Demanding economy requires creativity.

In the past year, lenders and investors of retail properties have faced a challenging new obstacle, the fragile financial state of both tenants and developers of commercial properties.

In these unique situations, lenders are utilizing imaginative thinking and a novel creative approach to secure financing. At AFC Realty Capital, we have become increasingly involved in transactions in a principal capacity.

One such case occurred recently with a 10,000-SF retail center located at 718 Broadway in Manhattan. The property was located in the heart of the NoHo/SoHo retail corridor, one of the metropolitan area's most desirable retail markets. That didn't forestall a very grim future after the building's owners were forced to file for bankruptcy and were void of capital to conventionally refinance the asset.

Yet, thanks to the efforts of AFC Realty Capital and its willingness to provide capital to secure a loan, ownership was able to receive the necessary financing and reemerge as a fiscally sound, prime retail destination.

The property, a commercial cooperative unit, had been owned and occupied by NoHo's Unique Clothing Warehouse Realty, Inc. since 1980. Due to a declining retail market for several years, NoHo Unique was forced to close its store and the owning entity to file for bankruptcy.

In the early 1990's, the retail operation closed and the space was leased to two prominent retailers - Jimmy Jazz and Ricky's. Because of other business challenges, the landlord was eventually forced to file for bankruptcy.

That's when the owner turned to us to help arrange financing to pay off exiting secured and unsecured lenders.

However, we immediately faced our first hurdle. While most lenders recognized the strong value of the property, many were hesitant to make a loan due to the owner's current bankrupt status.

This could be attributed to regulations which penalize banks for financing borrowers in or just out of bankruptcy, thus institutions generally have a reluctancy to lend in situations where bankruptcy is a factor.

With a property value in the range of $6 million, we were very confident it could arrange the $3.6 million in financing required to save the property. So sure, we decided to provide capital which would guarantee a portion of the loan and help appease lender's indecision.

AFC agreed to provide credit enhancements to the borrower, essentially purchasing a "B piece" or co-signing the loan. This guarantee would put the loan into a higher credit category with the bank.

Our willingness to lend financial support, allowed the bank to feel more comfortably making the loan to the borrower. The loan will allow the borrower to rehabilitate his finances and emerge from bankruptcy.

This transaction vividly illustrates the unique methods being employed by today's commercial lenders in order to design capital structures for troubled properties. As current economic uncertainties change the tools of real estate finance, institutions will continually be forced to provide an even wider range of financing options tailored to the unique financing needs of their clients.