Financing Foreign Investors

“when negotiating commercial real estate, one common variable holds true, each transaction is unique as the people and properties

involved” – Joe Berko

In New York, 90% of all real estate transactions are carried out with a Real Estate BrokerAdvantages of using a Broker

• Knowledge• Experience

An effective Broker knows how to analyze an asset

• Strengths/Weaknesses of Asset • Opportunities/Threats in Marketplace

A good Broker knows which Bank to place the loan with

• Gets the Best Terms• Knows How to Close

The Hammer Effect

No Room for Error

1. How do we help Foreign Investors obtain financing in the US?

2. What are the parameters of getting a Mortgage

3. Which Banks do we need to approach when were are financing different assets

4. Alternatives that exist in today’s market for Foreign Investors

5. Current state of financing as it pertains to the New York City Real Estate Market

Topics for Discussion

Overcoming the Bank’s SkepticismThe Bank has to undertake the following existing risk when funding a commercial loan:

• Bad Tenants• High Rollover• Vacancy • Difficulty in Leasing• Damages• Drop in Property Values (Micro & Macro)

The Borrower has to undertake the following risk factors as well:

• Bad Management• Absentee Landlord• Other Responsibilities that inhibit the Borrower from honoring its debt obligation

Part 1: Financing Foreign Investors

Part 2: Mortgage ParametersBank looks at the following:

• Experience • Economic Strength• Character of Borrower

Foreign Investor will likely have no local experience, no social security & no verification of payment of bills

Liquidity is the only source of Reliability

Simply put, Many Banks have a “No Lending Policy to Foreign Investors”

The Power of knowledge Berko & Associates works with a select group of banks that will fund Foreign Investors

Banks will deal only with well capitalized Borrowers.

Banks prefer borrowers that have contracted a strong local management company’s.

•Direct Deposits of Rent Roll into Account•Maintain Maintenance of Security Deposit•Large Escrow Accounts •East 100th

Part 3: Approaching The BankUnderstanding the philosophy of the Bank’s lending criteria is very important

The Broker must match the Borrower with the Right Lender

How do we determine between two similar offers from two similar Banks

• Underwriting Criteria• DSCR Requirement• Interest Rate• Which Appraisal Companies did the Bank Use

This makes a big difference between a satisfied client and a frustrated one

Example

•Underwriting Rate – 6%

•Escrow Violation

•Well known appraiser

  BANK A BANK B

Loan $1,000,000 $1,000,000

LTV 75% 65%

Rate 4.50% 4.50%

Amortization 30 years 25 years

Term 5 years 3 years

DSCR 1.25 1.35

•55% LTV if retail is greater than 25% of total income

• cure violations before closing

•Appraisal done in house.

*Bank A                         *Bank B

Success Comes With PreparationBanks are willing to lend to Foreign Investor when the borrowers are financially solid

The Asset is well positioned when the Asset has:

• Prime Location• Solid Tenancy• Local management company (Experienced & Reputable)• LTV up to 50 %• Interest Rate is similar to local borrower • Extra Escrow

Local Israeli Banks in New York City are selectively participating in funding Israeli Investors with better terms then local New York Banks on a very selective basis

• Criteria is an existing relationship

Part 4: Alternatives for Investors Joint Venture PartnershipAcquire an asset with Assumable Financing

• Shorter Process• Preapproved• Amount of Money, Interest Rate & Terms are Well Defined• No Surprises• Borrower Still Needs Approval & There is a 1% Assumption Fee

Buy an entity that holds the Asset; Assume its debt obligations & reap the benefits of the asset

• Easy Entry into Market.• In some case no need for any qualification process by the lender• Has it’s own risk

Part 5: NYC Market Overview

The NYC Real Estate Market is ALIVE & WELL In 2010, many new Banks entered the Real Estate Market Bank of China

• $800 Million loan for a 48 story Class A Office Building at 245 Park Ave

• $475 Million loan for 1515 Broadway Deutshe Bank

• $225 Million loan for 1775 Broadway CMBS Market has seen a 13% increase over the last year Construction Financing is slowly coming back.

Record Year for the Hospitality Industry in 2010

48.7 Million Tourists Spent $31 Billion Dollars in NYC last year 36 Hotels opened in 2010 with 26 Hotels expected to open in

the next 24 months Morgan Stanley

• $92.5 Million loan for the Hilton in Times Square

Historically Low Interest Rates; Lock in Now Low Interest Rates by Banks across all assets sectors Imminent fear of Inflation will cause Interest Rates to Rise Arbitrage Opportunity

• Relatively High Cap Rates with Low Interest Rates Sellers Receive Premium for Stabilized Assets. 2007 as an

example year. At the same time, Investors can profit from acquiring Leveraged

& Distressed Assets The overall consensus in that Real Estate is valued at 20% lower

than prior years New York City is unique because it offers investors stability and

growth opportunity .The Time is Now to Grab the Bull by the Horns and Buy

a Piece of the Rock.