Maverick Real Estate Financing E-Book

Steve Bergsman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 362

Veröffentlichungsjahr: 2006

Beschreibung

Praise for MAVERICK REAL ESTATE FINANCING "Once you start reading, you won't be able to put the book down. You will feel you are part of the deals that industry leaders have put together. This is a real book about real people and how they address risk and reward." --Bruce S. Schonbraun, Managing Partner The Schonbraun McCann Group LLP "Bergsman applies a journalist's logic to the complex world of commercial real estate, making it easier for outsiders to understand. He writes with the authority of a true insider." --Brannon Boswell, Managing Editor Shopping Centers Today "Congratulations. Finally, someone has written a book that reflects real estate finance in the twenty-first century. With the growing proliferation of real estate education in university business schools today, this book should be required reading!" --James D. Kuhn, President Newmark Knight Frank In Maverick Real Estate Financing, Steve Bergsman--author of the widely acclaimed Maverick Real Estate Investing--describes the various financing methods you can use to achieve real estate investment success. Maverick Real Estate Financing also introduces you to an innovative group of real estate professionals who have used these methods to build substantial fortunes. By listening to some of the world's most successful real estate Mavericks--includingWilliam Sanders, W. P. Carey, and Stephen Ross--you'll discover what sets them apart from the rest of the pack and learn how to apply their proven principles to your own real estate deals. Each chapter examines a different real estate financing technique and the Maverick who best exemplifies it. Some of the strategies and products discussed include: * Equity financing * Public and private REITs * Agency loans * UPREITs * Commingled capital * Retail site arbitrage * Conduit loans * Sale-leasebacks * Distressed mortgages * Low-income housing tax credits (LIHTCs)

Leseprobe

Contents

Introduction

Chapter 1: The Most Amazing Real Estate Company Ever—Again!

Getting About

Huge Development: Verde Microcosm

El Paso to Chicago

The Grand Experiment

Chapter 2: Real Estate Loans

The Construction Loan

The Bridge Loan

The Hard Money Loan

The Permanent Loan

The Mezzanine Loan

Stick to Your Knitting

Triangular Approach to Real Estate Finance

Chapter 3: Advantages and Disadvantages of Conduit Loans

Nature of the Beast

Competition Brings out the Deals

Limitations

The Prepayment Problem

A Long Road Ahead

Stumbling Toward Efficiency

Go Big

Next Step And Misstep

Chapter 4: Agency Loans: An Easy Way to Finance Multifamily

The Fannie Mae Approach

Fannie Mae Dollars

Freddie Mac, A Different Beast

Nod To Freddie Mac

FHA Business

The Process

Forming the Model

Prudential’s Numbers

Chapter 5: Giving It Up for Equity Financing

Attainable

Filling in the Capital Stack

Sounds Expensive, but not Really

Good Financing for Apartments, But can be used Almost Anywhere

Promotes and Percentages

Creating Companies that Finance Development

First Start-Up

L.J. Melody Meets CB Richard Ellis

A Varied Business

Chapter 6: A Very Useful Subsidy

Application Process Hints

Tax Reform

How It Works

Keep to Quality

The Syndicators

Don’t Stint on Quality

Soaring Heights

Finding the Unexploited Niche

Opportunity for Change

Chapter 7: Turning Real Estate into Capital

Acquisition and Property Lease Symbiosis

Rental Rate Balance

Long-Term Tenant

Increasing Popularity

A Host of Benefits

Variations on a Theme

Second Variation

A Pioneer in the Field

A Buyout Option

Rolling up Limited Partnerships

Passing The Baton

Chapter 8: Retail Site Arbitrage

Strategies

A Common Strategy

Getting to the Top

Chapter 9: De-stressing Distressed Mortgages

Distressed Mortgages Versus Distressed Real Estate

A Decade of Investing in Distressed Mortgages

A Quick way to buy Distressed Properties

Always Opportunities

Lenders Want to Divest Troubled Loans

Owning Mortgages is all about Control

Banks Like to Sell Big

Good Works Creates Good Contacts

Arbitrage Between Bank and Investor Valuations

Raise Capital in Advance to Move Quickly

Distressed Loan Buyers Follow the Markets

Betting on Real Estate–Dependent Operating Companies

U.S. Market Still very Efficient

Chapter 10: Commingled Capital

Primary Pools

What Is It?

