The LIBOR Transition

September, 24, 2019 – by Kyle Kaminski

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate that historically represented an average estimate of interest rates that the major global banks lent to one another on a short-term basis. Although originated in 1969 and currently one of the most frequently used interest rate benchmarks in lending, formal data collection did not occur until the mid 1980’s. It is estimated that approximately $250 trillion in LIBOR-benchmarked product is outstanding.

In 2012, financial regulators (currently the Financial Conduct Authority (FCA)) began requiring that reporting for LIBOR be based on actual transactions rather than estimates. Because of the new reporting requirement, several banks removed themselves from the process, resulting in declining participation. Additionally, the reporting requirement came at a time when unsecured borrowing was declining as banks began favoring overnight secured borrowing instead. With the decline in participation and in the reliability of the data being provided, experts began to question the validity of LIBOR as a benchmark. In fact, because of a growing sense of unreliability from market participants, the FCA decided that starting at the end of 2021 they would no longer require participating banks to continue to report nor would they publish the rate publicly, thus effectively ending LIBOR as a viable reference rate beyond 2021.

Following this announcement, consensus among lenders was that the lack of published rate could be problematic. Market participants are now contingency planning should LIBOR cease to exist. Appropriate plans should include the following: (i) a full review of loan portfolio to determine potential risk exposure (loans that mature after 2021), (ii) review of loan documentation, particularly interest-rate fall back language to determine potential risk exposure (unclear or inconsistent language, silent on fallback, etc.), (iii) after review, modify or sell loans that may have deficient fall back language, (iv) implement/review protocols to ensure they will be followed correctly, including the proper servicing of loans should fallback language be required to go into effect, (v) review preparedness of servicing systems to correctly capture modifications to affected loans in the event of a transition and (vi) consider originating new product using an alternative risk free rate.

When modifying existing loans or originate new ones, lenders should transition to alternative risk-free rates such as the Secured Overnight Financing Rate (SOFR), which is currently backed by the Alternative Reference Rate Committee (ARRC). SOFR, which was established in April 2018 and currently monitored by the Federal Reserve Bank of New York, is one of the most popular alternative rates. The biggest difference between SOFR and LIBOR is that SOFR is entirely based on actual secured transactions that have occurred. Because of this, it has predominantly been a slightly lower rate than LIBOR over their corresponding lifetimes as displayed in the table below:

While it’s impossible to predict where LIBOR rates will be relative to any alternative rates when a potential hard stoppage of the publication of LIBOR occurs, at various times LIBOR and SOFR have been the same, or SOFR has been higher than LIBOR. This uncertainty may make modifications with borrowers a challenging proposition. Therefore, as stated above, lenders should assess the viability of selling off loans with deficient fall back language (or loans to borrowers that may be unresponsive) to mitigate portfolio risk in advance of a transition. Strong secondary market pricing from financial institutions that are equipped to navigate deficient rate language may result in a less costly outcome than internal resolution.

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Buch the Trend — A Commercial Real Estate Blog

EB-5: A Thing of the Past and a Warning for the Future

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

So far, this blog has covered Historic Tax Credits and PACE Financing. The next topic covered is yet another alternative financing option in the form of EB-5 Capital.

EB-5 has been deployed extensively over the past decade as foreign capital lined up to procure US visas for a cool $500,000. The program was meant to spur development and the associated job creation in the U.S. for a variety of projects, but instead has led to aggravation for many developers and the EB-5 investors themselves. It is now very challenging to raise a substantial amount of EB-5 capital due to the complex challenges it has caused on both sides of the transaction.

For developers, EB-5 capital looked to be a cheap alternative to traditional mezz capital, similar to the PACE financing mentioned in the previous article. Interest rates, however, are only one part of the picture to consider when obtaining financing. Very often, our clients are focused on rate and points because economics are easily comparable between two different offers. However, funding structure, prepayment flexibility, security interests, covenants, stipulations and other terms are really what differentiate financing offers.

For example, if I lend you $20 million dollars at 6% with a 12% lookback IRR and someone else lends you $15 million dollar today at 8% and $5 million more in a year at 10%, which deal is better? The first transaction gives you more funds up front at a seemingly cheap rate but with a massive exit penalty. The second deal gives you less proceeds day one but blends to a cheaper rate despite the seemingly higher interest rate. A expert mortgage broker will model these scenarios solving for the lender IRR and advise the borrower know which deal is effectively cheaper.

