Mission Capital and Marcus & Millichap’s Q2 Joint Marketing Efforts

Austin Parisi, Associate

The joint marketing effort between Mission Capital and Marcus & Millichap contributed to the recent successful auction of a $26,000,000 Non-Performing Loan secured by a largely vacant mixed-use building in the Nomad neighborhood of Manhattan.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Mission Capital, a subsidiary of Marcus and Millichap, now leverages a platform of nearly 2,000 investment sales and financing professionals in 80 offices.  These boots on the ground have made Marcus the top investment sales broker in the United States based on transaction count over the last 15 years.  The proprietary comparable sale data and market research provided by Marcus increases Mission Capital’s valuation accuracy and execution success.

The joint marketing effort contributed to the recent successful auction of a $26,000,000 Non-Performing Loan secured by a largely vacant mixed-use building in the Nomad neighborhood of Manhattan. Mission Capital collaborated with the Anton team at Marcus & Millichap, who helped to accurately value the troubled collateral by understanding COVID-19 impacted lease up timelines, rental assumptions and the lengthy judicial foreclosure process in New York.  Of course, the combination of Mission Capital’s comprehensive investor data base of institutional note buyers and the alternative capital sources that typically transact with the Anton group was powerful rocket fuel for the aggressively bid live auction conducted on Real Insight Marketplace.

The benefits of the Mission Capital Marcus & the Millichap team extends well beyond traditional core asset classes. Our team is in the process of selling a Single Room Occupancy, or Co-Living asset in the Mission District of San Francisco. The persistence of COVID-19 variants has led to prolonged elevated vacancies in the SRO rental market since March of 2020 as remote workers migrated to cities with a cheaper cost of living. As people begin to transition to a post-COVID-19 world, employees are returning to gateway cities, which is evident by the rebound in urban multi-family rental rates as well as increased demand for SRO assets. In developing our valuation thesis and marketing plan, Mission Capital drew on its own expertise in arranging financing for co-living assets in the San Francisco – San Jose market and Marcus & Millichap’s Taylor Flynn.  Taylor is the leading investment sales broker of Co-Living and SRO properties assets in San Francisco.

The culture of sharing market intelligence and sales expertise throughout Marcus & Millichap’s various lines of business continues to be imperative to effectively advising our clients and generating positive outcomes.

joint marketing effort Mission Capital Marcus & Millichap

Credit Facilities

Alex Draganiuk, Managing Director

Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Credit Facilities are a critical tool for all non-bank lenders in today’s fast paced credit market. These lending relationships come in all shapes and sizes, including warehouse lines, repo facilities, term loans, subscription lines, and facilities with hybrid characteristics of any of the above, for both commercial and residential lenders.

A well-structured facility expands lending capacity, accesses a lower cost of funds and increases ROI through leverage.

Subscription lines and some warehouse and repo lines are designed for very short-term use, allowing aggregation of enough loans for securitization or the issuance of a CLO (with even lower costs of permanent capital). Typically, these gestation lines will be for 30 to 120 days at a time to facilitate someone’s lending business with recycling features.

Warehouse and term credit facilities also allow for purchases of pools of performing or non-performing whole loans from the secondary market, to extract loans from a lender’s own CLO or to leverage REO assets acquired via foreclosure or a deed-in-lieu.

These acquisition facilities are usually made for a 2 to 3-year term to allow a lender maximum flexibility to restructure a nonperforming loan, seasoning of the reperforming loan and subsequent redeposit into a CLO.  The added benefit is providing a borrower sufficient time to finish its business plan or conduct a sale or refinancing process to take out the existing lender.

It is critical to arrange these complex facilities when a lender CAN versus when a lender NEEDS TO.  The lender then has this tool in its quiver at when the world goes crazy due to COVID, war, political instability, or hyper-inflation.

The extra leverage of structured credit facilities provides lower cost of capital dry powder to play offense when others may be running for cover.

