DAVID B. NORTON INC.Real Estate Investment Banking - Blog

Getting to 2021, We are Here for You

6/21/2020

As we are now halfway through 2020, there is no doubt that it has been an exceedingly challenging year already – and the world of commercial real estate did not escape those challenges. Let’s face it, we are all hoping the next six months pass quickly, getting us to 2021 with the hope that the new year might bring stability. The ongoing uncertainty across many fronts has only served to continue to impact the financial markets for commercial real estate.

Our firm remains active in ongoing efforts to provide our clients with guidance and support as they look to execute responsive financial strategies for their existing real estate portfolio and new acquisitions. Lenders and investors are still active in the market with funding available for commercial real estate investments – this is a good sign. As always, when there is an overlying market issue, there are new hoops to jump through. Our firm is here to guide you through these challenges whether it is new financing or working out existing debt.

Today, more than ever, it is critical to utilize as many resources as possible before you make significant decisions. Let us be a resource for you. Allow us to provide you critical, impartial, and experienced advice on how best to implement your strategies.

We hope you will reach out to us if you are looking for insight to help explore and navigate your objectives. Please visit www.davidbnorton.com to review our services, methodology, and recent closings

Building an Effective Financial Strategy: Looking for a Second Opinion?

9/13/2017

Nothing seems to fit into the elusive box anymore. Not only are we experiencing extraordinary natural disasters, changing fiscal policies, and the usual market uncertainty, but we are also impacted by the ever changing capital that is available for real estate deals. Thankfully, there is plenty of capital in the financial markets to fund transactions; however, it is critical that you follow the best path to secure that new capital. It is important that you don’t get caught in a financial commitment that leaves money on the table, or down the road proves less advantageous.

Finding the right deal, with the right terms, is always the critical – and often most elusive – piece of the puzzle. Every day, our firm is in the capital markets working with what is available out there, whether conventional lending, bridge, mezzanine, or equity markets. Not every real estate firm has a CFO dedicated to monitoring the daily capital markets and coordinating these efforts which makes the need for an outside perspective indispensable. It is time for a second opinion!

Our firm is here to help you and your team navigate your capital financing needs. Not only do we provide extensive underwriting to best present your situation to the “right” capital sources, we also support the entire financing process from due diligence, to negotiation of terms, to legal documentation, to closing. We also offer the tools you might not readily have at hand including preparation of detailed cash flow pro-formas, waterfall distribution scenarios, market summaries, and other reports which provide the data you must have in order to properly evaluate your options and close your transaction.

The services we provide are not the traditional “broker services,” because we are not “traditional brokers”. We provide an array of extensive services which differentiates us from traditional brokerages. While the process we use mirrors what any lender or financing partner would similarly conduct, our enhanced services and processes allow us to be proactive and extremely efficient, helping simplify and streamline the decision making.

I welcome you to reach out to us for that first or second opinion. You don’t want to ask yourself: “Why was my new bridge loan priced at 12% instead of 7%?” or “Why did I give up so much of the deal to an outside partner?”

The Emerging Challenge of Refinance in a New CMBS World

1/30/2017

Right now many of us are focused on a new White House administration which will potentially deliver changes that could greatly impact the commercial real estate industry. While we can’t predict what is coming, we must evaluate some recent legislation that is greatly impacting the industry this very second. New lending guidelines are now in place which are significantly affecting the ability to replace maturing CMBS loans with new longer term loans. To address this changing lending environment, at David B. Norton Inc., we have modernized our role as real estate mortgage brokers/investment bankers to fit today’s challenging business climate. We conduct a thorough underwriting of the transaction prior to engagement. We take the time to identify a property’s strengths, weaknesses, and importantly, the project’s viability within the new lending environment. Foremost, this includes developing the most favorable and efficient capitalization strategy for the asset and the sponsor.

