Remington Capital – Brad Sweet

On behalf of Remington clients I work closely with our Capital Markets Group. They are responsible for identifying, nurturing and expanding our unmatched global network of active working relationships with traditional lenders and investors, as well as public and private sources of available capital in the U.S. and abroad.

Our access to capital for commercial real estate projects distinguishes Remington from others in the financial services industry. Since 1993, Remington has provided hundreds of commercial real estate brokers and their clients with ready access to all types of capital, arranging billions of dollars of financing for even the most challenging debt, mezzanine and equity transactions.

Key to our clients’ success in obtaining capital is the use of a global network of capital sources that are ready, willing and able to deploy capital for viable commercial projects requiring minimum loan amounts of $500,000 in the U.S. and $5 million from sources abroad.

The Capital Markets Group also manages special projects including the Secured Capital Income Fund LP, a planned initial capital markets entry by Remington with a joint-venture equity fund specializing in bridge loan financing.

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

Whatever type of mezzanine financing that may be needed, the professional advisory team at Remington has the know-how and experience to successfully structure any type of transaction and provide access to the best commercial financing available via its global network of private and public sources of capital.

Several types of mezzanine financing are available, including:

Mezzanine Loans: The most common type of mezzanine financing is straight debt. It is also the easiest to understand. With straight debt, the mezzanine lender is in a subordinate position, usually up to 85% LTV, with no equity participation in the cash flow and no management participation. Depending on the amount of leverage, the type of project, and owner history, yields will typically fall within the 9-13% range, with terms similar to the senior debt.

Participating Loans: If higher leverage is the objective, and borrowers are willing to give up some cash flow or equity for it, a hybrid form of participating debt instrument may be the way to go. With such debt, borrowers can usually boost LTV up to 90%, while lenders generally receive a slightly lower coupon rate on the note but may receive an exit fee when the property sells. Given the increased risk assumed by the lender from the amount of leverage involved, a higher overall yield is required from the combination of the coupon rate and the equity obtained in the transaction.

Preferred Equity: With preferred equity, the borrower and lender usually enter into a partnership or joint venture agreement. This typically results in the investor gaining some project control, a greater equity position, more risk and a greater return than that provided by a participating loan, and the ability to take over the project in case of default. The borrower, on the other hand, gives up some control in exchange for not having to commit substantial capital to the project.

Please call me at the office and let’s discuss.  Thank you, Brad Sweet – Remington

In the challenging capital market of 2009, Remington is a strategic partner with an enviable record of success, especially for projects previously not funded from conventional sources.

Remington is ideally situated as an intermediary between the client in need of financing – especially those with problematic projects – and the hundreds of private and institutional sources of commercial capital with whom Remington has strong, active and productive relationships.

The experts at Remington also have in-depth knowledge, market expertise, and a commitment to client advocacy that translates into the kind of creative, value-enhancing insight needed to help evaluate, restructure, and customize previously difficult-to-fund transactions into new financing opportunities.

Remington also has our industry’s first fraud policy that protects our clients and partners from fraud, scam and other challenges that sometimes have plagued our industry. We are committed to eliminate fraud. Read more about the Remington fraud policy here:  http://www.remingtonfinancialgroupfraudpolicy.com/

Debt Financing

Since our founding in 1993, Remington has been advising clients on the use of leading-edge financing strategies to help secure short- and long-term debt. We have extensive expertise in distressed debt transactions, bridge loans, and permanent loans, as well as forward takeout and standby commitments. The special access of the team at Remington to domestic and international private and institutional capital sources is a source of unique differentiation in our industry.

Contact me today and we can discuss the options that are just right for you. Brad Alan Sweet, Remington