The New Dynamics of Commercial Real Estate Financing

1
The New Dynamics of Commercial Real Estate
Financing

• Presented by
• Jonathan L. Schuster, CFA, CPA, CMA, CFM
• Partner, Axley Brynelson, LLP
• 608.283.6769
• jschuster_at_axley.com

2
Agenda

• Introduction and Overview
• Commercial Lending Trends
• Equity Financing Trends
• Comparison of Real Estate Syndications
• Securities Law Considerations
• Concluding Remarks

3
Introduction and Overview

• Introductory Comments
• Overview and Discussion

4
Commercial Lending Trends

• Due Diligence / Underwriting
• Loan Applications / Commitments
• Commercial Lending Terms
• Loan to value
• Interest rates
• Term
• Recourse and Nonrecourse
• Debt service coverage ratios
• Guarantors

5
Equity Financing Trends

• Equity in Real Estate
• Subordination of Fees / Deferred Fees
• Credits
• Third Party Sources and Structure
• Entrance fee
• Condominium hotel
• Real estate investment trusts
• Entity syndications (LLC, LP)
• Tenants in common

6
Comparison of Real Estate Syndications

• Syndicated LLC Structure
• Hybrid entity offering flexibility and pass
  through tax treatment
• Management by manager / sponsor
• Tenants in Common
• Deeded, undivided fractional interest in real
  estate
• Revenue Procedure 2002-22
• Voting Proportionate sharing of profits, losses
  and debts No business activities Management
  agreements

7
Securities Law Considerations

• Definition of a Security
• Interest in Limited Liability Company
• Investment Contract

8
Securities Law Considerations (continued)

• Investors
• Accredited Investor Individual
• Accredited Investor Institutional
• Non-accredited Investor

9
Securities Law Considerations (continued)

• Implications Federal and State Law
• Anti-fraud provisions
• Offering must be registered or exempt from
  registration
• Prevalence of Regulation D but prohibits general
  advertising and solicitations
• Use of third party intermediaries

10
Securities Law Considerations (continued)

• Ramifications of Violations Federal and State
  Law
• Civil liability
• Right to rescind
• Damages
• Criminal liability

11
Concluding Remarks

• Due Diligence and Underwriting Drives Financing
• Structure Objectives and Constraints
• Exhaust and Layer Financing Sources
• Creative Thinking
• Use Professional Advisers

12
The New Dynamics of Commercial Real Estate
Financing

• Jonathan L. Schuster, CFA, CPA, CMA, CFM
• Partner, Axley Brynelson, LLP
• 608.283.6769
• jschuster_at_axley.com