Now let’s add a third alternative: I now say I can give you $20 million at 5%, but you cannot repay me at all for five years. This appears to be the cheapest of the structures mentioned and this was exactly the bait that many developers took in accepting EB-5 proceeds. This lockout however creates intractable problems:

What if, in year 3, of the term you want to or, worse, need to recapitalize the transaction to buy out a partner or provide more funding because you are overbudget?
What if you receive an unsolicited sale offer that you’d be a fool to refuse?

At that point, that 1% lower rate isn’t saving you anything, but instead costing you more than you could ever imagine. In the case where you couldn’t recapitalize the transaction, you may have lost all of your equity. In the sale scenario, you lost out on ideal timing to sell the property and make a massive profit. The 1% didn’t move the needle on returns but the structure that goes with the transaction can be a deal killer.

In addition to the 5 year lockout, EB-5 money has a variety of other problematic terms. It is an immovable piece of the capital stack. You cannot add a dollar of financing proceeds in senior to it or add additional capital that would prime it in any scenario. Because it typically comes in the form of subordinate debt (either mezzanine, preferred equity or the dreaded second mortgage), there is usually a senior loan in front of it that needs to be refinanced with the EB-5 still outstanding. This refinancing requires approval from the EB-5 provider in their sole and absolute discretion. These structural issues have made recapitalizing EB-5 deals nearly impossible, depressing deal returns due to its inflexibility. Forgoing the savings that refinancing a completed or stabilized property with cheaper capital can bring is yet another losing proposition.

For investors, EB-5 is possibly even worse. Promised a visa in a fast time frame, many EB-5 investors are still waiting. A Chinese national applying today for a U.S. immigrant investor visa may not be able to obtain one one until at least 2035. While the wait time is reduced for other countries like South Korea or Brazil, most of the EB-5 investment came from China resulting in a two-way catastrophe.

The challenges of EB-5 capital as a viable source of funding should serve as a huge warning to developers of the future in utilizing new alternative forms of financing. The economics of the capital deployed are not always worth the impact of its other terms. Cheap capital that cannot be easily refinanced, has non-traditional security, an abundance of rights and remedies, or otherwise prevents developer optionality and flexibility should be highly scrutinized and viewed with skepticism and caution.

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Legacy Small Balance Commercial Real Estate Loan Portfolios

David Tobin, Principal, chats about legacy small balance commercial real estate loan portfolios in this new video.

Legacy portfolios, which is to say portfolios of loans originated pre-financial crisis, are trading at extraordinary prices relative to intrinsic value. The reason for this is higher than market coupons, long payment history and solid economic fundamentals combined with intense market liquidity from bank and non-bank sources. The opportunity to exit these portfolios in as little as 45 to 60 days exists in the marketplace. And it’s a good sound judgment call to exit portfolios of loans which are above market but which have not prepaid in this highly liquid market post-financial crisis. We expect that these portfolios will exhibit elevated levels of default as well as elevated losses compared to their post-financial crisis-originated counterparts. Banks would do well to liquidate small-balance commercial real estate loan portfolios at peak market pricing today and redeploy those proceeds into other alternative lending opportunities.

ABOUT WILLIAM DAVID TOBIN | PRINCIPAL
[Bio]

Under Mr. Tobin’s guidance and supervision, Mission has been awarded and continues to execute prime contractor FDIC contracts for Whole Loan Internet Marketing & Support (loan sales), Structured Sales (loan sales) and Financial Advisory Valuation Services (failing bank and loss share loan portfolio valuation), Federal Reserve Bank of New York (loan sales), Freddie Mac (programmatic bulk loan sales for FHFA mandated deleveraging), multiple ongoing Federal Home Loan Bank valuation contracts and advisory assignments with the National Credit Union Administration.

BACKGROUND

From 1992 to 1994, Mr. Tobin worked as an asset manager in the Asset Resolution Department of Dime Bancorp (under OTS supervision) where he played an integral role in the liquidation of the $1.2 billion non-performing single-family loan and REO portfolio. The Dime disposition program included a multi-year asset-by-asset sellout culminating in a $300 million bulk offering to many of the major portfolio investors in the whole loan investment arena. From 1994 to 2002, Mr. Tobin was associated with a national brokerage firm, where he started and ran a loan sale advisory business, heading all business execution and development.

