Small Commercial Expert: October 2012

Equity, Bridge, Mezzanine or JV - The Benefits of Structured Finance

Equity, Bridge, Mezzanine or JV (Joint Ventures), what are The Benefits of Structured Finance versus trying to focus on acquiring commercial real estate assets through more traditional funding sources like banks, commercial mortgage lenders, CMBS lenders and insurance conduit lending sources?

The bottom line is the benefits of using equity, bridge, mezzanine or JV (joint venture) funds instead of traditional long-term senior debt are huge.  For starters, conventional or more traditional paths to funding commercial real estate acquisitions have dried up.  The deals that do get funded are the top of the line deals with the A+ players.  That's why it is important to consider the benefits of structured finance through non-traditional lending channels.

For those commecial real estate investors involved in the acquisition of distressed commercial real estate assets, especially those in the Class B category in weaker secondary markets, there really aren't many traditional conventional commercial lending options.  That's where more creative solutions come to the rescue.

Equity, bridge, mezzanine or JV (joint venture) funding arranged in a structured finance that blends the use of these funding sources can benefit commercial real estate investors in many ways.  Here are just a few.

  1. Equity, Bridge, Mezzanine or JV (joint venture) capital can come to the table quickly.  Closings on deals as small a couple of million dollars or as large as $45 million can often close in as little as 30 days ... sometimes as fast ats a few weeks.
  2. Proof of Funds!  Many equity, bridge, mezzanine and joint venture capital providers will issue 'proof of funds their commercial real estate investor clients so the client can make very low, aggressive offers to purchase distressed commercial real estate assets and non-performing notes.  Having proof of funds allows the CRE investor to make aggressive offers and shows sellers that they are serious and capable of closing!
  3. The benefits of structured finance where a combination of Bridge and Equity, Equity and Mezz and other joint venture structures are used means that the investor will be able to move fast and in some cases can even negotiate transactions so low that the additional cost associated with these non-traditional forms of financing are mitigated by the savings in the purchase price as compared to offers that would have been made when forced to use traditional loans or in deals where seller participation is required.

An example is a customer that recently came to us for financing.  He was purchasing a portfolio of assets for approximately $60 million.  His financing was from a traditional lending source, his LTV requirement was 70% and his out of pocked expense was 25% with the seller participating by holding a 5% second.  The closing was 90 days but looked like it would have to be extended to 120 days.

Enter our Equity and Bridge structured finance offer.  Because we were able to give the commercial real estate investor the ability to offer to close in 30 days and we were able to issue proof of funds the buyer was able to negotiate a lower price.  The purchaser only brought 5% to the table as a down payment and negotiated a $52 million dollar purchase price.  Even considering the higher cost of the non-traditional structured finance the buyer makes more money in the end.  The $8 million dollars in price savings more than covers the $6 million cost of the investment made by the Equity and Bridge funder under the structured finance arrangement.

Additionally, the commercial real estate investor brought less to the table.  At stabilization the property has a projected value of $90 million.  In the structured finance scenario the investor brought about $3 million to the table and will grow that to $38 million in less than 3 years.  Regardless of the cost of the structured finance, giving the commercial real estate investor the ability to make an 11x multiple simply by leveraging the speed and availability of this creative financing structure is not available anywhere in the lending or investment market today.

For more details on how structured finance helps commercial real estate investor grow their business in this tough economic and tight lending environment visit Dividend America | Commercial Lending and fill out the Online Easy App for quick answers.

Also get more information about structured finance by visiting these blogs:

Equity and Joint Ventures - Understanding the Cost - Part 1

Equity and Joint Ventures - Understanding the Cost - Part 2

 

 

 

Comment balloon 0 commentsMichael Gross • October 10 2012 02:40PM
Equity, Bridge, Mezzanine or JV - The Benefits of Structured Finance
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Equity, Bridge, Mezzanine or JV (Joint Ventures), what are The Benefits of Structured Finance versus trying to focus on acquiring commercial real estate assets through more traditional funding sources like banks, commercial mortgage lenders, CMBS… more