Creighton & Associates has received an equity request for the acquisition of three commercial notes on a hotel portfolio.  The purchaser, an existing REIT, is preferably looking for an equity partner in the transaction, but is open to various structures for the loan request.

San Diego Marriott-Image Flickr.com

The current notes on the three hotel properties are for approximately $30 million.  The REIT is putting $15 million capital toward the transaction, and is looking for a debt or equity player for the remaining $15 million.  The broad overview has been submitted to the fund for review.

The fund does offer financing for commercial notes, though there are a few factors that have to be properly addressed for the funds serious interest in the scenario.  The first issue is property type.  In this case, the collateral is three flagged hotels.  In the current economy this isn’t as attractive as other commercial property.  The second issue is related to the projected rate of return for the funds $15 million investment.  There are many buying opportunities in the current market, so the return will need to be sufficient to justify the fund placing dollars here verses pursuing other more lucrative investments.

Note: The picture shown above is for visual purposes only.  It is not a subject property in this loan request.

The fund has a simple request…..”WE WANT FRACTURED CONDOS”.  Now I’m sure the next question you have is, what is a fractured condo?  In this particular case, the fund defines a fractured condo as a condominium development projects that was completed, units were selling….then the market disappeared.  Options are limited for the original developer or a bank stuck in this unfortunate position.

Currently the fund is looking for nationwide buying opportunities.  I can give a recent example.  In the southeast, a 200-unit high-rise condo project was completed.  50% of the units were sold and closed.  The market shifted, loan options to end buyers shifted, and the builder was left with 100 unsold condos.  In this particular case, the bank who has first lien position at $40 million was also under pressure from the FDIC to liquidate part of it’s portfolio.

The fund offered to buy out the developers position.  Yes the developer lost the original cash invested, however they walked away from $40 million of debt and a lot of headaches.  The fund then negotiated a discount with the bank to acquire the property for approximately $20 million.

The remaining units will be rented for a number of years until the economy improves and the units can be sold as was the original intention.  This is but one example and shouldn’t be used as a strict guideline, however what can be learned from this posting?  The fund is buying, and we want to see those scenarios!

Creighton & Associates has received a loan request for a resort development in the Upper Midwest.  The project will encompass development of 79-acres, including residential homes, time-share condominium’s, a commercial shopping village with restaurants, a central lodge and other resort amenities.

View of Lake Superior-Image Flickr.com

The developer has been working on project approvals for a number of years.  All local and federal approvals are complete, including the Army Corp of Engineers and other environmental reviews.  The initial loan request is for $15 million, and will include the completion of permits and phase 1 of the project development.

This project has not been sent to the fund yet, we’ve requested a full review package prior to submission.  The economic environment is very difficult for this type of development, and it’s important that a proper package be submitted for first review.  Primary issues of concern will be whether the market can support time-share condo’s in this region, the developers true cash equity in the transaction and the exit strategy.  In fact, the exit strategy may be the biggest issue of concern.  The developer will not be able to depend on a traditional exit loan or future construction loan in this current market.

Creighton & Associates has received a development loan request for a high-rise residential condominium building in New York.  The project has direct access to various subway terminals, and will have views of the Manhattan skyline.  The construction loan request is for approximately $60 million.

All project approvals and permits are complete.  The developer actually started construction and the original construction lender stopped funding the construction loan…no surprise in the current economy.  The goal is to take out or resubordinate the existing lender in 2nd position, and resume the construction project.

The initial scenario has been presented to the fund for consideration.  The fund is interested and has capability of handling this loan request.  Currently we have asked for additional information including status of the existing lien, a summary of any current of future pending litigation against the project, a detailed summary of pre-sales and a inquiry whether the developer will “come to the table” with more capital.  We hope to receive some responses to our questions this week.

Creighton & Associates would like to present a new forum topic question, “Should Congress manipulate the underwriting standards of Fannie Mae and Freddie Mac?”  Congress does have a history of manipulating Fannie Mae and Freddie Mac.  This isn’t a new occurrence due to the recent economy. Congress passed some serious legislation in the late ’80’s and ’90’s forcing Fannie and Freddie to LOOSEN their guidelines for providing loans to home owners.  The goal, “everyone in America should share the dream of home ownership.”

Fannie Mae Headquarters-Image Flickr.com

It can be argued that the government forcing Fannie and Freddie to lend to unqualified home buyers 20-years ago has been a primary factor with the economic mess of today.  You won’t hear that mentioned in the media, people like to forget events of 20-years ago, especially if it doesn’t match the current agenda.

Regardless, Congress and Representative Barney Frank (he was there 20-years ago doing the same thing) are at it again!  In a recent article on reuters.com, Congress is pushing to force Fannie and Freddie to loosen their guidelines related to providing home loans on condo buildings.  This time, the legislation is focused on loosening the underwriting guidelines for the property, verses the individual borrower.

Now I’m actually “on the fence” regarding this recent issue.  I have many builder clients who are trapped with vacant completed condo buildings, due to the fact that Fannie and Freddie won’t lend until certain thresh-holds are met.  At the same time, I can’t help but think, “here we go again.”

Readers, we welcome and look forward to your thoughts and opinions.  To read the full version of the article, “Fannie, Freddie asked to relax condo loan rules: report” click here.

Creighton & Associates has received a high-end residential cash-out refinance request.  The loan amount requested is approximately $3.5 million, and will pay off existing liens, debts and back taxes.  The collateral is an owner occupied single family residence with an estimated value of $5 million.

We’ve reviewed the initial package and detail and have had a few discussions with the borrower.  The package has not been forwarded to the fund yet, because we’re missing important information which is necessary for proper review.  The borrower is supposed to provide the missing data this week.

The fund has capability of funding these types of loan requests.  These files aren’t evaluated based on credit scores, assuming there is a logical explanation for past credit issues.  However, one pressing issue will be the appraisal evaluation.  At a quick glance, the appraisal is using comparables from over 50-miles away.  Unless this is truly a unique property, that won’t be acceptable.