Mr. Tobin has a B.A. in English Literature from Syracuse University and attended the MBA program, concentrating in banking and finance, at NYU’s Stern School of Business. He has lectured on the topics of whole loan valuation and mortgage trading at New York University’s Real Estate School. Mr. Tobin is a member of the board of directors of H Bancorp (www.h-bancorp.com), a $1.5 billion multi-bank holding company that acquires and operates community banks throughout the United States. Mr. Tobin is a member of the Real Estate Advisory Board of the Whitman School of Management at Syracuse University and a board member of A&M Sports / Clean Hands for Haiti.

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Memory Care & Assisted Living Facilities In Loan Portfolio Sales with David Tobin | Principal [Video]

David Tobin, Principal, chats about loan portfolios secured by memory care and assisted living facilities.

In light of the recent termination of Silverado by the Welltower REIT of 20 properties that are standalone memory care facilities, it’s incumbent upon regional, super regional and large community banks to examine their memory care and assisted living loan portfolios and understand the risk embedded in those deals.

In particular, standalone, private-pay, assisted-living and memory care facilities in over-billed markets are particularly prone to default and credit stress. One of the factors contributing to this is the fact that Baby Boom has not caught up with the demand for memory care services as the height peak Baby Boom population is moving through its early to mid-sixties, and memory care demand does not occur until late seventies and early eighties.

Banks should take this opportunity and a highly liquid marketplace to shed assets, which have a higher propensity to default or which have already defaulted. The opportunity to exit portfolios of assisted living and memory care assets is in the marketplace today, and an opportunity may not exist tomorrow.

ABOUT WILLIAM DAVID TOBIN | PRINCIPAL
[Bio]

BACKGROUND

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CRA Loan Sales (Community Reinvestment Act)

New York (5/24/2019)

Written by the Loan Sales & Real Estate Sales Team

The Community Reinvestment Act (CRA) is a federal law that requires the Federal Reserve, FDIC and the Office of the Comptroller of the Currency (OCC) to encourage financial institutions to lend to low and moderate income (LMI) neighborhoods. The CRA was passed in 1977 as part of an effort to reverse urban blight and redlining of the time by requiring lenders to address the banking needs of all members within their respective footprints. The regulatory agency’s ratings are somewhat subjective, as there are no specific quotas banks must meet, but each bank ends up with one of four post-assessment ratings: Outstanding, Satisfactory, Needs to Improve or Substantial Noncompliance. The CRA applies to all FDIC insured institutions, such as national banks, state-chartered/community banks and thrift institutions. The ratings are made available to the public on the FDIC website.

An institution’s CRA rating is important because it is considered when regulators review applications for deposit facilities, branch openings and mergers & acquisitions. Due to the subjectivity of the CRA ratings and application review process, it is in the lender’s best interest to exceed regulatory standards beyond a doubt as failure to comply could diminish growth opportunities. Also, maintaining a strong CRA track record results in less frequent CRA evaluations in the future which will decrease compliance costs. While banks are encouraged to make CRA loans, they are not required to sacrifice lending standards as their loans should be “consistent with safe and sound banking operations”, per the FDIC.

Recently there have been calls to modernize the CRA from regulators, economists and politicians. As lending moves increasingly online from branch-based origination, many believe that the proximity rules in the CRA are out of date. Currently banks must lend in “assessment areas” or places surrounding where banks have branches or offices. Comptroller Joseph Otting of the OCC recently floated the idea of eliminating these “assessment areas” before backing off after several community groups expressed concern that the change would lead to decreased investments in LMI neighborhoods. Conversely, the current “assessment area” approach underserves rural distressed areas because there are not enough local banks to meet LMI needs.

The secondary market can match lenders that have excess CRA production with banks that are seeking this product. Demand arises due to lack of direct origination channels, inadequate production, bank acquisition (with or without overlapping footprint), and CRA rating remediation efforts. Mission Capital can source CRA loan production for banks with highly specific geographic and product needs from lenders with excess CRA loans. While typically sold on a servicing-released basis, CRA loans can may be acquired on a servicing-retained basis. In these trades, the seller benefits from retaining a servicing strip while the purchaser increases CRA exposure without having to board and service loans. This option is also useful for lenders looking to diversify their CRA product exposure across asset classes they typically do not focus on; small business loans for banks focused on consumer lending or single-family mortgage loans for banks primarily engaged in commercial banking.

