Remington Capital – Brad Sweet

In any construction or rehab project it’s important to have a good detailed pro forma. A pro forma can basically be thought of as a time-line for your project. It’s a scheduled use of funds and it also associates dates with them. The money borrower in a construction project works like a line of credit, interest is only paid upon money that is borrowed. So you don’t want to borrower more money than you need at any given time. This also let’s the lender know what to expect out of your project and when. If you are expecting to have 3 units complete every 6 months and after half a year the lender sees you have just finished your first, the project is obviously behind schedule and the lender may decide to stop funding. That’s why it’s important to use conservative figures when creating the pro forma and use experts if necessary.

In the first quarter of 2010, apartment vacancies across the US declined. Although only a small decline, experts predict that this trend will continue, and indicate the direction the market is headed. Read more on this here.

Commercial Mortgage defaults have hit their highest since 1992. It is believed that the current rate will soon surpass the all-time record of 4.55% by the end of 2010.

Read the rest of the story here.

Commercial real estate in the United States delivered its first positive quarterly return in 18 months during the first quarter. Many experts see this as a turn around in the commercial financing world. How ever, most sources of capital are still not lending money. Remington has the necessary expertise and lender relationships to get your project funded.

Thank you to all the brokers I’m working with for your interest and participation in the Distressed Owner Recapitalization (DOR) Program. I’m elated that we can help you find financing even in these market conditions!

The good transaction flow that Remington has been able to maintain is a result of creativity, hard work and our unmatched access to commercial capital. And we’re not stopping here. The Capital Markets Group at Remington continues to expand our access to active lending institutions – making the lives of our brokers and their clients better every day.

We have a backlog of funding that we’re busy with our brokers finding commercial property owners.

Three web seminars are available 24/7 that explain how you too can benefit from our access to funding at part of the DOR Program.  Here they are – feel free to contact me any time and let’s discuss how we can help you.

1) Distressed Owner Recapitalization Program intro video from Remington by Tyler Hufford 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/jyyfswv

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!  Brad Sweet – Remington

This week I was reading in MBA Newslink about the upswing in hotel deals. The good news is that it can’t get worse!

At Remington we have continued the transaction flow in the hotel segment, and we look forward to working with brokers to continue funding viable hotel investment opportunities.

Hotel deals reached their lowest point in 2009, and now experts forecast an increase of $3.5 billion in 2010 as owners are being forced to recapitalize assets and significant equity is entering the market. Seller financing and private money will hold the stage in 2010. Read more here.  http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=10503

At Remington www.remingtonfg.com we are focused on financing hospitality and other commercial real estate transactions, and we forecast a continued improvement in our ability to support brokers with hotel owners – both distressed and new.  Let’s talk about new opportunities built off financing funds that we need to deploy this quarter.

Thank you!  Brad Sweet – Remington

Several agencies of the federal government are committed to providing lending support for multifamily properties.  They include HUD, FNMA, and FHLMC. Our team at Remington makes use of the available funding and our unmatched access to active lenders to provide brokers and owners an opportunity to invest and re-invest in their properties.

• U.S. Department of Housing and Urban Development (HUD):  HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination.  HUD offers several programs targeting multifamily and healthcare facilities.  Within HUD, the Federal Housing Administration (FHA), provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories (Agency Lenders).  FHA insures mortgages for the acquisition, new construction, refinancing or substantial rehabilitation of multifamily housing, including senior and student housing as well as manufactured home communities.

• Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government-sponsored enterprise (GSE), but founded in 1938 during the Great Depression.  The corporation’s purpose is to purchase and securitize mortgages in order to ensure that funds are consistently available to the institutions that lend money to homebuyers.  

FNMA provides multifamily financing for affordable and market-rate rental housing, and operates nationally, in all multifamily markets and under all economic conditions.  Eighty-nine percent of the rental housing financed by FNMA lenders is affordable to families at or below the median income of their communities.  FNMA provides financing through a nationwide network of Delegated Underwriting and Servicing (DUS®) and other lenders (collectively, Agency Lenders).  They also increase the availability of affordable multifamily housing through investments in properties that qualify for federal housing tax credits.  Working with nonprofit and for-profit sponsors, FNMA makes funds available for affordable housing through investments in individual properties or groups of properties.   FNMA loans may be used for the acquisition, new construction, refinancing or moderate or substantial rehabilitation of multifamily housing, including senior and student housing as well as manufactured home communities.

• Federal Home Loan Mortgage Corporation (Freddie Mac):  In 1970, Congress created Freddie Mac with a few important goals in mind:
  • Make sure that financial institutions have mortgage money to lend
  • Make it easier for consumers to afford a decent house or apartment
  • Stabilize residential mortgage markets in times of financial crisis

To fulfill this mission, Freddie Mac conducts business in the U.S. secondary mortgage market and works with a national network of mortgage lending customers.   Freddie Mac provides a full range of competitively priced, reliable mortgage products for the acquisition, new construction, refinancing or moderate or substantial rehabilitation of multifamily housing, including senior and student housing as well as manufactured home communities.

