abandoned by their previous lenders late in
the game. “Typically they were under application with a lender and for whatever reason the lender decided it couldn’t or
wouldn’t deliver. It had a change of heart,
perhaps,” he says. The volatility is also
increasing the number of clients that want
its fixed-rate offering, he adds.
Then there is everyone else—that is, borrowers who come to him for, well, almost
any reason and not just because times have
suddenly become volatile. For instance, as
more companies consolidate and reconfig-ure space in office buildings, building owners are finding their parking facilities are
no longer sufficient to accommodate the
increase in tenants. Their answer is a new
parking lot funded via a bridge loan.
Indeed, bridge loan borrowers come to a
lender’s tables for all manner of reasons.
There was a borrower in the Midwest
who owned two class B office buildings dating back to the 1980s in Schaumburg, IL
and Milwaukee, WI. The buildings had
common areas that needed immediate
renovation, plus the sponsor apparently
had a prospective tenant in the wings, since
it needed additional capital for tenant
improvements and leasing commissions
immediately. The buildings averaged below
70% occupancy at closing in submarkets
where the average occupancy was well
above that level.
Bloomfield Capital in Birmingham, MD
and Alpha Alternatives in Chicago put
together an $8.5-million senior bridge loan,
the proceeds of which were used to pur-
chase the discounted note from the exist-
ing lender on the two buildings. The dis-
counted note purchase came to $6.6
million with additional funds for interest
and renovation reserves.
There was another borrower in Phoenix
who needed to pay off a defaulted first
mortgage on a multifamily property in
The answer, as it turned out, was a
$13.6-million first-mortgage bridge loan
secured by not one but two apartment
properties in Phoenix. The loan proceeds
paid off the defaulted first mortgage on the
property in bankruptcy, which was cross collateralized with a stable core asset in the
borrower’s portfolio. The lender, New York
City-based Trevian Capital, spoke on behalf
of the borrower in bankruptcy court to help
it secure the discounted payoff.
Trevian launched in January 2013 to fill
what it saw as an unmet need in this market.
Today it expects that it will have originated
$200 million in volume for 2015 alone.
That number, incidentally, is not a hard
cap, says founder Michael Hoffenberg.
There is plenty of capacity for more.
Many middle-market bridge loans,
though, are made for far more benign reasons, such as renovations or construction
financing. You can’t get any more typical
for this product than the $13.6-million first
mortgage bridge loan made earlier this
year by Boston-based UC Funds. The proceeds are being used to renovate an existing 112-key La Quinta Inn in Aberdeen,
MD, into an 85-key La Quinta Inn and
92-key Hampton Inn. When they are done,
the renovated properties will be the newest
product in the market since a 2009 development by the same sponsor.
There is another type of borrower on
the market that is very much a sign of the
times: developers that have picked over
opportunities in gateway cities such as
Washington, DC or San Francisco and
decided it was time to move on to secondary or even tertiary markets for the next
wave of opportunities.
The developers often have relation-
ships with local offices of national banks,
but then find that these banks are not
interested or cannot lend in, say, St.
Louis, MO or Bear, DE, says Peter Lunt,
chief investment officer of NVCapital
Advisors in Vienna, VA. So they turn to
other providers as they enter new mar-
kets, especially as their funding needs are
not as great as they would be for a project
in, say, the capital gateway city of Boston.
That is because land is so much cheaper,
Lunt says. The total cost per unit to develop
is about the same everywhere but luxury
projects can be developed on relatively
cheap tracts of land.
NVCapital, which ordinarily focuses on
Washington, DC projects, has provided
financing to such a project in Christiana,
DE. Has it, too, come to believe that better
opportunities are available elsewhere? No,
asserts Lunt, although he does agree that it
is getting more difficult to find such deals.
The transaction, one of the few it is funding outside of DC, is a joint venture between
NVCapital Advisors and M-C Development,
an affiliate of Leon N. Weiner & Associates,
a Delaware homebuilder.
They are developing Emblem at
Christiana, a 245-unit, nine-building luxury rental home community with a delivery date of 2016. PNC Bank is providing
construction financing of $30 million and
NVC and MCD have provided $12 million
“I expect we will see more of these
opportunities as developers move away
from the larger cities,” he said. The middle-market finance ecosystem will be an important source of support for this trend, especially if national lenders continue to limit
their exposure to the Christianas of the US.
Not all, of course, will. If nothing else,
national CRE lenders have learned they
must go where the opportunities are.
But enough will decide to bow out,
attracting even more institutional investment to this segment. ◆
Reprint orders: www.almreprints.com
We are not
listening to our clients’
Capital One Multifamily Finance
as developers move away
from the larger cities.”