Gateway Cities

David Tobin, Senior Managing Director

In our latest video, David Tobin, Senior Managing Director, discusses expectations and trends he’s spotted in Gateway City loans (that’s New York, Los Angeles and San Francisco, in particular), and what this means for Loan Sales in 2022.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Gateway city loans will continue to struggle in 2022 with low rates, extensions and restructures necessary to support portfolio performance. We see ongoing structural issues in the office, retail and hospitality sectors in New York, San Francisco and Los Angeles.

“According to Green Street, 70% of office workers will work remotely at least part-time within the next five to ten years…reducing demand for office space by about 15% and accelerating an ongoing deurbanization trend.”

Kastle Systems’ back-to-work barometer measures key card and fob system activity and shows a 40.6% physical occupancy of office across 10 top US cities with NYC and LA the bottom dwellers at between 36% and 37%.

Negative pre-COVID retail and banking trends were accelerated by the pandemic, particularly in urban locales.

CVS recently announced a 10% reduction in its 9900 store chain as grocery offerings and prescription sales continue to migrate on-line and over saturated infill locations right size.

Of 85,000 total bank branches today, nearly 3,400 closed in 2020. Urban located bank branch closures far outpace all other areas across all demographics because of competitive over-expansion pre-pandemic and continued digital disruption.

Manhattan sublease office space exploded during the pandemic peaking at 21.3mm sf in June 2021 compared to 8.2mm sf in 2016 and 11.6mm sf on the eve of the pandemic.

Finally, business travel continues to struggle with the biggest group oriented large format full service hotels, particularly in urban locations and less competitive select service hotels everywhere with PIP and cap ex issues.

What does this mean for loan portfolios? Persistently low interest rates have subsidized asset prices and gateway city loan portfolio collateral value for years. The specter of real inflation for the first time in a generation combined with real regulatory enforcement of asset quality and a real need for actual debt service payments will drive de-risking of bank balance sheets in 2022. We expect loan sale activity to continue to be muted but priced aggressively as liquidity rules. Hospitality loan sale offerings have been and will continue to be a robust bright spot in an otherwise anemic trading market. The wildcard? Inflated equity markets rapidly deflating and liquidity disappearing.

Accurate Loan Pricing

David Tobin, Senior Managing Director

In this new video, David Tobin, Senior Managing Director, describes accurate loan pricing and what to look ahead at in Loan Sales for 2022.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Accurate loan valuation and pricing is critical for many reasons:

1. It sets expectations appropriately between buyers and sellers and allows for objective evaluation of whole loan bids
2. It properly sets PCI marks, reserves against impaired loans and allows for a release of reserves when the opportunity presents itself.
3. It is critical for mergers and acquisitions and loan portfolio investment decisions.
4. …and It ensures accurate movement of loans into a held for sale status

Model complexity, however, doesn’t enhance reliability. Pricing accuracy increases for three basic reasons:

1. The volume and frequency of loans and portfolios priced, including large data set evaluations for entities like the FDIC, FHLBs and HUD
2. Using Transaction Tracker intelligence to triangulate recent actual note sale results against financial reporting and publicly available data in an opaque marketplace
3. Marking to market collateral values in real time

Accurate qualitative data from comparable loan sale, investment sale, and financing transactions properly validates quantitative financial models. This guards against confirmation bias that occurs when flexing sensitive model assumptions that can exaggerate model outcomes.

What does this mean for loan portfolios? In 2022, regulators expect CARES Act 4013 designated loans to either return to the line or be properly risk rated as a TDR. Understanding true loan value for these assets in an opaque, fast paced and volatile marketplace can mean the difference between booking gains or incurring losses on difficult to price assets. PCI loans marked before or during COVID very often have embedded gains that should be monetized at high water mark pricing. As the Fed finally begins its tapering, selling risk into frothy markets at or above intrinsic value will be a winning strategy for 2022.

Who is Mission Capital?

Mission Capital Advisors, a subsidiary of Marcus & Millichap Capital Corporation, are experts in marketing loans secured by real estate. Learn more about who we are, what’s new, and why Mission Capital can help you with your loan sale needs.

The video features David Tobin – Senior Managing Director, Alex Draganiuk – Managing Director, and Spencer Kirsch – Vice President. Contact information can be reached at the following links below.