FHA Programs

The U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA) Division provides the following multifamily loan programs:

FHA Section 207/221(d) Loans

FHA provides mortgage insurance for new construction or substantial rehabilitation of multifamily rental properties

• 5 or more units
• Up to 85% LTV
• Up to 35 years fully amortized
• Construction to permanent loans available up to 90% LTV (100% for non-profits) and up to 40 years

FHA Section 207/223(f) Loans

FHA provides mortgage insurance for the purchase or refinance of existing multifamily rental properties

• 5 or more units
• Up to 85% LTV for purchases
• Up to 80% LTV for refinances
• Up to 35 years fully amortized

FHA Section 207/234(d) Loans

FHA provides mortgage insurance for new construction or substantial rehabilitation of multifamily condominium properties

• 5 or more units
• Up to 85% LTV
• Up to 35 years fully amortized

FHA Section 207 Loans for Manufactured Home Parks

FHA provides mortgage insurance for the construction or substantial rehabilitation of manufactured home parks

• 5 or more units
• Up to 85% LTV for purchases
• Up to 80% LTV for refinances
• Up to 35 years fully amortized

FHA Section 232 Loans for Long-Term Care Facilities

FHA provides mortgage insurance for construction, acquisition, refinance, or substantial rehabilitation long-term care facilities.

• 20 or more residents
• Up to 90% LTV (95% for non-profits) for new construction or substantial rehabilitation
• Up to 85% LTV (90 % for non-profits) for purchases or refinances
• Up to 35 years fully amortized

FHA Section 232/223(f) Loans for Healthcare Facilities

FHA provides mortgage insurance for the acquisition, refinance, or moderate rehabilitation of existing healthcare facilities.

• Up to 85% LTV (90% for non-profits)
• Up to 35 years fully amortized

Freddie Mac Programs

The Federal Home Loan Mortgage Corporation, better known as Freddie Mac (FHLMC), offers the following lending programs for the acquisition, refinance or moderate rehabilitation of multifamily communities:

Standard Mortgage

FHLMC provides loan programs for the acquisition or refinance of multifamily rental properties

• 5, 7, 10, 15, 20, 25 and 30 year fully amortizing
• Up to 80% LTV for acquisitions (lower for the short term loans)
• Up to 75% LTV for refinances (lower for the short term loans)
• Minimum debt service coverage (DSC) ranges from 1.05 to 1.35 (higher for the short term loans)
• Cash out refinances are available at higher DSC

Construction Takeout

FHLMC provides loan programs for the construction takeout of multifamily rental properties

• 5, 7, 10, 15, 20, 25 and 30 year fully amortizing
• Up to the lower of 80% LTV or 90% LTC (lower for the short term loans)
• Minimum DSC ranges from 1.10 to 1.15 (higher for the short term loans)

Rehabilitation Mortgage

FHLMC provides loan programs for the moderate rehabilitation of multifamily rental properties

• 5, 7, 10, 15, 20, 25 and 30 year fully amortizing
• Up to 80% LTV (lower for the short term loans)
• Minimum DSC ranges from 1.25 to 1.30 (higher for the short term loans)

Student Housing Program

FHLMC provides loan programs for the acquisition or refinance of student housing rental properties

• 5, 7, and 10 year fully amortizing
• Up to 80% LTV for acquisitions (lower for the short term loans)
• Up to 75% LTV for refinances (lower for the short term loans)
• Minimum debt service coverage (DSC) ranges from 1.30 to 1.35 (higher for the short term loans)
• Cash out refinances are available at higher DSC

Senior Housing Program

FHLMC provides loan programs for the acquisition or refinance of senior housing rental properties

• 5, 7, 10, 15, 20, 25 and 30 year fully amortizing
• Up to 75% LTV for acquisitions (lower for the short term loans)
• Up to 70% LTV for refinances (lower for the short term loans)
• Minimum debt service coverage (DSC) ranges from 1.30 to 1.35 (higher for the short term loans)
• Cash out refinances are available at higher DSC

There’s a lot of information here to digest.  Give me a call and we can discuss any questions that you have if you feel that these programs may be able to help.  Thank you – Brad Sweet.

Here at Remington we recognize that the volatile and down economy has put many private companies into a tight spot.  They end up with too much bank debt as business volume and profits contract.  But lower earnings mean that company owners who would have been ready to sell their companies now can’t do it because they end up with too little equity after paying off their banks.

So a key question is, how can you reduce your bank debt and improve your cash flow while you wait for the outside economy and your earnings to recover?  One potential answer where Remington can help is with mezzanine debt.

Mezzanine debt gets its name from being halfway between senior bank debt and equity.  Because it’s kind of both, it can serve you well in certain situations.  Mezzanine is semi-permanent capital, like equity, so the company does not have to make monthly or quarterly payments of principal.  It usually has a 5 to 7 year term.

Senior lenders, like banks, look at mezzanine, or “mezz”, as equity because it is semi-permanent capital and because it is subordinated to the bank debt, which means that the bank gets paid first in the case of a problem.

