BRT CEO: plenty of debt and equity capital in NYC - BRT Realty Trust - chief executive officer - New York City - Industry Overview

Debt and equity capital is plentiful in New York and interest rates are at historic lows. A few years ago, when real estate fundamentals were healthier than today, everyone rushed to put their money into the thriving stock market. Today, despite deteriorating fundamentals, properties are continuing to command high prices and real estate investment looks a lot better than the stock market which drifts up, but mostly down, in response to the latest figures on consumer spending, unemployment and disappointing corporate earnings or in reaction to corporate scandals and bankruptcies.

With confidence in real estate investment high and capital to finance it abundant, it would seen to be an easy time to borrow money. But, having learned from the past, many lenders remain conservative. Stringent underwriting standards are the norm, including an unwillingness to lend on speculative developments or projected income. While this caution has protected the New York market from the kind of downward plunge that marked the late 1980's and early 1990's, strict criteria also means that a large amount of capital is laying fallow as it chases the same deals.

A borrower with a fully leased building and good track record seeking a low loan-to-value mortgage will have no difficulty being pursued by numerous sources of capital. For everyone else, the combination of a questionable market and lenders who are carefully, narrowly and painstakingly defining what they are willing to finance has led to growing prominence for short-term bridge and mezzanine financing.

By their ability to provide immediate funding for acquisition, refinance of undervalued properties or stabilized real property, short-term lenders have always been a critical resource for borrowers unwilling to be bogged down with delayed or flat out rejection from commercial lenders. In today's market, bridge lenders provide the opportunity to obtain funding for an opportunistic acquisition, for an owned property in duress or to stave off foreclosure or bankruptcy with the long-term goal of refinancing with a traditional commercial lender at a later stage.

While short-term bridge lenders are also selective about the quality of their deals, on income-producing properties BRT will, for example, offer bridge financing to 85% loan to value secured by first and second mortgage loans and participation loans to 90% loan to value and joint venture opportunities.

BRT is making a number of acquisition loans on existing income properties and is receiving more inquiries from building owners seeking bridge loans to allow time for them to re-tenant properties not completely leased or those recently vacated. BRT is also seeing more business in mezzanine lending where borrowers can recapture equity via assignment of cash flow or partnership interest, rather than through junior recorded mortgages which may be disallowed by first mortgage financing structures.

In addition to the popularity of bridge lenders in the existing market, REITs (BRT Realty Trust is a public mortgage REIT traded on the New York Stock Exchange) are also generating interest among investors seeking to diversify and capitalize on real estate's positive performance.

As we approach the end of the third quarter, billions of dollars in capital is awaiting quality investment opportunities in tandem with economy recovery which no one is able to anticipate with conviction. For borrowers seeking to take advantage of time-sensitive and value-added real estate opportunities with speed in this uncertain market, short-term bridge and mezzanine lenders such as BRT are a sound, strategic solution.

COPYRIGHT 2002 Hagedorn Publication
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