Specialty Lenders: Where to Look

For summer 2012, financing has returned for many real estate investors. And borrowers are able to secure it at record low interest rates, especially if the asset is a residential rental property. Pricing for a five-year, fixed-rate loan is as low as 3 percent, with a 25- to 40-year amortization, and in certain instances interest only for the first two to 10 years of the mortgage.

Financing for certain asset classes, including construction financing, has also become much more readily available to well-capitalized, experienced borrowers, who are having an easier time securing record loan rates for mixed-use retail, residential, office, urban retail and industrial assets. Yet financing for unique assets, which may include hospitality, golf courses, health clubs, restaurants, bars, student housing and vacant land is available from to only a small group of borrowers. When it is available under these circumstances, the terms and conditions require higher interest rates, shorter amortization and—in nearly all instances—the borrower must personally guarantee the loan.

mark zurlini for in depth look Specialty Lenders: Where to Look

Mark Zurlini, Palisades Financial.

Construction financing for residential rentals and condominium developments has become more readily available to established, well-capitalized developers. Nevertheless, a number of lenders are offering construction financing to lesser experienced and lesser capitalized borrowers at higher rates and conditions.

“We are still actively seeking construction and renovation deals in the $1 million to $6 million range in the boroughs, with a focus on condos and apartment buildings,” said Shannon Eidman, a senior vice president in the East Coast regional lending office of Chicago-based Builders Bank. “We will also look at townhouse reposition/construction and fractured condo financing.”

“Builders Bank is committed to providing quality service to meet the construction, interim and permanent financing needs of the developer-investor whose business plan may include small to mid-sized assets, frequently disregarded by the larger banks,” he added. “We are offering loans of up to 70 percent of cost—underwriting a condo to a break even or rental or requiring full 100 percent recourse on the construction. The borrowers or sponsors of the deal need to have a few deals under their belt and good financials.”

While construction financing by major money center lenders is now being offered at rates as low as 200 to 250 basis points over Libor, Builders Bank is pricing its construction financing at prime plus 100 basis points, with a floor set in the 5 percent range with rates ranging from 5 percent to 5.5 percent. The borrower will also be responsible for an origination fee of one point for up to 24 months, as well as an additional fee of 25 basis points for each three-month increment of extension option.

A number of private equity funds and private lenders are serving as a major source of financing for interim and bridge financing.

“Over the past decade, we have provided specialized financing for unique asset classes,” said Mark Zurlini, principal at direct lender Palisades Financial. “In the state of New Jersey Palisades has provided financing for golf courses, substantially completed condominium and rental properties and, in certain instances, land for development. Financing is made available if the borrower meets certain criteria, including reputation and the proven ability to complete the project. While our rates are more expensive than traditional banks’, we offer quick turn-around, guidance to borrowers and, in most instances, the ability to coordinate an exit strategy for the borrower. Most important in all of our transactions is that the borrower has capital, or the proverbial skin in the game.”

If you pass a pub, bar or restaurant near Penn Station or on Second Avenue in Manhattan, there is an excellent chance the mortgage financing for the property was be secured through a banking relationship with Country Bank.

New York-based Country Bank, with assets of $500 million, has been an active player in commercial real estate lending for twenty years. The bank specializes in originating loans from $1 million to $6 million with a further specialty in owner-occupied and investor real estate. Financing is available for mixed-use, hotel, owner-occupied commercial, pub/restaurant, self storage, garage, warehouse and brownstone/townhouses.

“Recent transactions that we have provided financing for include acquisitions, cash-out refinancing, partner buyouts, leasehold mortgages, leasehold fee purchases and bridge loans,” said Joseph Murphy Jr., president of Country Bank. “The bank recently provided $3.2 million in financing for an investor-owned, single-tenant restaurant property on the West Side’s Restaurant Row. The loan was fixed-rate for five years, requiring the borrower to provide full recourse. In the Park Slope section of Brooklyn, the bank provided a $1.5 million fixed-rate loan with full recourse for an owner-occupied building.”

Mr. Murphy said that other recent deals have included financing for the acquisition of a foreclosure short sale of a non-flagged, 100-key, limited-service hotel in Queens. That hotel was over-leveraged with a CMBS loan, had lost its flag and was being operated by the special servicer, he said.

Progressive Credit Union, also based in Manhattan, has provides specialized financing for unique real estate assets. Many of the tristate area’s diners, garages, and auto body and repair shops have secured permanent financing from this $600 million credit union. Over the past three years it has been responsible for the acquisition and construction financing of resort properties in Fire Island and a lifestyle hotel and cabaret on the West Side.

Robert Familant, its treasurer & CEO, said it has “a niche in providing financing for unique assets that require going the extra mile in the underwriting process.” Risk, he said, determines many factors as well.

“We have provided financing for distressed debt, construction and investor-owned luxury condominiums for rental and are open to any transactions that provide suitable collateral and adequate debt coverage,” Mr. Familant added.

If you visit a local lender and request financing for a stand-alone restaurant or a franchise operation typically the response is “no.” A national lender that provides specialized franchise-restaurant financing is United Capital Business Lending, a BankUnited Company. It offers loans of up to $10 million for a period of up to ten years, and 100 percent financing.

The Small Business Administration continues to be a source of financing for commercial real estate. A number of borrowers who are unable to secure bank financing have turned to local institutions that include CIT Bank-Small Business Lending, ValueXPress, the New York Business Development Corp. and other local financial institutions that originate SBA 504 and 7A mortgage financing. “SBA mortgage loans cater to owner occupied property with higher loan-to-value than available in the private sector,” Mr. Murphy pointed out.

The SBA 504 Loan Program provides small businesses with long-term, fixed-rate financing. The 504 loans are made available through Certified Development Companies, the SBA’s community-based partners for providing the 504 loans.

The 504 Loans are typically structured with the SBA providing 40 percent of the total project cost, a participating lender covering up to 50 percent and the borrower contributing 10 percent. Under certain circumstances, a borrower may be required to contribute up to 20 percent of the total project costs.

Last year, ValueXpress obtained a $4.5 million mortgage loan commitment with its New York banking partner, Country Bank, from the SBA for a Quality Inn located in Brooklyn. The property securing the loan is a four-story, 81-room, limited-service hotel. The borrower was able to purchase the fee and recapture equity in the property.

New York City is the Mecca of colleges and universities. Nevertheless the city lacks dormitories and student housing facilities. For example, until two years ago Brooklyn College lacked its first dormitory. In the fall of 2009 a local developer of residential properties acquired land located less than two blocks from the entrance to the campus, and filed and secured permits. However, no commercial lenders were offering financing for the developer’s planned dorms. Subsequently, construction and mini-permanent financing was provided by private equity fund Madison Realty Capital. The borrower obtained $12 million in construction financing for a term of two years. Upon completing and renting the rooms, the developer secured permanent financing from New York State’s largest credit union, Bethpage Federal Credit Union.

With the commercial real estate market in New York City and the region improving, expect more lenders to welcome the opportunity to finance these previously difficult-to-finance, specialty assets.

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