2017 will see approximately $100 Billion in maturing CMBS loans in a new underwriting environment where borrowing is both more expensive and more complicated. New regulations in the CMBS market require risk retention that requires lenders to keep a portion of new loans on their books. These risk retention rules not only raise the cost of the loans, but also make the lenders far more conservative in their underwriting. Many of the CMBS loans that are currently maturing were originated 10 years ago when properties were at the peak of their valuation and underwritten very aggressively at high leverage thresholds. Although property valuations have returned from the lows of the previous few years, these properties still may not have a valuation required to qualify for a traditional loan. Many of the loans were written when lenders were routinely originating debt packages of 75%+ of the property value, but today’s lenders are reluctant to go above 60% to 65%.

We Have Redefined the Role of the Commercial Real Estate Broker

9/14/2016

At David B. Norton Inc. we have modernized our role as real estate broker/investment bankers to fit today’s business world. From the start we set out determined to maintain a small, progressive firm in order to assist you, our client, to run a more streamlined business structure and to enjoy a more efficient procurement of capital. Much of our competition is oversized and inefficient, their structure unable to offer much needed customized services that are required in today’s world. We have developed and maintained a lean mean, machine and are widely respected for our comprehensive personalized services.

There are many formal titles thrown around today to term what it is we and our colleagues do: Mortgage Brokers, CMRE Investment Bankers, CMRE Brokers, or just another f&%ing Broker. Many are under the impression that as Investment Bankers/Brokers all that is needed is to place the right phone call and take a fee. Sorry to say, that among our competition this is often exactly* the situation.

We do something different.

Today’s real estate world is information driven, there is a requirement for constant connectivity and transparency. We have aligned our business to address this need, and in doing so, we are able to provide the best service to all sides of a transaction.

What we started out doing in 1995 – and continue today – is the redefinition of the role of the Investment Banker/Broker by expanding the services on all sides of the transaction. This expansion ensures that transactions move forward efficiently, with an extremely high success rate. Obviously, due to the investment of time and effort we allocate for each transaction we take great care in choosing our project engagements. For the property owner, we are supporting their ability to articulate their property plan. For the Lender/Investor we present a clear, concise opportunity which has been vetted and identifies the issues that could impact the ability to close the deal. For all, we are providing the glue to effectively create a strong successful transaction.

How are we expanding the broker role? What are we doing differently?

We conduct a thorough underwriting of the transaction prior to engagement. We take the time identify a property’s strengths, weaknesses, and importantly viability in the eyes of lender investors. This includes developing the most favorable and efficient capitalization strategy for the transaction. We solicit preliminary feedback from potential lenders to determine the market appetite for the deal. This is done in a way that preserves the confidentiality of the transaction and the owner so that the deal remains off-market so as not to “shop” the deal. We provide a flat broker structure: Our organization structure is set up so that the same person is involved throughout the transaction coordinating all information flow from due diligence through working with attorneys and title at close to ensure a smooth closing.

Overall, we deliver a personalized, highly elevated level of service and attention that clearly distinguishes us from our colleagues. We encourage you to reach out to us so that we can show you how we deliver exceptional results.

Chasing the Unicorn

12/16/2014

Without a doubt the one thing our clients are consistently looking for is something that we are having extreme difficulty finding. We pride ourselves in being able to provide for our client’s needs, but our inability to meet this request has been extraordinarily frustrating. What is this sought after, desired magical beast that we can’t find? Pursuit Capital

Pursuit Capital, also known as Seed Capital, is equity that is situated extremely high in the capital stack: 85% of the capitalization and above. By definition, this Pursuit Capital is situated so high in the capital stack that it limits the amount of sponsor equity in the deal, leaving the owner/developer very little skin-in-the-game. Exacerbating the “skin-in-the-game issue,” are owner/developers who request aggressive up-front fees to reimburse themselves for their time and expense finding and controlling the deal. The lack of skin-in-the-game poses a significant issue for potential partners who want to ensure that the owner/developer is properly motivated to see the property through to completion. These partners would rather have the owner/developers retain all possible equity in the deal rather than provide up-front compensation or reimbursement.

