A good mortgage is worth every penny.

Despite continued strong supply and demand fundamentals in most property sectors, the credit crunch of late 1998 - which put an abrupt end to many highly leveraged transactions and forced "name brand" lenders to reconsider their commitments to providing capital for certain transactions has forced a new financing paradigm on virtually all market participants.

With property values down somewhat from their late August highs, but with project costs not appreciably different than they were during that same period, today, the name of the game is capital structure and presenting transactions to lenders in a way that gets deals done.

For the small group of leading mortgage brokers handling the highest profile, most complex transactions, procuring capital for a project depends on the mortgage broker's ability to envision and then structure a project's capitalization in a way that satisfies lender's coverage and sizing requirements (especially for securitization purposes), yet achieves maximum proceeds for the client borrower, (particularly on acquisitions.

Key features of the successful mortgage brokers evolving skill set include:

* Identification and access to "off the radar" lenders who do the deals our clients need to get done (certain new lenders have "stepped in" to fill the void created by the demise and/or pull back of certain previously high profile lenders).

* A successful track record and experience placing construction and/or renovation financing.

* The ability to quickly understand the transaction economics, as well as property and market level factors.

The first and second point cannot be under-emphasized. Of the $1 billion of debt and equity transactions arranged by Carlton last year, approximately $400 million of same were projects which had a significant renovation or pure construction element to them. In addition, we expect to close in excess of $300 million of additional renovation/construction loans by the end of the first half of this year. These projects include hotels, luxury condominiums and rental housing. In addition, leverage of up to 90 percent (even 95 percent) is still available for good projects with sound economics, recognizable upside and solid borrower track record.

Time and again, The Carlton Group has responded to provide borrowers with the necessary capital to complete their projects (we closed approximately $250 million of financing during the credit crunch in November and December of 1998).

With respect to 1999, I believe that capital structures will be akin to baking a cake, i.e. layering the proper ingredients in order to achieve a desired structure. Access to new Senior Lenders, coupled with new mezzanine and institutional and private equity investors willing to take risk in order to achieve desired IRR's will be the recipe for successful capital structures. The days of one-stop shopping for a borrower's capital are largely over; however, with the right finance advisor, desired leverage and proceeds can be readily obtained.

The Carlton Group is a national real estate advisory firm prominent in investment sales, debt and equity placement and commercial and residential loan sales, which transacted in excess of $2 billion of loan sales, financing and property sales during 1998.

Howard L. Michaels, Chairman, Carlton Advisory Services, Inc.