In real estate, it's often said that location is everything. Developers and investors know that a carefully selected address can help property maintain value over time and withstand hiccups in economic cycles.
This fact extends to commercial real estate lenders as well, while other considerations are also important. For instance, borrowers who bring significant capital to the table and have experience with complex deals are in a better position to obtain financing to back their projects.
CIT Real Estate Finance has built its reputation on making sound lending decisions that help middle market companies grow. The group offers construction loans, term loans and other forms of financing to developers seeking to further expand their portfolio of investments.
Construction loans make up 40 percent of the loans written by the business, financing projects such as warehouses, retail, offices and multifamily apartments. The remaining portfolio is comprised of value-added deals, according to Matthew Galligan, President of CIT Real Estate Finance. In these cases, developers seek to make enhancements to a property to create a stronger cash flow.
Galligan leads a group of 14 professionals on the CIT Real Estate Finance team. Leveraging their relationships with developers, equity partners and other real estate professionals, the business has established a national footprint that includes about $2 billion in loan commitments, Galligan says.
The bulk of CIT Real Estate Finance's business is situated along the coastlines of the United States. Most of the lending portfolio is located in the corridor between Boston and Washington, D.C., with another concentration in California. The remaining portfolio is in other select markets nationwide, including areas in Florida and Texas.
A recent mixed-use, multifamily transaction demonstrates how both location and developer expertise work together as essential ingredients for a successful deal. In early 2015, CIT Real Estate Finance announced nearly $45 million in financing for a joint venture between three entities-a real estate investment firm, a development company and a real estate-focused private equity fund-all based in the New York City area. The financing will support the development of a seven-story property in the Astoria area of Queens, New York, which will include 114 rental units as well as street-level retail.
Location was a key factor in the funding decision: Galligan says the project's proximity to public transit conferred instant value. The partners' experience also made this an attractive transaction. The real estate investment firm, Treeline Companies, had decades of experience in property development and management in the New York area. In addition, Mega Contracting already had experience with new residential buildings in New York City, and Glenmont Capital further bolstered the deal by offering additional equity.
When considering deals in locations such as New York, a city that is anticipating one million new residents by 2040, Galligan says his team looks at current and future residential demand.
They prefer to finance infill construction-new or refurbished buildings in areas where the available space for new construction is limited.
Retail lending is evaluated on a similar basis. When it comes to retail, CIT Real Estate Finance is focused on infill and/or urban retail in prestige locations that are close to public transit, in addition to having strong earnings performance per square foot.
For instance, in spring 2015, CIT announced that it was providing $41 million to support the refinancing of a 120,000-square-foot retail center in Palm Beach Gardens, Florida. CIT had an established relationship with the owner, Menin Development, having helped finance the recent renovation of this property, and saw future growth in the area's demographics. The region's population is on the upswing, and many local firms are hiring again as the economic recovery takes hold.
CIT Real Estate Finance also evaluates location and developer expertise when financing industrial properties. For instance, in a recent transaction, CIT financed Hillwood Investment Properties' development of Trade Center 83, a Central Pennsylvania warehouse and distribution center. Big-box tenants and e-commerce companies have been struggling to find appropriate space for their fulfillment centers and distribution operations in densely packed areas like New Jersey, pushing them to look elsewhere, such as Central and Eastern Pennsylvania. The York County, PA location of Trade Center 83 will place the 1.2 million-square-foot facility within a day's drive of six of the 10 largest U.S. markets, as well as 60 percent of the population of Canada.
Transactions such as the Pennsylvania warehouse suggest that the U.S. economy may have found its footing. In this environment of rising expectations, consumers who shop online want goods to be shipped more quickly. And companies need access to facilities that can help them receive and distribute goods through the most efficient combination of rail, road and air connections.
Finding the right real estate projects amid this recovery is critical. Real estate investors are flush with cash, Galligan says. Nonetheless, lenders have to make prudent decisions about the types of projects they will finance. Lessons from the past show that the risks for lenders and clients are real: properties need to have enough embedded value to weather a downturn, or they may not be worth the risk.
Galligan says his team's deep experience, long-standing relationships and emphasis on choosing the right assets set CIT Real Estate Finance apart. Overall, as the employment picture improves, real estate prices rise and the overall economy gains traction, the CIT Real Estate Finance team will remain focused on working closely with their clients to finance properties with unique, long-term value.
1 According to NYC 2040: Housing the Next One Million New Yorkers, published by the Center for Urban Real Estate at Columbia University.