Changes in structured finance require a keen eye.

As a national mortgage intermediary that closed more than $17 billion in transactions last year, Meridian Capital Group has an unparalleled capacity to monitor the latest trends in commercial real estate deal structures and deal terms.

Most important of all, we are able to put those trends to work in a way that benefits our clients across the country.

Two examples of deal terms that are becoming more and more common in the marketplace include interest only transactions, and an updated take on debt service coverage ratios and loan to value.

Let's first examine interest only transactions.

Three or four years ago, the market almost never saw amortization schedules running longer than thirty years. The market, however, has shifted.

The industry started to witness thirty-five year amortization schedules on some multi-family deals in New York as well as some other primary markets, such as Washington and Chicago.

This was followed by the emergence of one-to-three-year interest only deals. Then, for a short period in the first half of 2005, the market closed a number of ten-year interest only deals, structured for about a five-to-ten basis point premium to a straight thirty-year amortization.

These developments caused the B-piece market to revolt for a short period of time, which led to a considerable slowdown in interest only transactions.

However, a few such deals were closed, notably some big-ticket transactions here in New York City.

For a while, there were transactions with one to five years interest only, depending upon the conduit, for anywhere from par to five basis points.

About six months ago, the market started to see an upswing in ten-year interest only deals.

But this time, the transactions were not just in primary markets, but also in secondary and tertiary locations.

It should be noted that other factors helped to make these deals easier to conclude, such as the strength of the office and retail markets, and the presence of strong-credit tenants.

In the first quarter of this year, Meridian Capital Group has arranged hundreds of millions of dollars in transactions as ten-year interest only transactions.

The second trend Meridian has seen relates to debt service coverage ratios (DSCR) and loan-to-value (LTV).

For years, the mantra in the conduit world was to aim for a 1.20 debt service coverage ratio using a 30-year amortization and an 80% LTV. Deals could run higher than 80 percent of cost on an acquisition, but had to maintain 1.20 debt service coverage ratio and the 80 percent loan to value.

Then, similar to amortization schedules, circumstances started to shift.

The market started to see a 1.15 debt service coverage ratio with 80% loan to value, as cap rate compression continued and interest rates remained low.

On acquisitions with upside, some lenders would even go to 1.05 or 1.10, and possibly even 1.00 debt service coverage ratio, but with qualifications.

All such deals were done on an amortizing basis, in primary markets, on good real estate and for strong sponsors.

However, as the interest only market continued to expand--and the B-piece market absorbed each aggressive ratcheting of underwriting standards--1.20 interest only deals began to occur.

Now some lenders are funding to a 1.00 debt service coverage ratio on amortizing and 1.15 on interest only, while still maintaining 80 percent loan to value.

This syndrome is only possible through the combination of low cap rates and low interest rates. The same amount of cash flow cannot only support more debt at lower rates, but sales comps also justify the valuation. These dynamics now allow sponsors to buy out equity partners on refinancings more quickly then anticipated, thus driving up sponsor equity yields.

On acquisitions, the increased leverage--from a cash flow perspective --allows initial equity returns to increase.

Through it all, borrowers should remember one vital consideration: In a market characterized by so many new and flexible deal structures--and where these new structures are rapidly circulated throughout the industry--borrowers assume a good deal of risk if they choose to go directly to lenders for financing.

Such a rapidly changing marketplace poses many challenges and pitfalls.

That is why Meridian Capital Group counsels borrowers to turn to experienced capital advisors who will safely guide a borrower through the swiftly changing dynamics of dealmaking.

It is essential for borrowers to work with a partner who can choose among an abundance of alternatives and customize a structure that truly conforms to the borrower's particular requirements.

Even sophisticated borrowers can quickly discover that the process is simply too complex and fast-moving. More and more, borrowers recognize that monitoring rapid shifts in deal technology is essentially a full-time job.

Under current conditions, it makes sense to join forces with advisors who are immersed in the deal-making environment on a day-to-day basis--who see where the innovation curve is heading--and who have the hands-on experience to find just the right deal for each borrower.