PROFESSOR'S CORNER

From the Desk of Professor Eyzenberg
"If something cannot go on forever, it will stop."
- Herbert Stein’s Law

Confession time (besides not being an economist), I will be turning 48 this month and will mark my 30th year in the professional work force. I have been around the block a couple times and have been through my share of credit cycles. However, I am hard pressed to remember one that is playing out exactly as this one is doing. Real rates (rates adjusted for inflation) are negative which historically has been bullish for risk assets. Yet risk premiums continue to blow out with “risk-on” the mantra of the day. This is a new one for me and for everyone my age or younger (important perspective on decision makers.)

For the sake of brevity lets ignore why it’s happening and instead focus on what actions we may want to consider taking (regarding CRE financing strategy.) Last newsletter I discussed borrowing fixed rate if you are predicting stagflation (or for stabilized legacy assets where you never want to play the interest rate or cash out refi game.) However, if you believe that we will instead head into recession than floating may be the better option in several scenarios.

Historically, when an inversion preceded a recession (not always) there was an average 1.6-year gap in between. This means the upward pressure on rents in certain asset classes (think multifamily) will continue at least for a bit longer. If you are acquiring (at market adjusted cap rates) value add deals or developing you are better of going floating due to a lack of amortization, flexibility of exit strategy, and lower current pricing. If you really want to hedge outrages rates you can buy a cap far out of the money to avoid a dooms day scenario. Further, if you believe the real yield curve is inverted (I don’t) then you can bank on getting lower rates 3 years out (average recession lasts 1.5 year.) Final food for thought. CMBS and CLO lenders are struggling today as bond buyers find it easy to do nothing or need to be seduced with yield. Banks and some private lenders with A-note or warehouse leverage are still providing very attractively priced financing options (especially for multifamily or BTR development). Leverage is a bit lower but at least the liquidity is still there in the mezzanine loan and preferred equity market to make up the gap.

- David Eyzenberg (Adjunct Professor at NYU Schack Institute of Real Estate & University of Miami Herbert Business School)

RECENT CLOSINGS

$19MM Multifamily | Acquisition | Memphis, TN  
Structured and arranged bridge financing to acquire a 402-unit apartment complex in Memphis, TN.
$26MM | Single Family Rental | Construction Loan | Myrtle Beach, SC 
Structured and placed a first mortgage construction loan to build an 84-Unit Built-to-Rent Community.
$12MM Multifamily | Recapitalization | Memphis, TN
Structured and arranged bridge financing to recapitalize a 384-unit multi-family garden style apartment in Memphis, TN.

PROPRIETARY CAPITAL SPOTLIGHT

Joint Senior-Construction and C-PACE Loan Program 
ReedsBay Investment Group and Eyzenberg GreenCap (an Eyzenberg & Company affiliate) have rolled out the industry’s first joint senior-construction and C-PACE loan program. Combined, the two firms will offer a true one-stop-shop for developers and owners seeking the most efficient capital stack structure in the market place.
Funding Parameters: 
Pricing
  • Blended at 6.5%+
Transaction Scenarios
  • New development, acquisition with a heavy renovation component or recapitalization in tandem with a redevelopment of the property
Property Types
  • Multifamily or Multifamily-majority Mixed Use
Combined Funding Size
  • $1-20MM
Leverage
  • Up to 90% LTC
Term & Amortization
  • Senior: 6 months – 3 years (with options for extension)
  • C-PACE: Self-amortizing up to 30 years
Prepayment
  • No lockout but subject to pre-negotiated fees
Geography
  • Currently active in 24 states and the District of Columbia – CA, CO, CT, DE, FL, IL, KY, MA, MD, MI, MN, MO, NE, NV, NY, OH, OK, OR, PA, RI, TX, UT, VA, and WI
Recourse
  • No repayment guarantee

SEEKING CAPITAL

Construction Loan 
$100MM | BTR | Development | Panama City Beach, FL
Preferred Equity
$6MM | Multifamily | Acquisition | Sioux Falls, SD
JV Equity 
$16MM | Multifamily | Development | Miami, FL
Construction Loan
$40MM | BTR Short Term Stay | Development | Houston, TX
Permanent Loan
$8MM | Retail | Acquisition | Clermont, FL

AVAILABLE JOINT VENTURE EQUITY

There is great demand from domestic and foreign equity investors for multifamily, build to rent, industrial, office and self-storage assets, with hospitality and retail having niche appeal as well.

The typical raise will target 20-100M check size for core plus, value-add and opportunistic strategies in 24/18 hour cities.

Though many past assignments involved one-of transactions, there is strong interest in programmatic joint ventures with operators focused on sector-specific, geographically clustered strategies.

- Henry Chakardjian & Kenneth Lorman (Eyzenberg Equity Desk Leads)
Property Types
  • Multifamily, build-to-rent, student housing, hotel, industrial, office, self-storage & retail
Check Size
  • Opportunistic: $5-25MM+
  • Value Add: $10-25MM+
  • Core Plus: $25-100MM+
Target Returns
  • Opportunistic: 15%+ IRR
  • Value Add: 12-15%+ IRR
  • Core Plus: 8-12%+ IRR
Hold Period
  • 3 to 5 years
  • 5 to 10 years
Uses
  • Development, recapitalization and/or acquisition
Geography
  • Primary and secondary MSAs

WE ARE HIRING

Eyzenberg & Company is actively seeking to add team members to join our growing firm. In this video, our President gives the intro.

RECA CORNER

Real Estate Capital Alliance (RECA) Q1 2022 Production Statistics

Eyzenberg & Company is a proud member of the Real Estate Capital Alliance (reca.us). RECA members arranged over $3.9 billion in capital in 2021. Below are the complete RECA production statistics for Q1 2022.

Capital Structure

Property Type

Capital Source

Location