Whether you want to develop a property from the ground up, acquire an existing property, or refinance a property you already own, Essex can help. Our long-standing relationships with a variety of capital sources allows us to manage all pieces of the capital stack and creatively tailor each financing program to best meet the needs of our borrowers and their investment strategies.
Permanent non-recourse debt can range from 5 to 30 years. The interest rate can be fixed or floating for the duration of the loan term, and most permanent debt has a 25- to 30-year amortization. The keys to permanent non-recourse financing are stabilized occupancy and economics, moderate leverage (less than 75% LTV), and a strong track record for the borrower. Permanent non-recourse lenders include life insurance companies, CMBS conduit lenders, and select banks.
Most non-recourse bridge financing has a transitional component to the real estate - high vacancy, known vacates in the rent roll, or significant needed capital improvements are three examples. As a result, bridge financing is short-term by design, usually between 2 and 5 years. Most non-recourse bridge lenders charge a higher interest rate than traditional bank debt, as they are taking additional risk with non-recourse terms. Bridge lenders can lend from 70-90% of the capital stack and fund future dollars for capital improvements, tenant improvements, and leasing commissions.
The national, regional, and local banks control the lionshare of construction financing for commercial real estate properties. Traditional construction loans are approximately 2 to 3 years in duration (some banks offer mini-permanent loans upon construction completion), and the interest rate is composed of a spread over a short-term index (usually 1-month Libor). Select life insurance companies have construction-to-permanent loan programs for those developers and real estate owners that want to hold their developments long term. These construction-to-permanent loan programs allow the borrower to fix an interest rate at construction commencement to avoid future interest rate risk during construction. Permanent terms behind the construction period can be as long as 30 years. Additionally, debt funds have a small sliver of the construction financing pie, providing higher leverage non-recourse option for a higher interest rate. All construction lenders require a completion guaranty from the borrowing sponsor.
Single-Tenant / Owner-OccupiedExpand+
Single-tenant financing is based on the credit strength of the tenant. Most single-tenant lenders want long term leases and investment grade credit (higher than BBB- by S&P or Baa3 by Moody's), but some will finance owner-occupied buildings and non-credit tenants based on review of the tenant's financial statements.
Mezzanine debt is subordinate capital that is secured by the borrowing entity's interest in the real estate. Mezzanine debt sits between the senior debt and equity, and is often a more expensive capital source because it's unsecured and in a junior position. Current mezzanine interest rates range from 8% to 15% and allow borrowers to bridge the capital stack up to 90%.
Essex arranges preferred equity for its borrower clients through a wide array of life insurance companies, institutional investors, and private capital clients. Preferred equity is equity capital that has a priority interest and return threshold prior to the sponsor getting a higher disproportionate share of the cash flow. Preferred equity structures vary widely by asset type and risk profile.
Joint Venture EquityExpand+
Essex has extensive experience in arranging institutional joint venture equity for development projects and acquisitions of a commercial real estate assets. Joint venture structures can vary widely by asset type, risk profile, and location. Please contact an Essex producer for more specifics.