Capital Experts: Sponsorship is Key

Moderator Les Callahan (at podium) asked panel members to discuss lessons learned from the last cycle.

ATLANTA—Capital experts in the Atlanta region offered their perspectives on how deals are restructured and offered observations on lessons learned during the last real estate market cycle during a panel session at RealShare Atlanta on Thursday. “A lot of the deals that I look at are sponsor-driven,” said Yakhin Israel, VP, investment commercial real estate lending, Fifth Third Bank. “Outside of that, the main factor is location. One of the lessons we have learned is that you need to stick to fundamentals. We have been fairly measured in our growth. If we start with a sponsor to run the plays in good markets, we can find a deal.” Lynn McKee, SVP, SunTrust Bank, said his company is also sponsor-driven and looks for mid-tier to large investors. “What we are really looking for in a sponsor is a track record of performance who knows their product type, someone we can form a full banking relationship with. We are not looking at just being a real estate lender. We want the whole bundle in a relationship.” Scott Taccati, president of Trillium Capital Resources, said most of the lenders his company works with provide non-recourse financing, which he says is attractive to Trillium’s clients because they don’t have to put it on their balance sheets as a liability. “Sponsorship is important at different levels; our deals range from $2 million up to unlimited,” Taccati said. “The higher you go, sponsorship becomes very important. Overall, sponsorship is important and we want to see someone with a track record.” Moderator Les Callahan, president of First Colony Financial Corp., asked panel members to discuss lessons learned from the last cycle. James Croft, chairman and CEO of RED Capital Markets, advised to maintain an underwriting discipline regardless of the current market. “If you maintain discipline over the long term, you aren’t going to get into trouble. What we expect in the next couple of years is a large amount of CMBS loan refinancing.” Taccati said that today underwriting standards are more realistic. “Loans being underwritten today and closed will be able to be refinanced in 10 years. I feel real good about that. Over the next couple of years, a lot of loans will be maturing in the CMBS market and a lot won’t make it.” Israel advised firms to do a sensitivity analysis of projects and look beyond just the package that is on the table. He says that approach has allowed him to help sponsors take a more critical look at projects. Nikki Vasco, managing director of Investor Management Services, said people who haven’t historically invested in real estate are now interested in doing so due to changes in security laws and technology that allows online investing. She says back-end technology drives the ability for a sponsor to show off its deal.