Rebalance The Stack RTS Geoffrey Curme NC CCIM
Rebalance The Stack (RTS) Geoffrey Curme NC CCIM Chapter Member
Rebalance The Stack (RTS) Geoffrey Curme NC CCIM Chapter Member CCIM NC Chapter Geoffrey Curme has 40 years combined experience in NC based banking and commercial real estate (CRE), and currently serves as senior broker for Coldwell Banker Commercial MECA in Charlotte. The notion to Rebalance The Stack (RTS) stems from KC Conway’s April presentation to CCIM wherein he exhorted members to retool their skillset for alternative value add service to clients. The idea of RTS is for CCIM’s to assist CRE owner/borrower clients source funds to survive coronavirus triggered economic impairment. Many owner/borrowers will need to “rebalance” (pay down) loan amounts in return for loan payment forbearance.
WELCOME TO Rebalance The Stack A Plan to Manage Coronavirus Market Disruption & Enable Quality Equity Placements
Rebalance The Stack (RTS) Rebalance The Stack • A three-way initiative to rebalance • pre-Coronavirus loan exposure, • maximize Coronavirus era revenue flow for each Participant, • and fortify each Participant’s investment (loan or equity) to survive the rental rate fall during the Coronavirus pandemic. Assume a two-year rental rate stabilization. CCIM NC Chapter • Based on a 6/1/2020 Wall Street Journal (WSJ) article, the Congressional Budget Office projected that it could take 10 years for US economy to fully recover from coronavirus economic impact. • Participants • Commercial Real Estate Lenders (Lenders) • Commercial Real Estate Owners (Owner/Borrower) • Investor with new capital (Capital Provider) • Rebalance the Stack on the Ground Team (RTS Ground Team) [1]
Rebalance The Stack (RTS) Rebalance The Stack CCIM NC Chapter • Coronavirus Problem: The Lender Perspective • Disclosure: not presented in order of priority • (1) Regulatory compliance in general and properly margined loans in particular (timing is urgent/2 H 20) • (2) Forecasting loan loss, • (3) preserving income streams and • (4) minimizing loan loss reserves with Regulatory
Rebalance The Stack (RTS) Rebalance The Stack CCIM NC Chapter Lender Needs 2 H 20 Timeline Lenders will demand loan reductions in return for Owner/Borrowers requested forbearance agreements. Forbearance agreements are a way to reduce cashflow. Loan reductions necessarily involve • capital infusions for UPB paydown and • Rebalanced Reserves • interest payments • repair & maintenance • property taxes • hazard insurance • tenant improvements (3) Lenders will also be looking to generate as much income as possible, looking to minimize legal/asset recovery cost.
CCIM NC Chapter Rebalance The Stack (RTS) Rebalance The Stack • Coronavirus Problem: The Owner/Borrower Perspective • Disclosure: not presented in order of priority • Maximize individual property and portfolio stability, • preserve asset values, • preserve income, • minimize actual loss including those generate phantom income (think income tax liabilities and no cash to pay), • preserve the enterprise (live to fight another day)
Rebalance The Stack (RTS) Rebalance The Stack • Owner/Borrower (Equity) Needs CCIM NC Chapter • Owner/Borrower will need capital equity infusion • to pay down loan, • to fund tenant improvement obligations and fund other lender stipulated cash reserves. • Each owner will want to maintain decision making rights. • Notice: Owner/Borrower will need to pay own overhead costs • Also, Owner/Borrowers will want to negotiate terms to maintain ownership after the forbearance agreement/equity placement agreement runs.
Rebalance The Stack (RTS) Rebalance The Stack Coronavirus Problem: Capital Provider Perspective [2] (1) Have capital, (2) invest wisely and with quality in mind and (3) be able to get out (exit) (4) Invest also with long term in mind, build relationships with other Participants for future business (5) Investment temperament must align with risk tolerance. CCIM NC Chapter Capital Provider Needs (1) Quality Properties to invest in and (2) quality Owner/Borrower to co-invest with. No schmucks. Have approval on major decisions. (3) Risk adjusted rates, +/-10% floor and fees and possibility Underwriting that provides tried and true “prudent man” practices + extra margin of safety for Coronavirus “rate fall/ rate stabilization. ” Broadened Diversification Reduced investment sizes, say $10 million (or lower) to $15 million (or lower) to spread Coronavirus era risk positions. Structure Preferred equity positions to (1) strengthen capital realization and better assure cash flow distributions
Rebalance The Stack (RTS) Rebalance The Stack CCIM NC Chapter Footnotes: [1] RTS Ground Team to form an entity/LLC consisting of Pete Frandano, CCIM Geoffrey Curme (CRE) and/or affiliates of the businesses they represent: T. B. Harris, Jr. & Associates, Inc. (Harris) and Coldwell Banker Commercial MECA (MECA). Scope of work includes but not limited to sourcing and placing bona fide Owner/Borrower equity needs. Our approach will be no nonsense, no bravado. RTS Ground Team members will monitor property & investment performance and report results to Capital Provider. MECA has an asset management component to it business. During the 2009 -2014 timeline MECA served many lenders with asset management and asset recovery services, and currently serves as national REO manager for Fifth-Third Bank. a. RTS Ground Team and its principals will be vetted for conflicts of interest & compliance with its governing bodies. RTS Ground Team will work with several capital providers via Gary Lyons and his Avison Young colleagues. Mr. Lyons served as president of NC CCIM Chapter of CCIM in 2009 b. No exclusivity. RTS Ground Team asserts no exclusivity to helping CCIM members source capital. There are other, NC based well regarded asset management firms to work with and who have good access to capital providers. [2] The Capital Provider perspective includes rights to modify investment terms to compensate for unanticipated events and/or an adverse event, e. g. Owner/Borrower bad boy behavior, rental rate deterioration, expense overrun, etc. Invest wisely also includes simple investment structure, no need for brain damaging complexity.
Thank You Any Questions?
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