Commercial Real Estate Finance

Posts Tagged ‘sponsor’

Let’s get one thing clear. Pension funds are real estate investors. But they are passive investors. They are not experts, not do they hold themselves out to be. They simply are looking to allocate a portion of their massive coffers into a sector that generally has yielded above average returns and long term capital appreciation, something their constituency values greatly. So it has made a lot of sense for them to partner up with shrewd business and real estate minds to place their money for them to attract the best returns possible. For the last several decades, this partner has most often been private equity groups. Most pension funds have come to regret this decision over the last 18 months, as their portfolios have been hammered, almost across the board, but with particular pain in the real estate sector. But I have to ask, was this a failure of their own making? Read the rest of this entry »

News broke late last week regarding Royal Bank of Scotland’s $500M issuance of CMBS bonds.  This would mark the first such sizable CMBS issuance in 2010. I know what you must be thinking.  CMBS?  Isn’t that what helped steer us into this mess to begin with? In a word, yes.  However when you take note that approximately one third of the loans originated between 2005-2007 were sold into, and therefore facilitated by, the secondary CMBS market, this can only be a good thing for real estate.  As other banks begin to follow RBS’ lead (and there have been signs that just that is happening)

Despite what you might be thinking, investors are not necessarily in need of a lobotomy.  They remember the pain.  They remember the collapse of the marketplace.  But now, they see value. Read the rest of this entry »

Editor’s Note: As the second installment in a three week blog series, Questionable Brokers will  posit questions regarding Types of Capital. Last week, the first part of the series examined questions regarding Real Estate Metrics. Next Week week we will wrap up the series with questions Deal Structure. These are real questions from real real estate brokers. Enjoy!

Q: What is the difference between mezzanine debt and preferred equity?

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Editor’s Note: With Valentine’s Day coming up this weekend (order your flowers ASAP!), we figured, why not start off the week with a Cupid-esque topic? We can’t wait to hear your feedback on this one….

When a joint venture partnership occurs in real estate, the term “getting into bed” is often tossed around. And despite the fact that real estate is an industry dominated by men (and therefore subject to more coarse, perverted analogies), this phrase is somewhat appropriate. When you sleep with someone, you want to make sure you are protected (from exactly what, I will leave to the reader’s imagination), right?  Well the same goes for your equity partner in a real estate transaction.  Yet, while all real estate transaction involve some form of due diligence, JV equity partnerships involve an entirely different level of due diligence.

Rather than scoping out the salient facts of the deal, examining the borrowers track record, and crossing all the “t’s” and dotting all the “i’s” of a particular transaction (like a bank might do), an equity partner has to get extremely comfortable with the sponsor’s style and personality in addition to the aforementioned due diligence.  For this reason vetting a JV equity partner has become a lot more like eHarmony than a one night stand. Read the rest of this entry »

Bloomberg published an informative article yesterday highlighting the reasons why debt financing is so much more expensive for governments than private companies.  You would think that governments that NEVER default on debt issuances and have unlimited tax revenue could issue debt at a cheaper cost than private companies.  Municipal bonds, however, are often issued at rates anywhere from 100 to 150 bps higher than private companies.  What’s the reason for this?  Moreover, what lessons can an owner/investor of commercial real estate learn about debt financing from the municipal bond market?

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