Dealing with common issue, development project almost permit ready where hard costs have soared and every one of our relationship lenders (commercial banks) are either out of the market or have pulled back on proceeds big time.
Thinking about hiring a debt broker to quell concerns from our LP. We have interviewed a few of the name brand groups in the LA area to either locate preferred equity to add to the capital stack, or simply replace the lower leverage bank quotes with a higher rate stretch senior/debt fund execution.
Brokers are asking us to pay them on the bank quote we already have procured if they take on the assignment (anywhere from 50 to 100 bps), plus 200 bps on the mezz/pref equity piece.
Is this market? In terms of paying them on the senior bank loan we already spent time negotiating. I get why they want to make a fee on both, but is this common practice?
I worked for a major d/e brokerage group and I dont think that this is standard for the ask of getting a fee of what you have already procured, but it makes sense. If the broker isnt willing to accept the business without getting paid on the senior you could offer a reduced fee and a bit of a premium on the mezz/pref.
As for the fee on the mezz/pref, I saw 200 - 250 bps, but obviously dependent on the size. I think anything above $10MM should be less than 175 - 200 bps.
Those sound like mickey mouse brokers.
200bps on the mezz is right. BUT, the senior piece is right off. What should happen is they get a reduced fee on the term sheet you have, that fee should be 15-35bps. All they would have to do is execute. However IF they improve that lender's quote due to their bidding process then their fee should be higher, maybe up to 50bps. 50bps is the most I would pay for an execution broker.
If they don't like it, then just call up the Brightspire team or whomever in LA, who will do the senior stretch.
What's the dollar amount of senior and mezz? Also what asset type?
Typically, no. A debt broker would not charge a fee if the senior is already procured. Somewhat related, for construction deals, brokers absolutely would charge a fee on your relationship banks if starting the process from scratch and it happens to go their way (i.e. they will not allow carveout lenders to be included in the engagement letter). Construction deals take up a LOT of time and often fall through. That's time that could be allocated to existing deals that are churn and burn so they want to be compensated for that risk and the opportunity cost given the extra time put into the deal.
Mixed use multifamily. Call the senior construction loan (already procured from a relationship regional bank) roughly $15-$16MM. Their original quote from May was $21MM. We are looking for the $5-6MM gap to be financed through preferred equity, since the senior lender won't do inter creditor agreements.
The size of the preferred equity is too small for most funds, so I'm gathering it may need to be a one off HNW or family office type investor. Wondering if that may prove difficult, and maybe just focusing on a $20-$21MM stretch senior at a higher overall cost of capital isn't the most prudent plan.
Are you asking them to get you additional senior loan term sheets / terms?
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