While changes may be on the horizon for CRA, banks endeavoring to comply with existing regulations should consider loan acquisitions as means of supplementing existing origination channels on a wholesale basis.

Resources for Additional CRA Information:
https://www.fdic.gov/regulations/resources/director/presentations/cra.pdf
https://www.investopedia.com/terms/c/community_reinvestment_act.asp
https://www.americanbanker.com/opinion/dont-overhaul-cra-just-for-the-sake-of-it?feed=00000159-89d1-da1e-af7f-fdd7b5650000
https://www.federalreserve.gov/consumerscommunities/cra_about.htm
https://www.americanbanker.com/opinion/setting-the-record-straight-on-cra-reform
https://www.wsj.com/articles/fed-chairman-revisions-to-community-reinvestment-act-implementation-must-strengthen-laws-mission-11552347946
https://www.wsj.com/articles/shake-up-considered-on-how-banks-lend-to-the-poor-1524838519

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HELOC Portfolio Sales With David Tobin

David Tobin, Principal, discusses how underlying HELOC fundamentals continue to improve alongside a strengthening US labor market and continued housing price appreciation. Secondary market HELOC pricing/yields have benefitted from the recent rally in the fixed income and credit markets.

ABOUT WILLIAM DAVID TOBIN | PRINCIPAL
https://www.missioncap.com/team/?member=dtobin

BACKGROUND

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HELOC Secondary Market Commentary

New York (4/25/2019)

Co-authored by Steven Bivona, Vice President, Loan Sales & Real Estate Sales & David Tobin, Principal, Mission Capital

Underlying HELOC fundamentals continue to improve alongside a strengthening US labor market and continued housing price appreciation. Secondary market HELOC pricing/yields have benefitted from the recent rally in the fixed income and credit markets.

Roughly $340 billion HELOCs are currently outstanding on bank balance sheets (down from a peak of $611 billion in 2009). Recent legacy loan portfolio sales have generated substantial interest as asset class awareness has increased, demand for alternative fixed income products has grown and most importantly, as the majority of legacy HELOCs are now closed to advance. This creates a more traditional amortizing product which lends itself well to smaller bite size private label 144a securitizations and by extension…Wall Street.

Product Overview and Uses/Benefits

Legacy HELOCs carry floating interest rates with roughly 6% current coupons. The product typically features an initial draw period of 5 to 15 years where interest only payments are collected. This is then generally followed by a 10 to 20 year amortization period where principal is paid down or refinanced into a similar product.

From a borrower perspective, the revolving nature of the product makes it useful for cash management. The credit line can be used to cover future costs such as medical bills, home renovations, student tuition, or emergencies. HELOCs bear lower interest rates than other comparable revolving facilities such as credit cards. HELOCs and other 2nd liens usually see an uptick in origination volumes when interest rates rise, since it’s more economical for borrowers to take out a second mortgage instead of refinancing an existing low fixed rate. Generally speaking, HELOCs lost the benefit of interest deductibility with the recent tax law changes, subject to some grandfathering provisions.

Recent Transactions and Trends

In terms of the secondary market, the following asset classes have been actively trading the HELOC space. Contact Mission for pricing quotes:

Legacy Performing HELOCS – prices dependent on rate type (fixed vs. variable), coupon, remaining term and balloon features
Re-performing legacy HELOCs are trading slightly back of performing 2nds largely due to lower coupon
Legacy charge-off HELOCs
Non-performing partially secured charge off HELOCs – prices dependent on collateralization
Performing charge off HELOCs (under modified terms or settlement agreement terms) – prices dependent on terms
Unsecured charge off HELOCs with minimal or no cash flow

Trade ideas include the following:

Pair Second Lien Performing, Non-Performing with Charged-Off Assets to enhance gain on sale / cash proceeds from assets / offset NPL losses. The Pair Trade also allows Clean Up Calls for legacy securitization using High Water Mark charge off sale proceeds to retire bonds.
Reduce Fixed Rate Exposure by selling second mortgages that are closed to advance / fixed rate / terming out (less desirable due to lack of inherent interest rate hedge and with less chance of refi).
Sell Closed-End NPL HELOCs Paired With Re-Performing loans (RPLs) with attractive 6.00%+ coupons and at least 12-24 months of re-performance or post-modification payment history to achieve better overall execution for more problematic portfolio loans.
High Water Mark Pricing for all performance types of legacy seconds due to housing price appreciation, cash flow demand and structured investors (private 144a securitization market).

