The Pendulum Has Shifted: “He who has the money, makes the rules”

Times in the real estate financing market have truly changed. After 9 years of unprecedented prosperity, borrowers are now in a position whereby lenders wield the advantage. For the past several years, borrowers could pick and choose which lender would fund their commercial properties. Huge amounts of capital were thrown at borrowers, allowing them to play one lender against another. Today, active lenders are truly in control and calling the shots. Lenders are establishing terms and conditions which are more advantageous to them, and not succumbing to borrower’s pressures for expedited closings. Borrowers not satisfied with this approach are discovering that lenders may suggest they seek financing elsewhere. Lenders are taking this position as their existing pipelines are already filled with quality transactions and thus they lack the capacity or personal incentives to increase production. The challenge for most borrowers is that often there are limited alternatives due to the fewer number of lenders active in the debt market.

This shift has demonstrated that one of the most important aspects in a real estate transaction is the surety of closure. Relationships with capital are currently at a premium. Many borrowers have been displaced by what they would consider their ‘lender of choice’ having exited the market.

In the world of CMBS lenders, rumors have circulated that a number of such lenders are joining forces to create a ‘pristine pool,’ whereby up to ten originators each contribute from $150 million to $200 million of collateral, which is then priced and underwritten to today’s conservative standards. The pool will then be taken to market as a benchmark with the intent that additional securitizations wouldl follow. The idea of such a pool is to induce bond buyers to again acquire bonds from CMBS transactions.

We will keep you posted…

Penstar recently received a commitment from an investment fund to provide 100% of cost construction and equity for a single tenant property located in the Southwest United States. This transaction is structured whereby the fund will induce a construction lender to provide 75% loan-to-cost mortgage financing and the funds to advance the cash balance. The developer, who owns the land free of debt, will receive an initial draw recapping his land costs. Upon construction completion and sale of the property, sales proceeds will be split on a 50/50 basis. The fund is seeking to provide this program to other developers of entitled single tenant properties, as well as 70% pre-leased multi-tenant retail projects with construction costs ranging from $2 million to $10 million. The fund seeks to replicate this template with developers who have continuing representation with their respective partners and tenants. Tenants considered include restaurants, child care centers, automotive centers, and other franchises. To discuss, please contact Steven Hamermesh at (818) 883-9609 or hamer@penstaradvisors.com.

Hot Money
Reliable Bridge Loan Lender

Penstar is currently working with an investment fund advancing bridge debt on commercial and multi-family properties nationwide. The lender is seeking existing apartment, retail, office, industrial, and hospitality product ranging from $10 million to $75 million, and will advance up to 80% loan to cost. (Loan to cost is defined as the purchase price plus all renovation, leasing commissions, TI’s and interest carry). Loan terms: 3 years at 6.50% interest, interest only and non-recourse. They are one of the few lenders in the United States who have the ability to fund large bridge loans. Penstar’s principals have a long standing relationship with credit committee members located in Los Angeles. To discuss, please contact Steven Hamermesh at (818) 883-9609 or Hamer@PenstarAdvisors.com.

30 Day Libor	10-Year Treasury	Prime
3.16%	3.76%	6.00%