What role does financing play in a deal?
A significant consideration of a commercial real estate transaction is the financing. Considering that financing can comprise 50 to 80% of the required capital for an acquisition and it can significantly lower the cost of capital for a project (thereby increasing the investor’s returns), financing is truly a crucial part of putting a real estate deal together. We find that focusing on the financing as early in the acquisition process as possible is the best way to ensure a smooth process that maximizes the financing terms available to the investor. With Boston’s status as one of the top investment markets in the country, the competition for acquisitions is having the negative effect of shortening diligence and closing timelines for investors. As a result of the increased pressure to perform in increasingly shorter periods of time, it is important to work with someone who knows the market inside and out. Whether you’re looking to build the next multi-family development or invest in a value add commercial building, this market knowledge and experience facilitates finding the right lender. Our NAI Hunneman Capital Markets Group feels strongly that a hands-on approach to financing coupled with our longstanding relationships in the market make for a seamless financing process enabling our clients to focus on their diligence and closing the acquisition.
How does NAI Hunneman’s Capital Markets Group work with other Hunneman business units?
Oftentimes we draw upon our multiple disciplines across the firm to efficiently get deals done. Whether we bring together experts in investment sales, property management, leasing, or financing we are able to add value to our clients’ projects and take care of all of the details, whether we’re looking to finance $3 million or $100 million.
110 Shawmut Road in Canton is a great example of how relationships can make deals happen, from start to finish. EVP/Principal Cathy Minnerly had a relationship with the seller of 110 Shawmut Rd., Paradigm Properties, and brought in investment sales specialist David Ross, EVP/Principal, for his expertise. David and Cathy then got our capital markets financing team involved in the acquisition. Once involved the financing team sat down with the buyer, Grander Capital Partners. The financing team was able to quickly produce a detailed financing overview for the property and went to work with the lenders to explain the opportunity. As a result of everyone’s collective efforts, the acquisition closed on time with very attractive debt financing terms and a happy client. Once the acquisition closed, NAI Hunneman was also responsible for leasing and project management of the 70,350-square-foot building, which was purchased for $5.9 million. This spectrum of services really opens up an opportunity for our clients to take advantage of the relationships NAI Hunneman has built throughout Greater Boston. 110 Shawmut Road shows how NAI Hunneman can make the process seamless and efficient for our clients from identifying the acquisition target, arranging financing, to ultimately managing the property and identifying leasing prospects. It’s really a great example of how we create value for our clients.
What are the different ways you approach financing for construction projects compared to acquisition deals?
With construction development we want to be involved when the client is in the design process and underwriting. This way, we are learning about the project alongside the development team, enabling us to all work together. By getting involved early, we can understand the client’s financial goals for the project and get a head start in preparing the information needed to be distributed to the lenders. In addition, by getting involved early we ensure that the construction financing is ready to go when the developer receives his building permit.
We approach acquisitions in a similar fashion, although acquisitions are under significantly tighter time constraints imposed by a seller. Diligence in 30 to 45 days is not uncommon so we need to understand the complexities of the transaction and the economics right at the beginning of the engagement, if not sooner. Relationships make a huge difference in acquisitions as the client is relying on the lender to commit to the transaction before his deposit money goes hard. Being in the market every day means that we have built up relationships with lenders that trust our opinion of markets and we understand the information that they need and how to present it so that the lender can efficiently run their approval process. The value that we provide is by understanding the project as well as our client and presenting the information in a way that the lender can quickly grasp the opportunity, underwrite it and turn around an approval within a very quick window. In addition to understanding the process we add value by finding the right lender for the opportunity and some instances identifying sources our clients may not be aware of.
Why do you think financing is such an important aspect of the services offered by NAI Hunneman?
The type of market knowledge derived by an understanding of the financing market is invaluable to our clients and the other disciplines at NAI Hunneman. With real estate pricing tighter and tighter seemingly every day, understanding sources of capital is critical to maximizing returns. When financing becomes part of the process early on we are able to offer our expertise to the client to analyze returns and explain the different financing options available in the market. By working closely with our clients acquisition team we can often come up with alternative ways of looking at the financing or propose different structures to enhance the returns to our clients – whether that means going broad and wide to find suitable lenders or knowing the perfect lender to meet a short acquisitions time-line. In a fast-moving industry, the services and insight we provide gives our clients peace of mind and certainty of execution.
Andrew Kaeyer is an Executive Vice President with NAI Hunneman’s Capital Markets Group.