Given the positive developments in the macroeconomy and secondary markets, in conjunction with legacy HELOCs structurally reaching their amortization period, financial institutions have found it to be an opportune time to transaction in the HELOC space.

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Buch the Trend — A Commercial Real Estate Blog

The Place for PACE

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

(Steve ‘Buch’ Buchwald, New York, 3/25/2019) — In my previous article on Historic Tax Credits, we discussed one complicated financing structure commonly used by developers to capitalize their deals. In this article, we will discuss PACE Financing. I will do an article on several of these – a quick list includes Historic Tax Credits, PACE Financing, EB-5, and Ground Leases. Each of these specialty finance products adds layers of inflexibility to recoup equity, make refinancing decisions, account of cost overruns, and exit or refinance at attractive terms. My next article will be about EB-5, which was similarly popular a few years ago and now many developers regret the decision to take such an inflexible, difficult to deal with piece of capital just to save a few hundred basis points during construction on a small piece of the capital stack.

If you are in the commercial real estate development or financing business, I would be surprised if the term PACE Financing hasn’t crossed your desk by now. So…what is PACE? PACE stands for “Property Assessed Clean Energy”. Putting aside the minutiae of energy efficiency and what costs qualify, the key components to address are whether to employ PACE, where it lies in the capital stack, its security and repayment terms.

Before we explore what PACE really is, let me first address how it is pitched. PACE lenders have hired some amazing sales people and put out some extremely compelling materials about their programs. These materials paint a rosy picture – at the end of this article I will address how their materials could present a more balanced view – but borrowers are often drawn to low interest rate financing alternatives regardless of the potential costs and penalties down the road or across the rest of the capital stack. Like all new forms of financing, developers should be discerning and cautious. Low interest rate financing alternatives that look attractive on paper can have unintended consequences as the project progresses, particularly when it needs to be refinanced, recapitalized, or sold.

So how is PACE pitched? It is pitched as a long-term, low cost mezz alternative. Why pay 12% for mezzanine debt or preferred equity when you can get PACE for 7% fixed? However, looking behind the curtains, PACE cannot be compared to mezz in terms of security and its position within the capital stack. A PACE loan is a self-liquidating loan that is secured by a tax lien and is repaid through tax payments over a 20-year period. Like any tax lien, it is in first position, ahead of any senior lender, and it is literally on the state’s tax assessment roll. That is why some states allow PACE and some do not. But if PACE is the most senior piece of capital in the capital stack, why should it get a higher interest rate than the senior lender? Good question – it shouldn’t.

The Place PACE by Steven ‘Buch’ Buchwald, Managing Director – The Debt & Equity Finance Group

Putting PACE into your capital stack also has a potential cascade effect. If the senior is getting pushed up in effective LTV by the PACE loan, then it will either charge a higher spread on what should be a much larger piece of capital than the PACE piece would represent, effectively killing or more than killing whatever benefit it should provide over a traditional mezz loan, or it will reduce its leverage dollar for dollar at the same rate. Either way, that is not what is shown in PACE marketing materials where it looks as if the senior lender keeps its leverage the same at the same rate. Add on top of this a yield maintenance or hefty 5%+ prepay penalties that reduce in amount but go out a very long time, a reduced NOI due to the tax lien upon refinance, and other ancillary fees, one will generally find that PACE can be an expensive financing alternative, particularly as it pertains to recourse averse developers, developers with larger projects, and merchant builders or partnerships with fund LP capital that want to exit quickly.

To be clear, there is a place for PACE. If you are looking to develop a smaller scale property, desire to hold on to the property for a long time, are in a state that allows for PACE, and are employing local community or regional senior bank debt (typically partial to full recourse), then PACE may make sense. These lenders just care about their Loan to Cost and are underwriting to stabilized DSCR.

