Michael Brown and Zach Nimhauser
Michael Brown and Zach Nimhauser (Melanie Bell)

Dealmakers: Michael Brown, Zach Nimhauser

The Deal: The Meridian Capital Group directors refinanced a 14-property retail portfolio for $43.8 million.

Details: After the market’s spectacular implosion in 2008 made evident the pitfalls of borrowing from commercial mortgage-backed security issuers, many of the crisis survivors swore they would never ever again touch another CMBS deal. Yet a recent refinancing of a 14-property retail portfolio shows the muscle those lenders are exercising once again in certain markets. The South Florida brokers who help put together the $43.8 million deal told the Daily Business Review that type of financing has been reborn from the ashes of the Great Recession.

“We are in 2003 mode right now,” Michael Brown, managing director for the Boca Raton office of Meridian Capital Group, said, suggesting CMBS financing is at least four years away from reaching the levels seen in 2007. That year, aided by what in hindsight were absurdly loose terms of credit, CMBS deals backed some 40 percent of all commercial real estate lending in the United States.

“We’re kind of in a very happy place where every loan really does make sense,” Brown said. “The CMBS lenders expectations are pretty conservative. And the borrowers are being conservative as well.”

But he noted the market was moving quickly and “by the time I finish this sentence, things might change.”

In the specific deal Meridian helped arrange, Brown and Meridian director Zach Nimhauser approached Regency Properties, a national firm with a large portfolio of prime retail locations in tertiary markets. Brown described the commercial assets as “properties at the corner of Main and Main in counties you’ve never heard of.” The 14 properties are located in various small towns throughout Florida, Indiana, Mississippi, Georgia, Alabama, Kentucky, Virginia and West Virginia.

Regency had acquired and stabilized the leasing situation in several properties, and wanted to consolidate at a fixed-rate to turn the properties into “coupon clippers,” assets returning a higher capitalization rate than what the owner needs to pay on the mortgage.

But the deal was complicated by several factors, including the fact the properties in the portfolio have 173 different commercial tenants, each one holding a lease with specific renewal and extension terms. Figuring out what kind of debt made sense under different scenarios was part of the deal.

There was also the fact the client wanted to max out leverage on a nonrecourse loan, which lenders are wary of allowing borrowers to do.

“As the market has recovered, the clients have become more selective, and nonrecourse is a must for some,” Brown said.

While Brown did not release the name of the lender, several public records in various Florida counties show the mortgages on Regency properties being assigned last November to New York-based Five Mile Capital Partners, a commercial real estate lender.

Brown noted the type of transaction he handled, where a large portfolio owner turns to CMBS to refinance and cash out, is becoming increasingly typical in this stage of the real estate cycle. But, again, it’s still not like it was in 2007.

While many big deals back then were done with little due diligence as long as the numbers made sense on paper, today “people are still pounding the pavement and getting on roofs to evaluate properties and not necessarily just relying on the ratios on a spreadsheets.”

Background: Michael Brown is the managing director and Zach Nimhauser the director for the Boca Raton office of Meridian Capital Group