Suburban Capital Markets Inc. announced last week that it had begun a new business model designed to assist its clients who are experiencing unique refinancing challenges in the commercial mortgage-backed securities (CMBS) market, including maturing or past-due mortgages, reduced cashflow and cyclically deflated value.
The company's goal for these refinancing opportunities is to create a new capital structure that preserves ownership for the existing sponsors in the face of reduced value of the real estate collateral.
Suburban's transactions generally fall into one of three categories: In certain cases, the company brings in an equity investor, negotiates a discount with the existing lender and structures a term loan that accommodates the reduced value of the collateral. Other times, by recasting the capital stack, Suburban can bring in a new investor with participation rights that typically would be bought down over the course of the loan or at exit. The third approach is for investors to purchase the note from the existing lender, and extend and reset the terms to accommodate the reduced income production of the property.
Suburban says the venture is an outgrowth of the note-placement activities the firm has been engaging in since the effective closing of the new-issue CMBS market two years ago. During the course of placing notes, Suburban has developed relationships with established equity and hedge funds, many of which the company says have been waiting for the right time to leverage their equity into what some see as the early period of recovery.
"Given that the CMBS market is still closed to lenders like ourselves, we have turned our focus to reconstructing the capital stack for borrowing entities that find themselves with loans coming due and overleveraged collateral," says C. Patrick Nolan, the company's managing partner.
SOURCE: Suburban Capital Markets Inc.