A Better Product

Good Business

Better to be a General

A Long Development

Immigration Success

Global and Broad-Based

New Structure

Chapter 11: Of REITs and UPREITs

Positive Attributes

Enhance the Intangibles

Downside and a Down Market

Organization

Operational Structure

Solving a tax Problem

The Tale of Taubman Centers

The Son also Rises

Creating Liquidity

Multitiered Ownership

Creating Opportunities and Dollars

Chapter 12: The REITs That Don’t Trade Publicly

New Investment Unveiled

Comparisons are in Order

Not Without Criticism

The Joys of Private Reits

Investment Happiness

Misunderstood Marketing

Not so easy to Organize

Humble to Rumble

Representing the Money Side

Innovative Concepts

A Different Corporate Culture

Index

Copyright © 2006 by Steve Bergsman. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data

Bergsman, Steve.

Maverick real estate financing : the art of raising capital and owning properties like Ross, Sanders, and Carey / Steve Bergsman.

p. cm.

Includes bibliographical references.

ISBN-13: 978-0-471-74587-7 (cloth)

ISBN-10: 0-471-74587-1 (cloth)

1. Real estate investment. 2. Real property—Finance. I. Title.

HD1382.5.B467 2006

332.63'24—dc22

2005029364

To my lovely wife, Wendy, and my two, wonderful boys, Ethan and Aaron

Introduction

The inspiration for Maverick Real Estate Financing derived from my experiences promoting my first book, Maverick Real Estate Investing.

When I undertook a series of lectures and book signings to help market my first real estate tome, I found most people wanted to hear reassurance about their inclinations to make an investment in real estate. They had land they wanted to buy, a concept for investment but most of all they wanted to buy a house, fix it up, and sell it. Most of them had heard about these seminars offering tips on how to buy a house with no money down or how to flip properties.

Although I don’t believe in either of those methodologies, I tried not to be too negative and attempted to impart key, prepurchase procedures concerning such necessities as market research. There were two things that concerned me in 75 percent of the situations where my audience held a somewhat fixed idea about what they wanted to do in regard to real estate.

First, they had given no thought to investigating competitive market conditions other than to ascertain nearby properties values. Consequently, they didn’t know, for example, if they were to buy a house as a rental investment property, whether an existing glut of apartments in that community would make their purchase difficult to rent and thus unprofitable. They didn’t know whether they were buying into an up economy or a down economy.

Second, these novice investors had no concept of the inherent price of capital—what it would cost to borrow, what form the loan would take, and how it would eventually affect the value of the investment. Fortunately, the year of my book, interest rates were still very low, and this gave even the most naive investor a forgiving climate to indulge in outright stupidity.

For investors starting out, venturing into a first property acquisition, the margin of error was relatively wide, considering where interest rates were at the time. Nothing stays the same, obviously, and interest rates would eventually rise, while demand for property would push up pricing. The margin of error would quickly erode with subsequent investments, subsequent leverage, and any change in market conditions. If the financing was expensive, a reversal of fortune for the investor was definitely at hand. This is what the new Donald Trumps didn’t understand.

As I mulled over these issues, I came to see I should do a follow-up book on the subject of financing and ancillary necessities such as corporate formations. Unlike my first book, in which many of the people I profiled were household names, the names in the world of real estate finance aren’t as well known to the general public. Conversely, if you work in the industry, you will recognize all the people profiled in Maverick Real Estate Financing. After all, who is more important to know, another investor or the person who will lend you money?

I spent an unusually long time deciding which chapters should be included, because I came to realize that how the investment is organized is equally as important as how the investment is financed. Think of these as the approach and the endgame. The quest for the right kind of real estate financing eventually moves the machinations forward. With luck, a portfolio of investments is created. The process does not end there. Entrepreneurs have continually searched for the most convenient, legal, tax-advantaged vehicle to hold those investments. As much financial engineering goes into the latter as the former.

