An experienced mortgage banker can
help a company secure optimal
financing for commercial real estate projects. Through his or her extensive
lender relationships and ability to put
together intricate financing solutions, a
mortgage banker can provide access to
debt and equity financing that might be
unavailable through other avenues.
“Whether a client is looking to raise equity or place debt, a quality mortgage banker
should be able to provide an effective combination of a consultative market perspective with innovative financing strategies,”
says Brian Finley, vice president of CBRE |
Melody, the mortgage banking arm of CB
Richard Ellis.
Smart Business spoke with Finley about
mortgage bankers, the services they provide
and how recent events in the capital markets have affected debt and equity financing.
How can borrowers benefit from using a
mortgage banker?
While it is well known that commercial
real estate owners can access remarkably
cheap debt and equity through the capital
markets, it is becoming increasingly difficult for these investors to navigate them.
There are a myriad of investors that
include insurance companies, government
agencies, pension funds, banks and conduit lenders; each investor having a unique
investment criteria and a variety of loan
programs. By leveraging their extensive
lender/investor relationships and market
insights, mortgage bankers can provide
their clients with a sense of clarity to the
capital markets process.
Why should a company use a mortgage
banker instead of a traditional lender?
For two reasons, really. First, traditional
lenders, such as local and national banks,
typically offer loan terms that differ significantly from capital market lenders. For
example, banks generally offer short-term
money [five years or less] on full recourse
terms compared to conduit lenders that
offer long-term money on a nonrecourse
basis. Moreover, due to their access to cheaper capital, these lenders can provide
a lower cost of debt to borrowers than can
commercial banks.
Second, while some capital market
lenders will lend directly to borrowers,
direct negotiations between lenders and
borrowers tend to favor the lenders due to
their size and experience relative to the
borrower. Borrowers can level the playing
field by engaging the services of a mortgage banker who has a fiduciary responsibility to their clients and possesses considerably more experience in negotiating loan
terms than individual borrowers.
What types of services does a quality mortgage banker provide?
Mortgage bankers assist real estate owners with the capitalization of their real estate
asset through various forms of financing:
permanent financing, bridge loans, mezza-nine debt, structured equity, joint venture
equity and construction financing.
A mortgage banker is more than a broker
linking two parties, rather, they serve as an
adviser acting in their clients best interest
throughout the capital procurement
process. This includes advising clients on
an optimal financing strategy, marketing
the financing request, identifying the best debt/equity investor, application, document negotiation and transaction closing.
What type of debt and equity financing is
most suitable for a company’s needs?
The process starts with a thorough situational analysis of the company’s capital
requirements taking into consideration total
project costs, existing capital resources,
desired return on investment and duration
of holding period, among other things.
CBRE | Melody provides this analysis free of
charge. Based on this analysis, we customize innovative strategies and focused
implementation to provide clients with their
optimal capital solution.
How have recent events in the capital markets affected debt and equity financing?
While the capital markets remain primed
with a surplus of cheap debt and equity, a
series of events over the past four months
have created some turbulence and volatility
in the marketplace. First came the bursting
of the residential sub-prime mortgage bubble in February. Although the residential
and commercial mortgage securitization
markets are fundamentally separate, many
investors link the two. As a result, investors
have increased their return expectations.
Second, in April, Moody’s Investor
Services, the definitive credit rating agency
for securitized loans, issued a report warning investors of loose underwriting standards and historically high uses of leverage. Shortly afterwards, collaterallized
mortgage backed securities (CMBS)
investors reacted adversely by excluding a
handful of loans from the collateral pool of
a $4.2 billion CMBS issuance.
Although these events are generally heralded by most market participants as a
return of prudence and discipline, the
short-term affect is one of uncertainty and
volatility. While still relaxed and cheap relative to historical measures, underwriting
standards are tightening and credit spreads
are on the rise.
BRIAN FINLEY is vice president of CBRE | Melody. Reach him
at (513) 369-1307 or [email protected].