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Customary Fees Charged by Investment Bankers for Raising Capital

Posted by on 6:56 pm in Financing Strategies | 0 comments

Customary Fees Charged by Investment Bankers for Raising Capital

What should you expect in terms of fees charged by an Investment Banker? Our experience is that terms vary among investment banking firms but industry norms have been established and the negotiation of terms is generally not difficult. Fees are a totally different issue. Fees charged by investment banking firms for these transactions have varied greatly based on the size, expertise and reputation of investment banking firm, the current market, the value of the business, the goals of the business owner, etc. Although we have found some industry “fee” norms, the structuring of the fee portion of an investment banking agreement should be scrutinized and negotiated to align interests, to be fair to the business owner and, of significant importance, to motivate the investment banker. FEES Fee arrangements generally involve two components–a non-refundable retainer and a success fee based upon the amount of value received by the seller. For middle market deals, non-refundable retainers fall in the range of $25,000 to $100,000, with $50,000 or $75,000 being the typical retainer. Most investment bankers will agree that the retainer is fully creditable against any success fee earned upon closing. Most fee structures are based on a percentage of total value received, have a minimum fee (on the lower side of the middle market) regardless of value received and have an increasing fee percentage based on the sale process resulting in a value greater than agreed upon hurdles. Middle market deals classically provide for minimum success fees in the range of $250,000 to $750,000, with most minimums falling on the low side of this range. Success fees are usually based on the total value of a business and almost always are based on the value paid by the buyer not the proceeds realized by the seller. This has numerous implications. If a business has a value of $25M and has $10M of interest bearing debt outstanding (i.e. bank debt), and the banking fee is 4% of deal value, the banker will receive a fee of $1M (4% of $25M), not $600,000 (4% of the $15M the seller will realize after paying bank debt). Further, if the seller sells only 70% of his ownership interest in his business, the fee remains $1M (4% of $25M) even though the Seller may receive proceeds as low as $10.5M (70% x $25M – $10M). We typically see success fees in a very competitive market starting as low as .75% for deals at the highest end of the middle market and as high as 5% at the lowest end of the middle market. Prominent middle market investment bankers with “real” industry expertise target success fees of at least $1,000,000 per transaction. FEE STRUCTURE The art of structuring the success fee is to motivate the banker to achieve maximum value. To do so, it has become commonplace over the past decade or so to provide the investment banker with a greater success fee for achieving a value above pre-set hurdles. For example, if a 5 multiple of a $20M EBITDA business would result in a $100M value, a well structured fee might provide for a 1.25% fee on the first $100M of value, a 1.5% fee on value between $101M and $120M, a 2% fee on value between $121M and $140M and a 5% fee on value above...

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Non-Recourse CMBS Lending is Back

Posted by on 6:51 pm in Capital Markets | 0 comments

Non-Recourse CMBS Lending is Back

At its 2007 peak, the CMBS market reached $230 billion in sales. While we are a long way from that crest, the CMBS market has fought its way back: Wall Street banks report selling $1.25 billion during the week of Sept. 10 alone, and we are poised for $7 billion in new bonds in October. Issuance could hit $45 billion this year, partly because many loans written in 2007 are rolling over and are refinancing with new conduits. That total could rise to $58 billion in 2013 and $75 billion in 2014. Part of the issue is that there is a shortage of bonds in the market, since so much of the 2007 stock matured this year. All of this is good news for the industry, because the simple truth is that we can’t function without CMBS. The bond market remains the principal way that developers and owners convert temporary financing (often three-year construction loans) into permanent financing. Typically, this is accomplished with conduit loans, which are converted into securities and sold to investors. In early 2012, some commercial real estate industry authorities feared that when existing commercial loans matured, they would not be able to refinance and the properties would revert to REO status for portfolio loans and special servicing for securitized debt. However, the Fed’s recent announcement of low interest rates ‘til 2015 means that returns on T-bills narrowed to as little as 150 basis points, forcing the global investment community to look for yield elsewhere. This was followed by the announcement of QE3, which releases $40 billion a month in investment money back into the economy. All of which benefits real estate securities, which offer investors relatively high yields (we’re seeing B-piece CMBS investors achieving 20 percent and higher yields) and relative safety (CMBS delinquencies—at just 8.96 percent—have hit their lowest levels since the beginning of the recession). The New Conduit At present, the securitization market is in a good place: Ninety-two percent of loans that originated in 2007 and are rolling over will be refinanced at a value upwards of $362 billion. Borrowers considering CMBS loans will find available money at attractive rates, primarily because investors have achieved a comfort level, since lenders have moderated leverage and increased transparency on conduits. As a point of comparison, while portfolio lenders will provide non-recourse financing with a loan-to-value of as much as 65 percent, CMBS lenders will go as high as 75 percent. Although the LTV is not at the 90 to 95 percent level that prevailed before the financial crisis, it is loosening the credit market and creating liquidity. There had been concerns that the LIBOR scandal might affect CMBS, but in truth its impact is minimal: If the conduit loans behind the CMBS were floating-rate, they would have been pegged to LIBOR; however, considering that interest rates were kept artificially low by the LIBOR banks, borrowers benefited from even cheaper money, while investors saw lower returns. S&P Issues New CMBS Guidelines The rating agencies have also helped boost the current investor confidence in CMBS. Standard & Poor’s has amended its CMBS ratings after it didn’t rate a $1.5 billion Goldman Sachs and Citigroup transaction. According to S&P, its revised criteria comprise an exhaustive framework for rating standalone, large-loan and conduit/fusion CMBS deals. The firm evaluates properties according...

