SBO adapts to the times.
Bassuk said, "The landscape has dramatically changed with respect to permanent financing for Liberty Bond and 80/20 projects. This has occurred as a result of the decrease in market rents from levels projected in the initial underwriting for many of these projects. Especially for those projects still under construction, we are finding that lenders are requiring greater owner equity than originally contemplated."
According to SBO, this has created a need for new approaches and strategies to enable owners to maximize their permanent credit enhancement and reduce the required equity in their 80/20 or Liberty Bond projects when the construction lender's Letter of Credit is replaced.
One of the new approaches developed by SBO involves requiring eligible Seller/Servicers and DUS Lenders to actively compete for the right to represent an owner seeking permanent credit enhancement from Fannie Mae or Freddie Mac.
Other approaches include forward permanent commitments with long-term earn-out provisions.
"This latter approach was recently employed when SBO obtained a 5-year construction loan commitment plus a 5-year earn-out with respect to a substantial 80/20 project located in midtown New York.
Bassuk said, "Having Lender Representatives actively compete for the business is highly advantageous to our clients in today's rental climate. It was less important in the past when rents were rapidly rising and higher levels of permanent credit enhancement were generally more available as a result of these increasing rents. Sophisticated owners of 80/20 and Liberty Bond projects can no longer afford to choose Lender Representatives without careful pre-qualification. Each and every transaction must now be actively marketed to determine which Representatives can provide the best execution."
He added, "Owners should now require that when selecting Lender Representatives to underwrite permanent credit enhancement with either Fannie Mae or Freddie Mac, that financial advisors and brokers acting on their behalf make a broad solicitation of such Lender Representatives prior to their selection to determine which Lender Representative is willing to provide the most services and the best available program for the client's needs."
Differences in programs include the amount of available loan proceeds, pricing, structure (earn-outs), underwriting assumptions, fixed vs. floating rate financing, risk-sharing arrangements, credit worthiness of the Lender Representative, and the Lender Representative's ability to provide additional financing or equity from their own resources.
Bassuk indicated that SBO was on the cutting edge of satisfying the changing requirements of owners and developers for 80/20 and Liberty Bond projects.
"SBO is not a designated DUS Lender or Seller/Servicer for Fannie Mac or Freddie Mac and consequently has no vested interest other than obtaining the best possible execution for its client."
He added, "To achieve this end, we have pioneered the approach of soliciting in advance potential Lender Representatives for Fannie Mac and Freddie Mac to determine what each Lender Representative will provide to obtain the right to represent the owner. SBO determines--in advance--which Lender Representatives are willing to utilize their own resources, which will assume a greater portion of the risk with Fannie Mae or Freddie Mac, or otherwise provide additional proceeds, better pricing, or other structural or underwriting advantages."
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|Title Annotation:||Singer and Bassuk Organization|
|Publication:||Real Estate Weekly|
|Date:||Nov 19, 2003|
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