How to Choose a Capital Provider and Navigate Commercial Capital Markets

Financing a commercial existent estate transaction is no longer a simple matter. Now, there are many considerations that must be evaluated when selecting a capital provider.

In order to addition project
velocity, better operating efficiency, conserve internal capital,
increase leverage and lower the overall cost of capital, it is
indispensable that a patron develop an integrated capital formation
strategy surrounding acquisition, refinance and development initiatives.

Among the many things those commercial existent estate borrowers in
today’s marketplace need to turn to when seeking capital are:

- The choice of the appropriate capital provider;

- Level(s) of the capital construction to be addressed;

- Control provisions;

- Rate, term, pricing and structure;

- Shutting clip frame;

- Inter-creditor or other multi-party agreements;

- Post shutting service issues;

- Certainty of execution;

- Recourse provisions;

- Exit and pre-payment options;

- Operating considerations;

- One-Third political party requirements;

- The consequence of the capital acquired on tax, balance sheet, future
undertakings or portfolio considerations, and;

- A whole host of other value-added considerations.

The
first thing that borrowers must understand is that all capital
suppliers are not created equal. There is a definite hierarchy within
the human race of capital suppliers and apprehension the value-ads offered
by different capital suppliers is of import in choosing a relationship.

While many borrowers believe funding to simply be a
commoditized offering, the choice of a capital provider, should take
into account far more than than rate and term considerations. In choosing a
capital provider, the end of any borrower should be to develop a close
human relationship with the firm that tin supply not only the broadest
access to capital, but more than importantly a firm that offers
best-in-class topic matter expertise, certainty of executing and as
many value-added benefits and services as possible. Capital providers
can most easily be broken-down into three groups:

Direct Lenders – Those that impart their ain funds

- Private Lenders

- Commercial
existent estate investing banks

- International, national, regional and local banks

- Life Insurance Companies

- Credit Companies

- Pension Plans

- Real Number Estate Investing Trusts (REIT)

- Agencies (Fannie, Freddie, FHA)

- Mutual Funds, Hedge Funds, Opportunity Funds

Indirect Lenders – Those that topographic point finances on behalf of others

- Mortgage Bankers

- Mortgage Brokers

- Investing Advisors

- Financial Intermediaries

- Syndicators

Hybrid Lenders – Those that make both of the above

- Certain Banks

- Certain Investing Banks

- Certain Credit Companies

- Certain Financial Intermediaries

- Certain Investing Advisors

Once
a borrower have selected the appropriate capital provider, it is
indispensable that the capital supplier be engaged as early on, and at as
high a degree as possible. Experienced patrons recognize the benefit of
getting their capital supplier involved early on in the planning
process. Waiting too long to affect your lender will typically lead to
a undertaking built with less leverage and at a higher cost of funds. By
including your capital supplier in the beginning of the project
planning procedure you will end-up with a undertaking program that is built
around optimizing capital formation leading to greater project
profitability.

Effectively utilizing the full capital
structure, to maximise leverage while achieving the lowest blended cost
of finances and isolating risk, is indispensable to the creative activity of a solid
capital formation strategy. In general, the farther you travel up the
leverage curved shape utilizing more than leverage in the senior place the lower
the overall cost of finances will be. Conversely, the deeper you travel down
the capital stack utilizing mezzanine
or equity instruments the more
expensive the cost of capital.

Selecting the appropriate capital
supplier and piquant them properly will help in the streamlining of the
borrowing process. If borrowers will concentrate on capital formation as a
precedence at the early stages of undertaking planning the likeliness of
increasing net income in a hazard managed environment is high.