Remington Capital – Tyler D. Kellet

A few weeks ago I discussed senior debt financing opportunities available from Remington.  I’m pleased to announce that Remington has posted a new website with more detailed information on senior debt financing: www.remingtonfinancialseniordebt.com

Debt financing involves raising money in exchange for promised principal and interest payments. There are multiple types of debt financing available to commercial real estate and business owners from a variety of lenders, including banks, pension funds, insurance companies, and other financial institutions.

At Remington we work with both sides of a commercial transaction to creatively mix and match these options with the interests of all the parties in ways that will secure the best possible rates and terms consistent with client needs and market conditions.

Our team has unmatched market knowledge, broad expertise, technical resources, and lender relationships required to successfully navigate through the often-complex maze of competing interests in the capital finance industry.

If you’d like more information, please give me a call or drop me an e-mail.  Looking forward to discussing these new opportunities with you.

Thank you!  Tyler Kellett, Remington

The brokers that I’m working with are pleased to be participating in the Distressed Owner Recapitalization (DOR) Program, which helps them get financing for owners that they know who are upside down – or will be upside down – with their commercial real estate investment.

If you have not yet heard the DOR Program seminars, then here’s the information.  You can log on 24 hours a day to find out more. Please give me a call and let’s talk about how we can help you.

1) Distressed Owner Recapitalization Program intro video from Remington by Tyler Hufford of Remington https://remingtonfg.ilinc.com/register/zrwpcvp

2) Webinar on Recapitalizing Distressed Owners is now available online, by Donavon Ostrom of Remington https://remingtonfg.ilinc.com/register/jyyfsw

3) Webinar on Marketing to Distressed Owners for the DOR Program is now available online, by Shayne Fowler of Remington https://remingtonfg.ilinc.com/register/xhcwzpv

Thank you.

The purpose of this blog post is to describe the different types of equity capital that are available. Please contact me at Remington for more information in any of these areas.  Additional information can be obtained at www.remingtonfinancialequity.com and www.remingtonfg.com. Our team is ready to  help you.

Sponsor Equity: Sponsor equity is the cash investment by owners of a project. 

Preferred Equity:  Preferred equity is similar in structure to a mezzanine loan, however, many of the problems with mezzanine debt are avoided.  Inter-creditor agreements with senior lenders are not required and, because this investment is equity and not debt, prohibitions in the senior loan documents against secondary debt become irrelevant.

The returns and general investment time horizons required by preferred equity investors fall into the same range as that of mezzanine debt. These investments are generally structured such that after the payment of debt service the investor will receive a coupon return of between 8 percent to 10 percent.  After the investor receives its coupon rate, the remaining cash flow first pays the same coupon return on the sponsor’s equity and the remaining cash flow is then split between the parties based on a predetermined formula.

Unlike traditional equity which shares the upside of a transaction with no ceiling, preferred equity deals enable a sponsor to determine at inception what will be necessary to pay off his preferred equity partner in the future.

This structure is attractive to a sponsor who can contribute his own capital for 10 percent or more of a project cost and has an operating plan to increase NOI over a three- to five-year period.

Institutional Joint Venture Equity: Institutional investors have a strong appetite for joint ventures with experienced owner operators or developers.  Most importantly, investors seek a strong operator with it track record of success in a particular market.  They seek partners who can create value in a way that they can’t on their own. Creation of value can come in many ways, including the identification of off-market transactions that are purchased at attractive prices, rehabilitation of an asset in need of work, more effective management of a property or ground up development of an asset.

Yield expectations among these institutional investors vary based on a number of factors including the risk of a transaction, the desired hold period, the amount of leverage, and the amount of co-investment by the sponsor.  Generally, investors seek five-year internal rates of return between 15 percent and 18 percent on an unleveraged basis. On a leveraged basis, these returns generally range between 18 percent and 22 percent. In many instances, institutional equity partners seek to limit overall property leverage between 50 percent and 60 percent, thus lowering the internal rate of return to the sponsor.

Institutional joint venture equity transactions are generally structured so that the institutional investor contributes between 80 percent and 90 percent of the required equity, with the sponsor investing the remainder.

