Multi-Housing News - February 2009 - (Page 20)

finance & investment Overcoming the Capital Shortfall By Keat Foong, Executive Editor In its heyday, structured financing helped fan the industry’s investment sales market into a frenzy. Those days are now past, as buyers back off from acquisitions, but there are still circumstances in which structured financing—in the form of mezzanine debt or preferred equity—is appropriate. Generally speaking, Loan-to-Value (LTV) ratios imposed by senior mortgage lenders in the market are now dramatically lower than what they used to be. As a result, structured financing can still be needed to fill the capital shortfall. The standard of 80 percent in maximum LTVs in the senior debt has fallen to a maximum of 65 to 70 percent LTV today. Although the two predominant financing sources in the apartment market—Fannie Mae and Freddie Mac—say they offer up to 80 percent LTV, “Two forms of structured financing—mezzanine debt and preferred equity—can be used to supplement insufficient funding. ” they are now offering much lower LTVs when Debt Service Coverage requirements are taken into account, according to lenders. There are two forms of structured financing that can be employed to supplement insufficient financing. Mezzanine financing provides a second debt above and beyond the first mortgage. It uses a pledge of partnership interest or recorded second trust as collateral, as opposed to employing the property as collateral. Preferred equity, on the other hand, is not legally secured by any collateral and may require a participation in the profits. Fannie Mae and Freddie Mac financing do not allow for the addition of mezzanine debt, but they do allow for preferred equity. For this reason, preferred equity can be used for properties financed by the agencies. “Preferred equity can be structured and priced so that it looks and feels like mezzanine in terms of its returns,” says Michael Ryan, executive director at Cushman & Wakefield Sonnenblick-Goldman’s Not sure if your property marketing sucks? It’s a recession. Don’t find out the hard way. APARTMENT INTERNET MARKETING CONFERENCE $595* Owners & managers only. Vendors must be sponsors to attend. Yield-Focused Marketing Denver Marriott City Center Revenue Management Social Media Lessons from Other Industries and everything else about attracting renters online Watch videos of last year’s sessions and attendee testimonials APRIL 29 - MAY 1, 2009 Exclusive AIM 2009 media sponsor: www.aimconf.com February 2009 | Multi-Housing News | Official Publication of Multi-Housing World 2009 For more information, visit www.multi-housingnews.com/productinfo 20 http://www.aimconf.com http://www.aimconf.com http://www.multi-housingnews.com/productinfo

Table of Contents for the Digital Edition of Multi-Housing News - February 2009

Multi-Housing News - February 2009
Contents
From the Editor
Executive Insight
Perspective
NMHC Washington Outlook
Market Forecast: Gulf Coast
Renovating in a Recession: New Rules
Development & Design: Make Way for Modular
Products: Security
Finance: Structured Financing
Directory: Multi-Housing Finance Providers
Technology: Utility Management

Multi-Housing News - February 2009