least resistance. Lenders and equity investors focus their attention on those transactions where the necessary underwriting information is forthcoming without hassles or constant reminders. In fact, closings happen faster, more efficiently and with fewer headaches when Sponsor/Borrowers are proactive to the point of almost being declared “clairvoyant.” Face it, if we really know our deal, we know what someone is going to ask about or needs to see before they are going to make a multimillion-dollar investment of any kind.
Invariably, every time the capital markets take a major step in reverse (as was the case since 2008), the natural reaction is to become better underwriters of risk. The due diligence checklists expand from 64 items to 93, as more third-party reports are required and the legal bills get bigger. We live in a world where indeed, “He Who Controls the Gold, Makes the Rules”…as it should be. We also live in a world where most Capital Providers today are either regulated more than ever, are making loans they plan to sell to others (i.e. securitize) or, are making investments on an ALL CASH/ALL EQUITY basis. Of course everybody is asking more and more and more questions…good grief!!!
CRE Sponsors often make the mistake of assuming their deal is “DONE” once they have an issued a Term Sheet or Loan Application. The simple fact is, they are holding a little more than a party invitation with a lively caption: Details to Follow. Moreover, these same Sponsors tend to take their foot off the gas when they should really be putting the pedal to the metal on their closing efforts.
At Metropolitan Capital Advisors (MCA), our belief is the business of securing a financing source is bifurcated into two distinct phases: Marketing & Placement of the transaction and then Processing & Closing the deal. Twenty-two years ago, we set up our firm on this premise and established a full time, in-house Closing Department that focuses strictly on taking a transaction from a “meeting of the minds” all the way through the approval process to an eventual funding. With over $9.4 billion funded and an assignment tally exceeding 1,100 closed transactions, we must have something right in our secret sauce. That “something” is getting and keeping the Capital Providers’ attention.
Our observations confirm there are split personalities in the CRE finance business: those of us who are great Hunters and of equal importance, and those who make great Skinners. If you have seen the one-man comic play “Defending the Caveman,” you’ll relate to the reference. If you have not seen the play, do so… it will improve your relationship with your significant other. One thing is certain: it is hard to find a human being that can interchange the two roles effectively. The personality traits of a great Hunter (even the Sponsor himself!!!) often get in the way of the more understandably pragmatic and diligent Capital Provider. The professional Closer bridges this void in personality shortcomings.
What is a Closer? First, a Closer is NOT your title agent, your lawyer or your CFO. Moreover, your Closer is not the Capital Provider’s Closer or their attorney. While all of these folks are important pieces of the puzzle, they are either not equipped to handle a wide array of closing details, are paid by the hour and/or, they are inherently conflicted because they represent the Capital Provider, not the Sponsor/Borrower.
A Sponsor’s Closer is exactly that…the party retained to close the deal on behalf of the Sponsor/Borrower, and someone who has a background in a variety of CRE disciplines such as property management, casualty insurance, title, survey, valuation and property tax issues along with a general understanding of pertinent legal matters and required loan documentation. A Borrower’s Closer must also possess the know-how and people skills to coordinate a host of third-party service providers, such as appraisers, property inspectors, environmental engineers, construction consultants and general contractors.
Attention to detail is tantamount to success. Focusing on everything from making sure there is a ladder available to get on the roof, to confirming the appraiser has the RIGHT rent roll, to checking the estoppel letters against the lenders underwriting, all fall within the purvey of the Closer’s daily responsibilities.
MCA originally set up its own internal Closing Department as a way to increase the probability and certainty the transaction would close as well as decrease the timeframe to get the deal funded. Twenty something years later, our clients continue to show their appreciation for the time and money saved by using MCA in the form of repeat business.
Likewise, Capital Providers move MCA’s prospective deals to the top of their consideration stack as Lenders and Investors prefer to deal with intermediaries that know how to keep their attention once they get their attention. Most assuredly, it is important to be as good at the CLOSE as it is to be good at the QUOTE by keeping the providers attention throughout the transaction process.