“Better them than us”
–Anonymous at a funeral
 
After hearing ongoing industry complaints of how terrible the market is we wound up having our best quarter ever.  I had a lender walk away a few weeks before closing a large construction loan and quickly had several new offers in place. I saw institutional investors walk from deposits thinking they were out-of-the money while other groups are buying voraciously. A good friend is downsizing because they are mostly reliant on basic acquisition perm business and their volume has dropped precipitously. I guess in interesting times there are always an us and them.
 
Structure rules the day.  Simply being a price check on rates does little to add value or provide the incremental leverage that entrepreneurs need to make deals pencil.  I have often said that in times of market dislocations what changes is not the amount of capital available but the type and source of capital that shifts. As always banks pull back credit from the market (at the worst time) affecting direct borrowers and the lenders that rely on credit lines to make equity returns. Debt funds with reduced advanced rates must charge more to get their required returns and everyone seems to drop leverage just a bit to deal with more realistic exit debt yield assumptions.  The number of shops offering structured finance now numbers in the hundreds, probably experiencing the largest growth of participants in the last year.
 
We (and more specifically I for 30 years) have always been busy with development deals. They are harder to place, take more time and require more work.  Less competition for us and more value to bring a client.  Today if you are seeking 80% financing (85% a few short months ago without participation) you either need to do a senior/structured finance combination or a single source loan.  More often we are finding that it is more advantageous to go with the single source EVEN if the face rate is higher than the blend.  The counterintuitive answer is due to the draw down schedule and sequential funding unique to development deals. The advantage goes even deeper if there is contemplation of mid-stream sales, paydowns or phasing.  This coupled with no longer needing any interrelated third-party documentation or another credit risk in the deal makes the single source financing usually the clear winner.

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