Today’s Real Estate Capital Relies on Partnerships

by Thomas J. Turner, III

In the new world of real estate capital, the trend is for investors and developers to establish relationships, as partners on the development- acquisition team, with the most sophisticated real estate finance professionals, ones in whom they have the most confidence and trust.

From the 1960s through the 1990s, commercial real estate owners and developers relied upon mortgage bankers to find the best terms on permanent mortgage loans for their office, retail, industrial and multi-family developments.

But in the last few years, the alternatives for financing, both in terms of number of sources as well as in alternative structures, have increased dramatically. Buyers and developers have become aware of capital that is more sophisticated and specialized. The creativity available for debt and equity in the marketplace is different from what it was just four or five years ago.

In many cases, particularly in substantial metropolitan areas, premier developers and acquirers of property are establishing partnerships with mortgage bankers who are sophisticated capital market financial advisors. These partners work with them on acquisitions and developments from the earliest stages, enabling them to work swiftly and flexibly.

Since premier real estate finance firms have access to a wide variety of capital sources, it has become less common to deal with two or three mortgage companies than it is to select one with whom the firm is comfortable and one in which the firm has great confidence in its capability to deliver what is promised, and to deal with it from start to finish. This strategy provides the developer/investor with the best and widest possible financing and equity alternatives. Mortgage bankers traditionally have established and maintained relationships with sources of capital that are broader and more diversified than ever. It is part of the job of those capital sources to establish, develop and maintain those relationships continually. With the realization that business is much more global today than in the past, mortgage bankers must look beyond local sources for capital.

Let me give you an example. A client approached its mortgage banker with a request from a tenant to sell to the client four buildings in three different states. The tenant had decided at the last minute to exercise an option to acquire the properties from the current owners and wanted to “flip” them to the client and enter into new leases for the buildings.

The tenant needed to know within 48 hours what the lease rates would be. The mortgage banker’s assignment was to determine what rents the client could achieve from the tenant, based upon the financing available to them. On the basis of advice from the mortgage banker, which was based on the relationship the mortgage banker had with a source of capital, the client entered into commitments to purchase the buildings and enter into long-term leases.

The system worked, even though no one had seen the properties, there were no existing leases, and the terms of future leases still were being defined, because both parties could rely on \ the relationship with the ultimate source of capital. The mortgage banker provided the numbers for rental rates and interest rates, along with other structured terms of the financing, within the required 48 hours.

These properties, totaling more than 550,000 square feet and cos ing $25,000,000, were purchased, with the leases signed and the loans closed on time. The investors in this case had neither time, nor desire, to go to several people to find out what was available. They relied on their relationship with their finance professional and its ability to deliver.

In the new world of real estate capital, the trend is for investors and developers to establish these kinds of relationships, as partners on the development/acquisition team, with the most sophisticated real estate finance professionals, ones in whom they have the most confidence and trust.

Thomas J. Turner, III is the Chairman of Collateral Mortgage Capital, LLC. He can be reached at 913-748-444, or by email at tturner@collateral.com.