One of the perks of PACE is that the green energy aspect of it allows for a rationale to pass the tax lien on to tenants in commercial buildings through their lease or to guests at a hotel as an ancillary charge. While this does affect the end user’s effective rent or ADR, respectively, the underwriting can certainly pass muster for these local and regional bank lenders. Going back to the PACE marketing materials where the lender is pushed up in the capital stack and keeps their loan amount and rate the same – this is now a possibility – and the PACE works as intended (and marketed). It is no wonder then that almost every senior lender that has closed with PACE financing has this lender profile.

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“An Overview of Historic Tax Credit Transactions”

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

(Steve ‘Buch’ Buchwald, New York, 2/5/2019) — As it becomes more and more popular to gut renovate beautiful old buildings centrally located in various markets across the county, Historic Tax Credit transactions are becoming more common. Much to the chagrin of lenders, HTC deals have their own rules and, unfortunately, not all these transactions have identical structures. This further convolutes what is already a very complex and esoteric intricacy to commercial real estate transactions.

So, let’s back up. Historic Tax Credits can be either Federal Tax Credits, administered by the National Park Service (NPS), or State Tax Credits, administered by the state in question. These are based on qualified rehabilitation expenditures (QREs). While State Tax Credits can be relatively straight forward, the Federal Tax Credit rules often dictate complex org chart structures and create confusion among developers and lenders alike.

After a new set of IRS tax guidelines applicable to HTCs in 2014 were issued, the outright upfront sale of HTCs was prohibited and instead the tax credit investor had to become an investor in the transaction. The upfront payment was capped at 25% of the purchase price of the tax credits and the investor now had to have “skin in the game” throughout the construction period.

This resulted in two different structures:

The Single-Tier Structure – the structure whereby the tax investor is admitted as a partner of the property-owning entity and that entity is thus entitled to claim the HTCs.
The Master-Lease Structure – The property owner leases the property to an entity owned at least 99% by the tax investor. The master lessee in turn obtains a 10% stake in the property owner. While the property owner funds the QREs, it is permitted to pass the HTCs to the master lessee and thus to the tax investor through its interest in the master lessee.

If it sounds complicated, it is because it is. Even experienced lenders often balk at having to sign a subordination, non-disturbance and attornment agreement (SNDA) with the master-lease structure, claiming they will not subordinate to anyone. However, this is a must for HTC transactions since the SNDA prevents the collapse of the master lease structure upon foreclosure and, in turn, protects the tax credit investor’s rights to the HTCs. These tax credits can then be used by the investor over the five-year compliance period (20% per year) after obtaining Part 3 approval (the final NPS sign-off) post-construction. During this time, any take-out financing must also agree to sign a SNDA with the tax credit investor.

Another common point of confusion is how the HTCs can be used as a source of funding. There are generally three ways to capitalize a project with Federal HTCs:

A tax credit investor invests through the Single-Tier Structure and as a partner is entitled to the HTCs. This is straightforward as this investor would come in as a traditional LP partner. That said, this is incredibly rare and is not the standard for HTC commercial real estate transactions.
A tax credit investor purchases the HTC’s with the Master-Lease Structure and funds 25% of the HTC purchase at closing. Generally, these investors pay between 80 and 95 cents on the dollar and then 25% of this number (about 20-23% of the total HTC’s) can be used as a source of funds in the developer’s sources and uses. The remainder will typically come in over the course of the development, commonly at C of O, with some small amount held back until the developer obtains Part 3 approval from the NPS (typically 6 months or so after C of O).
With a tax credit investor structure similar to #2 above, the developer can then also obtain a tax credit bridge loan secured by the remaining payment stream from the tax credit investor that can be monetized up front. The amount of proceeds on the remaining 75% of the tax credit purchase net of the capitalized interest reserve and points on the tax credit bridge loan can then be added as an additional source of funds.

While these transactions are complicated, HTCs do significantly reduce the effective cost basis of renovation deals and thus are a necessary evil. Taking the time to properly understand the HTC structures can give developers a leg up on their competitors and lenders more deal flow and higher yields. Additionally, adding qualified professionals that understand HTCs to the development team including mortgage brokers, real estate attorneys, and tax credit consultants is a must for any developer that wants to tackle the complexities involved with Historic Tax Credit transactions.