These joint ventures usually include buy/sell agreements that allow a sponsor to buy out their partner within a specified time period.  Investor’s generally have approval rights over major decisions including financings, sales and annual budgets.

The Capital Markets Group at Remington maintains solid relationships with a highly regarded global network of private and public sources of commercial financing across the capital stack, including the following types of Senior Debt.

Fixed Rate Loans: Fixed rate loans offer borrowers an unchanging rate of interest, with predictable payments for the life of the loan. Because of strong relationships with public and private sources of capital, many opportunities exist for the financing experts at Remington to negotiate with lenders on transaction terms for such loans, particularly interest rates, as well as maturity and prepayment penalties. All of which assures Remington clients of the best possible and lowest cost financing package available.  

Floating Rate Loans: Floating rate loans are typically tied to the London Interbank Offered Rate (LIBOR) – plus some point spread over the base rate.  Attractive to borrowers with a two to four year financing requirement, floating rate loans are adjusted periodically, have minimum or no prepayment penalties, and cost less than fix rate loans because of the risk of rising interest rates. This type of loan has been particularly popular of late because of the historically low interest rates experienced in recent years. Remington professionals are equally adept at assisting client in securing such short-term financing or employing it as an integral part of a longer-term overall financing strategy.

Construction Loans: Commercial construction loans typically are short-term loans used to finance the cost of building new warehouses, industrial buildings, retail centers, apartment complexes or other properties destined to be sold or rented to others or operated by the owners. These loans tend to be varied, depending on the project, construction time, and borrower’s experience. They are meant to be paid off when construction is completed and a certificate of occupancy issued. Borrowers usually require another mortgage to pay off the construction loan when it comes due. Thus the overall process may entail two loan applications with their associated fees and closings – a potentially complex and time-consuming process that the experienced financing professionals at Remington can coordinate, facilitate and expedite.   For more information on construction loans click here.

Bridge Loans:  The bridge loan is a form of financing that “bridges” the gap between funds needed now and when longer-term financing becomes available. It can be a key component in an owner’s long-term financing strategy, particularly for those faced with a here-and-now opportunity or other situation, such as improving or selling a property.

Real estate owners often use a bridge loan to purchase a second property before the sale of the first property closes, with the proceeds from the sale used to pay off the bridge loan. This illustrates the important “exit strategy” borrowers must have before an investor makes a bridge loan. In the foregoing example, the investor would need to see a signed sales agreement spelling out where, when, and how the bridge loan will be repaid.

Bridge financing almost always needs to be arranged and closed quickly. Such loans tend to be for 6 to 12 months with a possible 12-month extension.  They are usually structured as simple interest only loans with no pre-payment penalty and all principal due in full at maturity. Risk to the investor is minimal since the loans are underwritten based on existing equity in the property and the exit strategy is defined.

Because of the owner’s need for timeliness, banks and other institutional lenders are not usually effective when it comes to bridge loans. That’s why the Capital Markets Group at Remington provides access to investors capable of making on-the-spot decisions. Included among them are hedge funds, private equity groups, mortgage pools and other sources of private capital. For information on another type of short-term loan click here.

Hard Money Loans: There is another type of short-term loan that is similar to the bridge loan in some ways but substantially different in others. It is called the hard money loan.  Hard money loans and bridge loans are similar in that both types can be quick to close. Both may be needed for a short period of time. And both undergo limited or less severe underwriting processes. But, while the bridge loan investor requires a definite exit strategy, the hard money source may not. Moreover, bridge loans frequently have a loan to value ratio of 70-95%, whereas hard money loans will not exceed 50% LTV. Hard money loans also are generally more expensive. Unlike bridge loans, which focus on exit strategy, hard money investors emphasize collateral, making certain enough exists to collect the debt in the event of default. Because the two types of loans have similarities, borrowers frequently misjudge which is best for them. More than three-fourths of those who say they want a bridge loan qualify only for a hard money loan because, for example, the borrower has less-than-average credit, a modest financial statement, too little experience in commercial real estate, or no defined exit strategy. The financing experts at Remington can quickly sort out any such confusion and quickly align the client with the appropriate type of financing and related investor.

