An experienced mortgage banker can help a company secure optimal financing for commercial real estate projects. Through his or her extensive lender relationships and ability to put together intricate financing solutions, a mortgage banker can provide access to debt and equity financing that might be unavailable through other avenues.
“Whether a client is looking to raise equity or place debt, a quality mortgage banker should be able to provide an effective combination of a consultative market perspective with innovative financing strategies,” says Brian Finley, vice president of CBRE | Melody, the mortgage banking arm of CB Richard Ellis.
Smart Business spoke with Finley about mortgage bankers, the services they provide and how recent events in the capital markets have affected debt and equity financing.
How can borrowers benefit from using a mortgage banker?
While it is well known that commercial real estate owners can access remarkably cheap debt and equity through the capital markets, it is becoming increasingly difficult for these investors to navigate them. There are a myriad of investors that include insurance companies, government agencies, pension funds, banks and conduit lenders; each investor having a unique investment criteria and a variety of loan programs. By leveraging their extensive lender/investor relationships and market insights, mortgage bankers can provide their clients with a sense of clarity to the capital markets process.
Why should a company use a mortgage banker instead of a traditional lender?
For two reasons, really. First, traditional lenders, such as local and national banks, typically offer loan terms that differ significantly from capital market lenders. For example, banks generally offer short-term money [five years or less] on full recourse terms compared to conduit lenders that offer long-term money on a nonrecourse basis. Moreover, due to their access to cheaper capital, these lenders can provide a lower cost of debt to borrowers than can commercial banks.
Second, while some capital market lenders will lend directly to borrowers, direct negotiations between lenders and borrowers tend to favor the lenders due to their size and experience relative to the borrower. Borrowers can level the playing field by engaging the services of a mortgage banker who has a fiduciary responsibility to their clients and possesses considerably more experience in negotiating loan terms than individual borrowers.
What types of services does a quality mortgage banker provide?
Mortgage bankers assist real estate owners with the capitalization of their real estate asset through various forms of financing: permanent financing, bridge loans, mezza-nine debt, structured equity, joint venture equity and construction financing.
A mortgage banker is more than a broker linking two parties, rather, they serve as an adviser acting in their clients best interest throughout the capital procurement process. This includes advising clients on an optimal financing strategy, marketing the financing request, identifying the best debt/equity investor, application, document negotiation and transaction closing.
What type of debt and equity financing is most suitable for a company’s needs?
The process starts with a thorough situational analysis of the company's capital requirements taking into consideration total project costs, existing capital resources, desired return on investment and duration of holding period, among other things. CBRE | Melody provides this analysis free of charge. Based on this analysis, we customize innovative strategies and focused implementation to provide clients with their optimal capital solution.
How have recent events in the capital markets affected debt and equity financing?
While the capital markets remain primed with a surplus of cheap debt and equity, a series of events over the past four months have created some turbulence and volatility in the marketplace. First came the bursting of the residential sub-prime mortgage bubble in February. Although the residential and commercial mortgage securitization markets are fundamentally separate, many investors link the two. As a result, investors have increased their return expectations.
Second, in April, Moody’s Investor Services, the definitive credit rating agency for securitized loans, issued a report warning investors of loose underwriting standards and historically high uses of leverage. Shortly afterwards, collaterallized mortgage backed securities (CMBS) investors reacted adversely by excluding a handful of loans from the collateral pool of a $4.2 billion CMBS issuance.
Although these events are generally heralded by most market participants as a return of prudence and discipline, the short-term affect is one of uncertainty and volatility. While still relaxed and cheap relative to historical measures, underwriting standards are tightening and credit spreads are on the rise.
BRIAN FINLEY is vice president of CBRE | Melody. Reach him at (513) 369-1307 or firstname.lastname@example.org.