All Forum Posts by: Conor Freeman

@Brandon Yuan

It sounds like you have a pretty good understanding of the Freddie and bank products. I would say the choice will depend on your pressure points, and that may be deal specific. Are you okay with recourse and lower leverage to have lower up-front costs and a flexible prepay. Are you looking for good cashflow with a 30 year am? Are you on the cusp of qualifying for Freddie and may have some headaches getting that box checked? All things to consider.

Its also a relationship play. Getting in with Freddie bodes well for that relationship and future deals, as it does with a local bank; but the bank can only lend in your footprint, may have a cap on an individual borrower etc. In my experience, borrowers move into agency financing after 3-4 deals with their bank(s) and as they start to do larger deals.

You understand the pro's and con's of both so I would get with a mortgage broker (or do it yourself since you already know the bank) and compare the quotes side by side. Run your proforma on both and then make a decision.

@Ryan Fortier Correct, not every investor has to be a key principal.

If I'm understanding correctly, you have a SPE (special purpose entity, typically an LLC) as the borrower that is 95% owned by your TIC and 5% owned your partner's TIC? Then your partner is not a KP. I guess I'm just confused why you'd each have a TIC of your own - who are your tenants in common? Not each other, correct?

Also, to your last point, there is no minimum that an investor has to put down on a deal. I generally separate Key Principals and non-key principal in to GP (general partners) and LP (limited partners). Hypothetically, you as a GP can put down say 10% of the equity required and raise the final 90% of the equity from call it 10 friends and family LPs. You as majority owner in the borrowing entity (SPE) would be the key principal, and the LPs, who brought in the majority of the down payment would not be key principals as long as their ownership in the borrowing entity is <20%. That would mean that you as the sole KP would sign the carve out guarantes and need to meet net worth and liquidity requirements. That's a long way of saying its not contingent on how much capital one brings in, rather how the borrowing entity is structured.

Just a comment on CMBS:

Unless you're going with a conduit who has a capped cost program, a CMBS deal can run up some pretty hefty due diligence costs - $30k-50k deposit due with a signed term sheet (majority is anticipated legal fees). There is one conduit I know of that caps their fees at $25k for deals under $15mm, and they're only able to scale this because they're a top 3 firm and use in-house counsel. I wouldn't recommend CMBS on a smaller deal or to a borrower who isn't familiar with the execution. Great product but not for everyone. Fannie/Freddie have MHC products that would be a better fit here.

The rule of thumb is that a key principal is >20% owner of the borrowing entity and must sign the non-recourse carveouts (AKA "bad boy carveouts") and meet the aggregate 1:1 networth requirement. This percentage is not cut and dry however, I have seen other groups say 25% - but it's definitely not 5%.

Here's Fannie's language:

https://www.fanniemae.com/content/legal_form/4071_...

@Danny Randazzo is correct. You can chose either.

@Jamane Y.

You're welcome! I should mention - Fannie Mae also has a dedicated Student Housing program that starts at $2mm and up in loan size, as opposed to the $5mm and up for Freddie.

https://www.fanniemae.com/content/fact_sheet/studenthousing.pdf

To @Todd Dexheimer 's point - CIII Capital and Wells Fargo's capital markets group are the only CMBS conduits who are playing in the sub $3mm space right now. They usually only work through correspondents for smaller deals because the executions can be complicated. The 3rd party fee's can also be very high for CMBS (mostly because of borrower counsel) - Well's has a capped program at $25k which is low compared the industry standard of a $30k-$50k deposit. Compare that to a local bank 3rd party deposit of $5k-$10k and you'll see why the conduits do very few deals under $5mm.

Sounds like your doing the work of a mortgage broker so you'll save on the fee... good call! If you're in the $1mm-$3mm space you should take @Matt Popilek up on his offer, CBRE is a great Freddie SBL lender. Arbor, Greystone, and ReadyCap are the other big players in that space. They'll likely have the most attractive terms (5,7,10 year terms / 30 year am / mid 4%'s / non-recourse / 80% LTV / 1.25 DSCR ).

@Hal Cranmer Lots of factors go into a deal like this. What the roll looks like, your cost basis, when you bought it, the occupancy history of the asset, the market etc. I would plug your scenario in to Scottsman Guide's website and call a few of those groups. You may hit a few walls because of the location. I have a few bridge lenders who are in the 6%-8% range for 6-36 months. That's probably what you'll need to retire the current mortgage and get you to better occupancy and a permanent loan. 

@Erin Wicomb That looks like an ambitious project, I would love to see it come to fruition.

Do you think Protea will have more success in getting this across the finish line than Papa Doug Manchester's Broadway project? It's taken him 11 years of litigation to get the approval and now Berkadia can't find the financing (SD Reader Article). 

I do like that they are adding more office space, downtown needs it. The majority of 25-40 year olds who live downtown drive north for work (myself included). There's been a lot of co-working space coming online but we need to land a few large biotech type tenants down there so it becomes more of a "live, work, play" environment downtown. All the talent is working in UTC/Sorrento Valley.