For owners, mezz looks like debt,because it often does not dilute the ownership of the company like selling stock would do.

So a new investment of mezzanine debt can pay off some of the burdensome other bank debt with a more patient capital that doesn’t come with a reduction in ownership like selling equity brings.

Mezzanine lenders are very busy these days because their product is good for this market.  A well-structured mezz investment will reduce a company’s leverage, improve immediate cash flow, and preserve the equity of a business for a sale a couple years down the road.

So, what’s not to like?  It’s a little expensive.  Compared to a bank loan, mezz carries an interest rate in the range of 12% to 14% depending on the deal.  That’s more expensive than a bank, but the cash flow is often better because the principal does not need to be repaid until the end.  And those interest rates are less expensive than selling ownership shares in a company with depressed valuation.  Sometimes mezz deals include an “equity kicker” that give the lender options to buy stock at a fixed value so that there’s an extra return when you sell the company down the road.  That’s not a bad thing because it brings in an experienced investor who shares your goal of a good-paying exit event.

If your bank is making you nervous, or if you are making them nervous, or if you just want to strengthen your balance sheet as you wait for the market to recover, a mezzanine investment could be the answer.  Let me know if you have questions, and I’d enjoy speaking with you about whether a mezz is in your future.

“Increased uncertainty” is how the Federal Reserve describes the outlook for commercial real estate across the country in 2010.  “Formidable headwinds” are still blowing against the economy, Fed Chairman Ben Bernanke warned.

Triggering the Fed’s latest and bleakest CRE report to date are climbing vacancy rates, downward pressure on rents, little if any new development activity, and “increased uncertainty” about refinancing prospects for maturing commercial debt, “especially given the value of collateral has declined.” Adding greatly to the Fed’s low expectations for commercial real estate is the weak job market.

Continued high level of unemployment poses a major deterrent to any CRE turnaround. Despite some anticipated “modest” economic growth in 2010, the jobless rate nonetheless is expected to remain stubbornly high next year, ranging from between 9.3% to 9.7%, compared to the current 10%. The Fed warned that it could take 5 or 6 years for the job market to get back to normal.

All of which bodes poorly for the near-term outlook for commercial real estate, which desperately needs job growth to kick-start its recovery.  As if that weren’t distressful enough for owners and developers, about $1.2 trillion in existing commercial real estate debt will be maturing during the next four years – and much of it doesn’t have a prayer for refinancing. The banks, because of their own problems with managing deteriorating folios, just aren’t up to it. And even if the liquidity crisis weren’t a problem and owners could find financing, it’s estimated that two-thirds of those owners that took advantage of the easy-money days of 2005-2007 to nail down highly-leveraged debt would not be able to qualify for refinancing with today’s much more stringent terms.

What’s the answer for distressed owners who need to refinance but can’t?  Those thousands of owners who can’t find financing could sell or declare bankruptcy, of course, but that’s not much of an answer. The real answer is Recapitalization!

Recapitalization may cost commercial real estate owners equity, but it keeps them in the game until recovery occurs, and they can share in it.

As for brokers, recapitalization of troubled properties is a new business opportunity.  At Remington, we refer to that opportunity as the Remington DOR program – short for Distressed Owner Recapitalization.

The way the DOR Program works, quite simply, is that we partner with brokers and distressed borrowers, using the Remington global network of private sources of fresh, new capital for investment in troubled properties. That’s it. We do all the work. And you share in the benefit.

To find out more about the Remington DOR program and how it can work for you, please give me a call. To a happier new year!  Brad Sweet – Remington

It was refreshing to read some good news this week in Michael Murray’s article for Mortgage Bankers newsletter regarding the hospitality sector. We’re in for a little better year in 2010.  Among the forecasts:

1. Global hotel transaction volume will increase by 20 percent to 40 percent, or up to nearly $4 billion by next year, said Jones Lang LaSalle Hotels, London.
2. In its Hotel Investment Outlook 2010 report, JLL Hotels forecast the first increase in transaction activity since 2007, following a 64 percent decline predicted for this year.
3. “Asian conglomerates are poised to emerge as one of the primary global acquisition groups in 2010 as they seek prime assets in gateway markets, especially in the United States and United Kingdom, playing to currency fluctuations,” de Haast of JLL Hotels said. “Furthermore, sovereign wealth funds, primarily from the Middle East but also Asia, will aim to place capital in hotels as a hedge against inflation, and will therefore become more active buyers again.”
4. The focus for investors, de Haast said, will be three or more months of consecutive year-over-year room yield growth as a sign of stabilization to “underpin valuations and boost confidence” as hotel recovery varies based on world geography.
5. “Savvy buyers who are in a strong cash position and can be aggressive will be able to benefit from the buying opportunities that emerge,” de Haast said. “Overall, bids will continue to be conservative in 2010, but the early movers stand to capture the most value.”

Read more here: http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=9759#full

If you’d like to discuss how we can help arrange commercial financing in hospitality or other sectors, please contact me today. Thank you – Brad Sweet, Remington