NEWS HEADLINES
More Sellers Arranging Finance in Advance
By Jerry Ascierto
In today’s uncertain capital markets, many sellers of large deals are opting to line up financing before they even line up a buyer.
At the height of the lending market’s frenzy in the first half of 2007, many buyers were able to put financing together on the fly. But as capital sources grow more conservative, many sellers are now saying, “show me the money” when engaging with buyers
And for particularly large transactions, sellers are finding the money before even offering the assets for sale.
Case in point, the $1.35 billion acquisition of an 86-community, 25,594-unit portfolio by DRA Advisors, LLC, and Stephen D. Bell & Co. in March from UDR, Inc.
UDR approached Red Mortgage Capital to structure and underwrite the financing in advance of putting the assets on the block, allowing Red to lock the rate when the purchaser was identified. Fannie Mae provided a $1.35 billion credit facility for the deal, consisting of two seven-year notes with mid-4 percent interest rates, a 77 percent loan-to-value ratio, and a 1.30x debt-service coverage ratio.
“It saves time for the seller because the seller knows exactly what financing a buyer can put in place realistically, and it gives that much more confidence to the entire bidding process,” said Heidi McKibben, Fannie Mae’s vice president of multifamily production. “And if you’re a buyer, you have to go out and find financing for $1.3 billion at the same time that you’re trying to do your due diligence on your assets and put a bid in.”
McKibben expects to see more such pre-emptive financing in 2008. “There are a number of sellers taking a large number of assets to the market and perhaps selling them on a one-off basis that I think we’ll see do the same thing,” said McKibben.
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