NEW YORK CITY—Few people, if any, are complaining about the economy's recovery and, by extension, the improvement of the state of the industry. However, that doesn't mean brokers jobs are easier, they just have different challenges, particularly as their jobs relate to construction financing.
Eastern Union Funding co-founder and managing partner Abraham Bergman sat down with GlobeSt.com to discuss some issues that are arising and how brokers can deal with them in this EXCLUSIVE issue.
GlobeSt.com: What are some of the biggest issues behind the rise in construction?
Abraham Bergman: There's a huge demand for space in urban areas and developers are responding to that. The challenge extends beyond the financing itself. You need to be working with brokers you can trust and who you know are not interested in winning the same opportunity you're seizing.
GlobeSt.com: What should real estate professionals know about financing construction projects?
Bergman: They should understand structure. In addition to the colossal multifamily development boom, there are also commercial rehab deals, healthcare developments and the revival of projects which stalled back in 2007. These can be hairy. We arranged financing for a 640,000-square-foot partially stabilized shopping mall which had a rehab component and vacant anchor space. Meanwhile, the client had plans to open outparcels and reposition the property as an in-line shopping center—rightfully so given today's retail market. You can't represent a deal like that to a lender unless you understand structure.
GlobeSt.com: What are some challenges you face with construction loans?
Bergman: You need to know what loans to present to banks and when to pass. Lenders are absorbing a massive quantity of loan applications, and it's the broker's prerogative to represent your deal properly to bring it to the closing table. That means understanding the project in its entirety, knowing the sponsorship's net worth and liquidity. You have to understand all the nuts and bolts.
GlobeSt.com: Are there any unique construction projects sprouting up?
Bergman: Volume is increasing for self-storage development, because wherever you have high-density areas and small apartment rentals you need space to put it all. Lenders are aggressively financing self-storage development projects, a lot of big players in the construction market are getting involved with self-storage, and we're able to translate our clients' strategy. The final product of these negotiations is long-term, fixed rate financing with low interest.
GlobeSt.com: Another boom you're experiencing involves CMBS lending. What prompted its resurgence?
Bergman: Lenders playing hardball is a huge factor in Wall Street's comeback. More than anything else, we want diversity. Borrowers want a menu of loan products to choose from and we're answering that. In the early 2000s, CMBS production made up a significant portion of our portfolio and about two years ago we hit the ground running again.
GlobeSt.com: What are the challenges when placing Wall Street loans?
Bergman: CMBS underwrites lease rolls, projected leasing commissions and tenant improvements differently. Our CMBS volume comes through an understanding of the mechanics involved in Wall Street lending and the ability to weigh the benefits of financing through that avenue. A good broker looks under the hood and gets their hands dirty.
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