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Top 10 Fastest and Slowest Growing Cities in America

Posted by on 6:19 pm in Industry News | 0 comments

Top 10 Fastest and Slowest Growing Cities in America

Article by, Joel Kotkin, Contributor Forbes Since the housing crash of 2007, the decline of the Sun Belt and dispersed, low-density cities has been trumpeted by the national media and by pundits who believe America’s future lies in compact, crowded, mostly coastal and northern, cities. But apparently, most Americans have not gotten the memo — they seem to be accelerating their push into less dense regions of the Sun Belt. An analysis of population data by demographer Wendell Cox, including the Census report for the most recent year released late last week, shows that since 2000, virtually all the 10 fastest-growing metropolitan areas in the United States are located in Sun Belt states. The population of the Raleigh, N.C., metropolitan statistical area has expanded a remarkable 47.8% since 2000, tops among the nation’s 52 metro areas with over 1 million residents. That is more than three times the overall 12.7% growth of those 52 metro areas. Austin, Texas, and Las Vegas also expanded more than 40%, putting them second and third on our list. The populations of the other metro areas in the top 10 all expanded by at least 25%, or twice the national average. This jibes nicely with domestic migration trends and growth in the foreign-born population, both of which have been strongest in many of these same cities. The most recent numbers, covering July 2011 to July 2012, also reveal some subtle changes in the Sun Belt pecking order. Over the 2000-2012 period, the growth winners   included places like Las Vegas, Riverside-San Bernardino and Phoenix, all of which suffered grievously in the housing bust. Although they all clocked population growth better than the national average over the past year, none, besides Phoenix, ranked in the updated top 10. Growth momentum has shifted decidedly toward Texas. Austin’s population expanded a remarkable 3% last year, tops among the nation’s 52 largest metro areas. Three other Lone Star metropolitan areas — Houston, San Antonio and Dallas-Ft. Worth — ranked in the top six and all expanded at roughly twice the national average. The other fastest-growing metros over the past year include Raleigh, Orlando, Phoenix, Charlotte and Nashville. One unexpected fast-growth area has been Oklahoma City, which ranked 20th between 2000 and 2012, but notched the 12th spot last year, with a growth rate 60% above the national average. What explains these subtle shifts? Some of it can be traced, of course, to the stronger growth in energy-rich areas such as Texas as well as Oklahoma City. The differences are particularly striking when looking at varying economic growth rates among the country’s largest regions. In 2011 the Houston metro area, whose population is up by 1.4 million since 2000, also enjoyed the fastest GDP growth, at 3.7%, of any of the nation’s top 20 regions. Dallas-Fort Worth clocked a respectable 3.1%. In contrast, the GDP growth rates for the hip, dense metro areas lagged behind. Among the elite cities, the tech hubs of San Francisco , Seattle and Boston have done the best, posting GDP growth around 2.5%. But the economies of New York, Los Angeles, Philadelphia and, surprisingly, Washington D.C., grew at roughly half the rate of Houston. But it’s not just economic factors at play. One remarkable similarity in all the fastest-growing areas is their relatively low population densities. Although Raleigh and Austin are held out as “hip” cities, they have very low-density urban cores....

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Michigan RV Park – $3.8 Million

Posted by on 6:18 pm in Recent Closings | 0 comments

Michigan RV Park – $3.8 Million

Background: The investment unit originated a 3.8 million senior loan secured by a mortgage on 102 acres, 395 RV sites and 35 cabins and by personal guaranty from the developer. The credit facility was used for the final acquisition and final stage horizontal development of the park. Problem: Due to setbacks caused by another lender who could not fund the project in full it was imperative to complete the transaction within a short timeframe. The transaction was funded in less than two weeks start to finish. Strategy: CCP evaluated the closing deadlines as well as the construction requirements to deliver the project on time for the grand opening. We chose to conduct due diligence and concurrently start the legal documentation necessary to achieve the client’s end goal. CCP coordinated internal due diligence, internal, external, and sponsors legal, as well as title to facilitate the closing. Although this approach posed underwriting cost exposure to the sponsor it was the best means to achieve the desired end results. Result: The loan was repaid in full, on time resulting a ROI north of 20%...

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