The Distressed Owner Recapitalization (DOR) Program by Remington also helps developers who face difficult financial decisions.  The Capital Markets and Structured Finance groups at Remington provides access to more active funding sources across the capital stack in order to recapitalize after property value losses of 40% or more since 2007.

When better access to active funding sources is combined with expert advisory services, the DOR Program will positively impact developer recapitalization. 

For experienced developers of partially completed projects that need capital to finish and operate the property, Remington has access to investors that purchase the note from the bank at a discount, allowing the developer to complete the project and operate the property.  The developer continues to make the original payments to the new investor and participates in the upside when property values increase.

In those instances where the bank won’t discount the note for partially completed projects, Remington has access to investors that recapitalize the project through completion, providing the equity, mezzanine financing, and/or senior debt to payoff the existing construction loan. The developer participates in the upside once the market improves.

If you’re a broker working with a developer facing difficult financing challenges, please give me a call and let’s see if this program may be for them.  Thank you – Tyler Kellett

For more information:

www.remingtonfg.com

Remington has forged a solid reputation since 1993 of obtaining financing for the most challenging commercial property transactions.  We operate in the US and around the world, and we have supported the success of our clients as far away as India.  Remington has secured capital and offered financial services to business, real estate and development/construction projects worldwide.

Remington’s services include origination, evaluation, structuring and preparation of financial packages, negotiation assistance, and placement coordination.  Internationally Remington handles transactions over $5 million, and projects have run into the tens of millions.

Remington employs a distinctive, highly disciplined transaction method that differs from most conventional processes. Each transaction is expertly customized to help clients gain maximum benefit from our unmatched access to commercial capital.

Our track record of successful transactions includes real estate, land development, hotels and resorts, and corporate transactions, all of which serve to demonstrate the effectiveness of the Remington approach – in the US and globally.

Remington has a presence in India. Please give me a call and let’s discuss how we can help you obtain financing there.

The purpose of the Remington fraud policy is to establish a realistic deterrent to inappropriate business behavior. Remington does this with controls and procedures designed to prevent, detect, investigate and report any questionable activity that may involve an intention to scam or commit fraud including identify theft fraud against Remington, its staff, consultants, customers, financing intermediaries, and capital sources.

In our industry-leading fraud policy pioneered by Chairman Andy Bogdanoff, we’ve defined fraud as “the intentional false representation or concealment of material facts for the purpose of inducing another person or entity to act in such a way as to cause, or to potentially cause, injury or damage.”

The Remington fraud policy states that fraud can and must be avoided. Anyone directly or indirectly engaged in inappropriate activity that harms anyone or any entity having dealings with Remington will be held accountable and be subject to prompt and appropriate disciplinary or legal action. At Remington, fraud is not an option. It simply will not be tolerated.

To avoid and detect fraud, Remington shall:

• Maintain a zero tolerance for fraud or other inappropriate activity
• Hold staff, consultants and partners to the highest ethical standards
• Train Remington associates to thoroughly understand our business process
• Document the business processes so as to detect unauthorized variations
• Promptly identify and report any fraudulent activities to the FBI or Federal, State or local governments as required by law
• Continually review and update our fraud policies
• Continually educate Remington stakeholders in our fraud commitment

Hard money loans and bridge loans are similar in that both can be quick to close. Both may be needed for a short period of time. In addition both undergo limited or less severe underwriting processes. However, while the bridge loan investor requires a definite exit strategy, the hard money source may not. Moreover, bridge loans frequently have a loan to value ratio of 70-95%, whereas hard money loans will not exceed 50% LTV.

Hard money loans also are generally more expensive. Unlike bridge loans, which focus on exit strategy, hard money investors emphasize collateral, making certain enough exists to collect the debt in the event of default.

Because these two types of loans have similarities, borrowers frequently misjudge which is best for them. More than three-fourths of those who say they want a bridge loan qualify only for a hard money loan because, for example, the borrower has less-than-average credit, a modest financial statement, too little experience in commercial real estate, or no defined exit strategy.

We can quickly sort out your situation and quickly align you with the appropriate type of financing and related investor.  I’ll be happy to discuss these options with you.  Thank you – Tyler Kellett – Remington