Finally, there was the question about what to do with William Sanders. I knew I wanted him in the book, but he didn’t fit neatly into a real estate financing chapter. In some regards, he really should have been in the first book, because he has been one of the most successful and imaginative real estate investors this country has produced. However, he was not successful in creating a vehicle for holding those investments. He wanted public valuation with what should have remained a private structure. His company, Security Capital Group, was never very well understood by Wall Street, and in the end he dismantled it, but not before creating some of the biggest real estate companies in their individual sectors, such as ProLogis in industrial.

My solution was to create a first chapter about William Sanders that would in many ways sum up all the chapters.

That freed me to do two things. First, I expanded my list of people to be profiled to include developers and real estate entrepreneurs, because they represent the best users of capital and finance tools. Second, I was able to set the book’s structure.

The earlier chapters (after the Bill Sanders chapter) involve true real estate finance—how to get the capital necessary to pay for whatever type of investment you want to make. Obviously, there are myriad ways to make that happen, and I tried to cover the most apparent as well as some of the more esoteric, from simple bank loans to agency loans to equity to low-income-housing tax credits. Most of the gentlemen interviewed here would be considered financial guys of one sort or another. This group includes Jack Cohen, Brian Stoffers, Michael Mazzei, David Twardock, and W. P. Carey. Although now known as a developer, Stephen Ross is in this group because of his pioneering use of low-income-housing tax credits, which is a financing mechanism with which he is still associated through cross-corporate relationships.

The middle chapters cover investment strategies based on corporate finance techniques, and the two gentlemen interviewed here are as different as they can be in the real estate world. After decades in real estate investing, Thomas Barrack prefers the opportunity fund structure, while Milton Cooper remains one of the best corporate chieftains in the real estate industry, having built Kimco Realty Corporation into the largest nonmall retail REIT in the country.

The later chapters cover what I call corporate formations, essentially different organizational strategies for holding those investments you struggled so hard to find and acquire. Again, this is a mixed bag of individuals. Maury Tognarelli is a true finance guy, whereas Robert Taubman is of the corporate stripe, the chief executive officer of the mall REIT, Taubman Centers Inc. The last fellow in this group is Leo Wells, who splits the difference—part corporate and part finance.

Real estate financiers are not well known, although they are equally important, successful, and wealthy. Also, some of the financiers are not entrepreneurs but corporate employees who, through either hard work or unusual vision, have helped to create new arenas in real estate finance. I had to make room in this book for both kinds of people.

One final note. Lest you think real estate finance is not very important, consider this: It’s because of our country’s diverse, deep, and inventive ways to create financial products that we have been able to build a commercial real estate industry that is strong, effective, viable, and different from almost all other countries in the world today. Not only have we been able to create individual wealth, but more important, real estate finance has allowed more people to invest in real estate than at any time in world history.

Chapter 1

The Most Amazing Real Estate Company Ever—Again!

William Sanders isn’t as well known as Donald Trump or Sam Zell, but no single person has created as many important real estate companies as Sanders. Now in his sixties, Sanders is attempting to build one more great dynamo. For better or worse, his new venture won’t be anything like Security Capital Group, his fantastic but flawed real estate company that tried to be all things real estate.

When I stepped outside the airport terminal and into the white light of an El Paso morning, I looked around for my ride, which hadn’t yet arrived. I must have stood on the curb for a long time, because I drifted into a sunlight-induced somnambulant state of waiting and didn’t see the man approach me. “Steve Bergsman?” he asked. I nodded and shook hands, I guess somewhat reluctantly, because he laughed and said, “Don’t worry I’m not the FBI.”

He easily could have been, because arranging an interview with William Sanders took a lot of work, a lot of time, and probably a full body scan and scrutiny of my personnel records as kept by some secretive governmental organization.

While researching Sanders before my meeting with him, I came across an old story written during his heyday as chief executive of Security Capital Group. It read: “In a business dominated by unabashed self-promoters, Sanders is an oddity. His name doesn’t even hang on his small office buildings. There is not a single color photo of him available. He is said to make anyone who works with him—inside the company or out—sign confidentiality agreements. ‘We don’t want anyone to make off with our ideas. I am shocked at what my competitors say publicly,’ he says in a polite phone conversation to explain why he won’t be interviewed.”