When Was the Last Time you Were Asked a Tough Question?

2/5/2013

We’ll start by saying that this blog entry is clearly targeted to our network of property owners and investors. For our broker and investment banker friends, listen up…it is a new world out there. Please thank us later.

We all know that financing your property is the secret to maximizing profitability. Whether it is a low interest senior loan, attractive mezzanine loans, or an equity partner you would never have thought was out there – there ARE resources out there to make you more money. Most owners and investors rely on their trusted brokers to provide access to financing sources. The vast majority of commercial real estate owners’ path to obtaining commercial real estate financing is through commercial real estate brokers and commercial real estate investment bankers. Typical garden variety commercial real estate brokers spend the majority of their time trying to place the loan as the shortest timeline until they get paid when the loan is made. This is contrasted sharply with the services of a commercial real estate investment banker who will perform a thorough underwriting of the asset before it is seen to their targeted lending sources. Our firm is one of many out there, but we pride ourselves on providing necessary additional services which typical brokers do not do….which makes us investment bankers, not just brokers.

What the F#%$ is a Special Servicer and How do I Manage Them?

9/17/2012

Over the last three years, the special servicer has emerged as a prominent fixture in the real estate world. Special servicers have always been a component of the real estate world, but it is the glut of matured and defaulted debt on the market that has given rise to the almighty special servicer.

Just so we are all on the same page: Special servicers effectively serve as middlemen to troubled loans. A special servicer services loans that are delinquent in repayment, matured without pay off, or are current but have some sort of existing credit issues with the tenants or borrowers. Loans enter special servicing when they are more than 60 days behind in payments, have matured, or a default has occurred or is imminent. Depending on the situation, the special servicer has leeway to modify/extend the loan, agree to a forbearance/workout, or they can choose to foreclose. The special servicer is contractually bound to act so as to maximize recovery for the lender/note holder.

The Legacy Assets Dilemma - Do You Chase Good Money After Bad?

3/30/2012

Your equity is gone. This is the first thing you hear and also the last thing that you want to hear. The reality is that the value of all asset types of properties has fallen dramatically in the last few years. Compounding the valuation problem is a profound change in the financing markets. Even if your NOI is solid and occupancy is rebounding high leverage financing solutions (which approached 95% of value) are no longer available. What is available now are conservative senior debt facilities in the 65% to 70% LTC/LTV range, or up to 70% to 85% LTV/LTC range facilities, but they are significantly more expensive. This lack of debt, therefore, requires a much larger equity investment, lower returns available to the equity, and ultimately drives the value of the asset lower.

What this means: You are facing a tough decision. Unless your property is a super-star trophy, you are facing either a capital call for you and your investors or loss of your asset.

The Tale of Two Lender Types – How to Protect your Deposit

1/16/2012

The harsh reality in today’s market is that there is a flood of fraudulent lenders whose only intention is to collect deposits. Ultimately there is no governing body or authority who is enforcing these fraudulent activities. In most cases the deposits are large enough to really be a pain in the pocket book, but not large enough to go through the burden of legal action. In the past few years only one or two lenders have garnered the attention of the FBI. These fraudulent lenders know that the possibility of legal action against them is remote, so it is incumbent on the property owners to complete as much due diligence as possible in order to protect their deposits.

A New Paradigm....Don't we Sound Smart?

9/5/2011

Our firm, David B. Norton Inc., is often asked how we compare today’s real estate market recession and banking institution losses to the 1980’s S&L crisis. In the 80’s, banking regulators were going into insolvent financial institutions to understand what they missed from last year’s exam. Was it the ever optimistic developers? Was it the banking loan originators reaching for individual production goals? Was it mortgage brokers reaching for a record commission year? Could it be MAI (“made as instructed”) appraisals that only reflected short term market conditions? Or, was it “Reaganomics” supply side control of the monetary system which caused interest rates to spike, 20% plus prime rate, and brought the residential real estate market to a halt coupled with the oversupply of commercial estate space that brought down the S&L industry?