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Real estate borrowers seek relationship-driven lenders

Borrowers considering debt from relationship perspective, both from banks and funds, delegates at LMA hear.

The lenders who will succeed in the current competitive real estate lending environment are not necessarily those which will make the biggest concessions but those that can think more about borrower needs, Tuvi Keinan, partner at Brown Rudnick, said on a borrower panel discussion at the Loan Market Association (LMA) real estate finance conference today. 

Furthermore, the lending market needs to catch up with buyers that are looking at deals considered less vanilla, he later noted. “For certain development deals, lenders are looking to adjust the model but moving at a very slow pace compared to how market pricing is going, especially if a development needs to be levered more than 50 percent.”

Derrick Beare, partner at Zenprop UK, said that it was all about relationships for them when selecting a lender and “that every relationship is different”. That was affirmed by Andrea De Simone, executive director at Morgan Stanley Real Estate Investing who reflected that the environment has changed. 

“In the post crisis environment it is much more difficult to find lenders who are able to lend everywhere. Global players, investing across markets and asset classes, now need more lending relationships. The era of global lenders-do-everything is over,” said De Simone. 

One borrower went so far as to preface funds with the word relationship, a term more commonly linked to banks.

“The key characteristics we look for in lenders is speed, commerciality and a solid relationship. We like relationship banks and relationship funds,” Jason Kow, chief executive officer at Queensgate Investments (QI) said.

Many vendors are focused on a quick sale, borrowers said, which dictates the speed at which they want to close deals, and which presents an opportunity for debt funds to provide bridge financing. 

Kow, whose firm is focused on opportunities where the competition is “more rarefied” such as asset rich operating companies and hotel-led development, cited a deal which was initially financed by two debt funds and later refinanced with senior debt financing from a bank. The mezzanine debt was ultimately provided by a debt fund.

“QI structured senior and junior bridge financing which allowed speed of execution and the ability to pass on savings to equity by way of restructuring senior post acquisition. The restructure had the ability to materially reduce our cost of financing post acquisition,” he said.

The initial transaction took about ten days, Kienan said, whose firm has acted an advisor to QI.