Real Estate

There was a time when capitalizing a commercial real estate transaction was a relatively simple matter. There were very few lenders-investors to choose from and even fewer choices to make about process and structure.

That time has long since past as the number of considerations that must be evaluated when selecting a capital provider are virtually endless--i.e. investment banks, international, national, regional and local banks, life insurance companies, pension plans, real estate investment trusts, mutual funds, hedge funds, opportunity funds and other private equity firms, credit companies, corporate partners, high net worth individuals, financial intermediaries, investment advisers, syndicators, mortgage bankers, mortgage brokers, and agencies like Fannie, Freddie and FHA.




In order to increase project velocity, improve operating efficiency, conserve internal capital, increase leverage and lower the overall cost of capital it is essential that any sponsor develop an integrated capital formation strategy surrounding acquisition, development, construction and refinance initiatives. Among the many things that most commercial borrowers should seek to address when searching for capital in today’s marketplace are:

  • The selection of the appropriate capital provider
  • Level(s) of the capital structure to be addressed
  • Operating considerations
  • Control provisions
Rate, term, pricing and structure
  • Closing time frame
  • Third party requirements
  • Certainty of execution
  • Recourse provisions
  • Exit and pre-payment options
  • Inter-creditor or other multi-party agreements
  • Post closing servicing issues
  • The effect of the capital acquired on tax, balance sheet, future projects or portfolio considerations, and a whole host of other value-added considerations.

Possessing knowledge and understanding of the commercial capital markets is not only a critical factor in determining the eventual success of a single transaction, but also looms as a serious issue for an entire portfolio or operating business. The first thing that borrowers must understand is that all capital providers are not created equal. There is a definite hierarchy within the world of capital providers and understanding the value-adds offered by different capital providers is important in choosing a relationship.

While many borrowers believe financing to simply be a commoditized offering, the selection of a capital provider should take into account far more than rate and term considerations. In choosing a capital provider, the goal of any borrower should be to develop a close relationship with the firm that can provide not only the broadest access to capital, but more importantly a firm that offers best-in-class subject matter expertise, certainty of execution and as many value-added benefits and services as possible. Capital providers can most easily be broken-down into three groups. First there are direct providers, which place their own funds. Second are indirect providers, which place funds on behalf of others. Third are hybrid providers, which do both.

There is no longer a clear division between debt and equity in the commercial capital markets. Given the ever increasing complexity of financially engineered structured finance solutions, it is essential for borrowers to develop a detailed understanding of the capital markets and the structured finance options available to them. Developing subject matter expertise surrounding the effective use of the entire capital structure to maximize leverage, while achieving the lowest blended cost of funds and isolating risk, is essential to the creation of a solid capital formation strategy.

The optimized use of structured-finance solutions is one of the few arenas that allow commercial real estate owners to dramatically impact leverage, efficiencies and economies of scale across all business lines including acquisitions, financing ventures and operating activities. Structured finance is best defined as financially engineering the proper blend of debt, equity and hybrid, i.e. synthetic-derivative, capital in order to resolve particular transactional needs that cannot readily be met by conventional senior financing.





Structured financing allows for an engineered design and pricing of situation-specific financing instruments. Representative examples of typical situations that call for structured finance solutions include the following:

  • Working around balance sheet or capital constraints
  • Shifting a higher percentage of the capital structure down in the leverage curve
  • Attaining greater amounts of leverage at a lower blended cost of capital;
  • Adding value and increased leverage to buyouts, yield-plays, recapitalizations, repositionings, stress-induced financial restructuring, and arbitrage-driven hybrid debt or synthetic funding;
  • Shifting risk and better managing control at both the project and entity levels;
  • Releasing trapped equity in single assets or portfolios;
  • Conversion of illiquid assets into tradable securities;

While many would choose to define structured finance in narrow terms it is rather the limitless ability to engineer hybrid, synthetic or derivative instruments that makes the engineered solution provided by structured finance so valuable. Typical structured finance instruments include the following:

  • The blending of senior and junior mezzanine debt
  • Straight, convertible and participating second mortgages
  • Pari-passu or preferred equity structures
  • Bond placements, tax credits and other municipal finance alternatives
  • Collateralized mortgage pools, collateralized debt obligations and other credit derivatives
  • Index or currency linked strips
  • Swaps, options, caps, collars, swaptions, captions, etc.
  • Credit enhancement, financial guaranties, standby commitments, forward commitments

Understanding how to maximize all levels of the capital structure through the use of structured finance techniques when developing the capital formation plan on your next transaction will help you create a much more effective and efficient execution. In general, the farther you move up the leverage curve utilizing more leverage in the senior position the lower the overall cost of funds will be. Conversely, the deeper you move down the capital stack utilizing mezzanine or equity instruments the more expensive the cost of capital.

Understanding how to access and maneuver within the commercial capital markets and effectively leveraging the many benefits of structured finance techniques can be the defining difference in optimizing the scalability and efficiency of your commercial real estate venture.

Other Real Estate Areas of Practice

  • Buy and Sale of Real Estate
  • Using Real Estate as collateral for other projects.
  • Land Use and Zoning
  • Representing the developer in bond offerings.
  • Formation of a REIT
  • Drafting of notes and trust deeds, commercial and residential leases.
  • Working with FDIC banks to work out your loan and lien problems.
  • Title and Lien Problems’ Solutions
  • Estate Planning
  • Litigation
  • Chapter 11