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Two Factors to Consider for Multifamily Development

Published on GlobeSt.com
By Jillian Mariutti

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors.

(January 29, 2019) — The real estate development process is wrought with an array of potential landmines, and developers embarking on new projects always look for deals with enough upside to compensate for the inevitable snafus along the way. However, a reasonable expectation of upside only exists in a market where the rent-to-income ratio is not out of control.
According to the Department of Housing and Urban Development, individuals and families who spend more than 30 percent of their total household income on housing are classified as “rent-burdened.” And while these metrics are of critical importance to housing advocates and local governments seeking to provide relief to a rent-burdened population, the same numbers are extremely relevant for real estate developers. In cities such as Boulder, Colorado and Tallahassee, Florida – each of which has distinct merits – the upside for multifamily developers is muted, as each market’s median gross rent surpasses 40 percent of the city’s household income. (All figures are based on Governing.com’s metrics, sourced from the U.S. Census Bureau and 2010-2012 American Communities Survey Estimates).

Generally speaking, multifamily developers want to set their sights on cities where that metric is below 30 percent, providing an opportunity to grow rents.
What cities fall in this “sweet spot”? Not surprisingly, markets in some of the country’s fastest-growing regions. For example, Bellevue, Washington – just outside of Seattle – clocks in at a strong 23.9 percent. As the headquarters of Fortune 500 corporations such as T-Mobile and Expedia, Bellevue seems to be a veritable model of stability, where developers can have confidence that a professional workforce will retain its well-paying jobs.

Texas has a number of attractive markets, including the Dallas suburbs of Plano and Frisco, which clock in at 26.4 percent and 25.8 percent. Dallas, Houston and Austin measure in at respectable 29.2, 30 and 31 percent, respectively. The west Texas city of Odessa outperforms all of these markets, with a ratio of 25.2.

Of course, it should be noted that cities that “perform” poorly – i.e. cities with a high rent-to-income ratio – are not necessarily markets that are struggling economically. Like any ratio, the figure can climb to excessive levels based on either a high numerator or a low denominator; in other words, it changes based on either expensive housing or a weak economy. While both sets of markets indicate locales developers will likely want to avoid, they also represent a proverbial tale of two cities, with depressed Flint, Michigan (49.3) on one hand, and gateway markets like Miami (40.0) and Los Angeles (36.8) on the other. While the gateway markets may have booming economies, incomes have not kept up with the pace of housing costs, which has made those cities particularly rent-burdened.
There are a host of factors that go into the decision of where to build, but the ability to add value is one of the most important. While many seek out markets that boast a strong economy or favorable rental rates, one of these alone is not enough to assure success. But by conducting a rigorous analysis – including an assessment of the rent burden in the local market – developers can put themselves in position to reap maximum value from their efforts.

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors. She can be reached at jmariutti@missioncap.com. The views expressed here are the author’s own and not that of ALM’s Real Estate Media.

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NEW YORK (Dec. 20, 2018)

Mission Global, a leading mortgage services due diligence business, today announced that it has hired two industry veterans to expand its business development team. The new executives, David Tiberio and Tyler Julian, will both serve as directors at Mission Global and will report to Mission Global Chief Marketing Officer Dwight Bostic.

For Mission Global, the expansion of the business development team is a key part of scaling the company’s growth with the goal of providing its leading due diligence services to a wider portion of the industry. Founded in 2015 through the merger of Mission Capital Advisors’ mortgage services business unit and Global Financial Review, Mission Global has quickly become a single-source solution for institutional clients looking to buy, sell, manage and securitize commercial and residential loans.

“Over the past few years, we’ve worked to expand Mission Global’s services and build out our proprietary technology suite, which has enabled us to provide our clients with an unmatched mortgage services offering,” said Bostic. “David and Tyler both bring Mission Global a wealth of diverse experience across the real estate and financial fields, and the contacts and background they each have will be instrumental to our continued success.”

Tiberio comes to Mission with 30 years of experience across the financial services, mortgage banking and real estate industries. He served most recently as a vice president at LenderLive, a national title agent, where he focused on new business initiatives. Earlier in his career, he served as vice president of national accounts for mortgage servicing / default at First American Title Insurance Company, and held a range of finance, REO portfolio management and mortgage servicing roles at Bank of America.

