New CEO of Pohlad Cos.’ real estate finance company on industry trends, Twin Cities allure
Commercial real estate finance company NorthMarq, which is part of the
Q: You helped launch the investment sales business of NorthMarq last year. What made you want to do that, and why stick to multifamily properties?
A: It started in
Q: Is there any interest in expanding to multifamily properties in
A: That’s for the future. We’re not currently coming to
Q: It seems like it has been harder for apartment developers to find financing and that they are required to put more equity toward projects that they might not always have access to. What are some solutions to that?
A: We have always been involved in multifamily financing. Like most firms, we have typically done long-term, permanent financing. But we’ve seen a lot of activity in terms of requests to assist in finding construction financing. For example, if a developer goes to their local bank, they may have one project with them already and then the bank maybe says, ‘No more.’ … Given the return numbers and the escalation of costs of new construction, there’s often a gap between how much money the developer can invest and what the loan is going to be. If they are willing to put in 25 to 30% equity but the construction loan comes up with 60% of cost, there is a 10 to 15% gap. We try to help bridge that gap [with] mezzanine debt. Is it additional equity? You don’t know until we go to the market for it. For one entity, it could be equity where they are willing to take on a venture partner. For another developer who says, ‘We don’t want partners,’ it becomes a higher yielding mezzanine debt. Oftentimes, we find one lender who wants to bundle together the loan and the mezzanine, so it becomes more like a bridge loan that’s higher yielding but kind of a one-stop shop. That area of our business has been very active this year in particular.
Q: You have helped to expand NorthMarq’s equity advisory business. Why do you think those services are needed?
A: We’ve seen a segmentation of the business in terms of equity and mezzanine that’s required a greater need for a role like NorthMarq’s. Years ago a developer or property owner could find an equity partner who would want to do multiple deals with them. Today a lot of the equity is raised and it has a specific need, [for instance] downtown apartments in these key cities, acquisition rehab apartments only to these levels, retail only and only up to a certain point. It’s very segmented, so an intermediary role like ours is needed. We take on assignments that we know have merit. The deal makes sense, we know equity will find it. We often find ourselves going to 50 equity services to find the right one. … Finding the right one with the right terms to match the partner is difficult.
Q: How do you think
A:
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