David Tobin can be contacted here.
Alex Draganiuk can be contacted here.
Spencer Kirsch can be contacted here.


Mission Capital is a full-service commercial, residential, and consumer loan sale, valuation, and advisory firm. We provide a wide array of services on behalf of our institutional and governmental clients through our tech-driven due diligence and trading platforms.

What’s new?
In November 2020, we were acquired by Marcus & Millichap, the #1 commercial real estate investment sales brokerage in the nation. The acquisition has significantly expanded our sales network and access to best-in-class research and local “boots on the ground” market knowledge.

Why Mission Capital?
We have been a top-tier loan sale advisory firm by volume every year since formation in 2002. Our extensive investor database consists of over 40,000 loan buyers for virtually all collateral types, and through our newly-formed partnership with Marcus & Millichap, we have added direct access to over 2,000 investment sales and financing executives in 82 offices across the US and Canada.

Secondary Market Liquidity for Hospitality Loans

Spencer Kirsch, Vice President, Loan Sales and Real Estate Sales

Spencer Kirsch, Vice President of Loan Sales & Trading, describes the state of the secondary market for hospitality loans, along with how buyers and sellers have altered their view of the sector over the last several months.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Full Transcript

It’s no secret how material the effect of COVID has been on the Lodging sector in the U.S. With COVID-restrictions in place and a sharp decline in business and leisure travel, the occupancy, ADR, and RevPar figures across the industry plummeted by the end of 2020. Per TREPP, in Q4 2020, the overall delinquency percentage of lodging loans on bank balance sheets was 13.3%, significantly increased from the 1.1% delinquency rate in the first quarter. Additionally, by Q4 2020, lodging occupancy rates had dropped to 43%, well below the 72% rate present in Q4 2019.

Hospitality-focused debt firms and private equity firms alike have quickly identified an opportunity to raise capital to deploy in the sector. These firms banked on the opportunity to buy loans at discounts and restructure debt at higher interest rates or take title of the real estate. However, this capital was raised at a point when banks and other note holders were first starting to implement deferral or forbearance plans and were not ready to sell deferred loans at a discount and book losses. This led to a 6-month period of little-to-no hospitality loan transactions executing in the market from Q4 2020 through Q1 2021.

Fast-forward to present day, when the majority of deferral periods have ended or are close to ending, yet the sector is still a-ways away from stabilization and hotel bottom-lines are insufficient to cover debt service. Banks and other note holders who are unable or unwilling to implement further deferrals for impaired assets or don’t want to go through foreclosure processes are now more amenable to selling loans and realizing a controlled amount of loss. This has increased the opportunity for investors to acquire impaired hospitality loans at a discount to Par, with exit strategy optionality in-play.

At the same time, there remains a plentiful amount of hospitality-focused investment capital waiting to be deployed, along with a newly-formed, positive outlook on the industry. June in particular has brought upon a number of encouraging signs, as the country hit the 50% mark of vaccinated individuals, flight traveler count increased to more than 2 million for the first time since March 2020, and June hotel occupancy hit 61% across the US, which is the highest percentage in the pandemic era. The combination of excess dry powder and positive economic trends has resulted in an increased amount of investor interest, as well as tamed forward-looking default projections and tightened required yields. Ultimately, these factors have enabled sellers to trade deferred, scratch & dent or non-performing loans at a manageable discount, which has proved to be more economical than negotiating a new deferral or going through a foreclosure process .

We at Mission have been quite active in advising sellers of performing and non-performing hospitality loans over the last quarter and have a number of hospitality portfolios in the pipeline. We have represented clients in transactions executing anywhere from manageable discounts up to Par pricing, while garnering interest from a wide-variety of investors, including banks, pension funds, hedge funds, private equity firms, and others. We expect the hospitality market to remain liquid through the foreseeable future as forbearance periods continue to end and debt holders continue to offload distressed exposure while the sector gradually moves toward stabilization.


CRA Loan Sales (Community Reinvestment Act)

New York (5/24/2019)

Written by the Loan Sales & Real Estate Sales Team

Community Reinvestment Act

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:

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.

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.