“With Mission Global’s expertise at providing quality control and due diligence work, we’re able to provide material value to institutional investors buying and selling loans as well as other market participants,” said Tiberio. “With market dynamics changing rapidly, there is a tremendous opportunity for Mission to provide these services to a broader swath of the market, including SFR investors looking to divest of their holdings at the peak of the market. I’m eager to tap into my real estate, financial services and mortgage background to help foster the firm’s continued growth.”

Julian joins the Mission Global team with 30 years of experience, including a financial services and mortgage banking background that covers the entire suite of end-to-end solutions throughout the life of the loan cycle. Julian served most recently as a national sales executive at Old Republic Title, where his primary initiative was focused on the growth of mortgage-related services. Earlier in his career, he was vice president of mid-market sales for First American Title, national sales manager mid-market for LSI/ServiceLink and western regional manager VP of Chase Home Finance.

“Mission Global has built its reputation offering origination services, due diligence, title and collateral services for some of the largest clients in the industry, but a large part of the firm’s success is attributable to the firm’s entrepreneurial and results-driven approach,” said Julian. “With a finger on the pulse of the market and a focus on harnessing the power of technology, Mission Global has repeatedly proven itself adaptable and agile, while providing best-in-class customer service. I look forward to working on expanding Mission Global’s market presence, with a focus on lenders, credit unions and servicers in the west and nationally.”

About Mission Global, LLC

Mission Global, LLC was formed to unite the capabilities of Mission Capital’s mortgage services business with the extensive due diligence services and experience of Global Financial Review, to create a single source solution for investors. Mission Global’s services include data integrity review, collateral document review and cure, curative title work, agency delivery and trade support, due diligence and securitization support, regulatory compliance, origination support, re-underwriting, and forensic reviews. For more information, visit www.missionglobal.com.

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Why Mission Capital? Featuring David Tobin (Principal)

New York (12/18/2018)

Principal, David Tobin, discusses why customers choose Mission Capital when evaluating service and solutions providers to execute capital raising or asset sale transactions.

OVERVIEW

Customers often ask us why Mission when evaluating service and solutions providers to execute on capital raising or asset sale transactions. The answer to that is threefold. Mission is a diverse platform which focuses on capital raising and on asset sales. So, we have a multi-pronged relationship with the counter-parties that we work with when representing a customer. Number two, we’ve kept the band together for sixteen years. So, Mission’s been growing since it started in 2002. We now have six offices around the country and all of the key managers that started or came to the firm since the beginning of the firm are still with the firm. And number three is that we will out-hustle, out-work and out-think our competition. We’re nimble, we’re intelligent, e have a great team and we are constantly trying to outdo our competitive set.

DAVID TOBIN’S MISSION CAPITAL MILESTONES

William David Tobin is one of two founders of Mission Capital and a founder of EquityMultiple, an on-line loan and real estate equity syndication platform seed funded by Mission Capital. He has extensive transactional experience in loan sale advisory, real estate investment sales and commercial real estate debt and equity raising. In addition, Mr. Tobin is Chief Compliance Officer for Mission Capital.
Under Mr. Tobin’s guidance and supervision, Mission has been awarded and continues to execute prime contractor FDIC contracts for Whole Loan Internet Marketing & Support (loan sales), Structured Sales (loan sales) and Financial Advisory Valuation Services (failing bank and loss share loan portfolio valuation), Federal Reserve Bank of New York (loan sales), Freddie Mac (programmatic bulk loan sales for FHFA mandated deleveraging), multiple ongoing Federal Home Loan Bank valuation contracts and advisory assignments with the National Credit Union Administration.

BACKGROUND

Mr. Tobin has a B.A. in English Literature from Syracuse University and attended the MBA program, concentrating in banking and finance, at NYU’s Stern School of Business. He has lectured on the topics of whole loan valuation and mortgage trading at New York University’s Real Estate School. Mr. Tobin is a member of the board of directors of H Bancorp (h-bancorp.com), a $1.5 billion multi-bank holding company that acquires and operates community banks throughout the United States. Mr. Tobin is a member of the Real Estate Advisory Board of the Whitman School of Management at Syracuse University and a board member of A&M Sports / Clean Hands for Haiti.