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Underwriting & CMBS Investment Analysis

AD Capital Advisors Inc views due diligence, (primary market) new loan underwriting and CMBS/B-piece analysis as analytical activities that go hand-in-hand. The fundamental difference between the two disciplines is that due diligence is primarily concerned with looking back through the history of property operations up to today while underwriting is concerned with developing informed assumptions and identifying risk factors relating to the future viability of the property from today through the loan term. Our underwriting professional combines historic information and current market conditions and trends to assess and value future risk(s) to the performance of a given property.

Pre-securitization:

Services for Lenders:

  • Pre-Screening of large or complex loans
  • Full loan underwriting
  • Tenant recovery pools
  • Preparation of asset summary reports investment memorandums

Services for Investors:

  • Acquisition due diligence, including lease reviews, cash flow modeling and investment memos
  • ARGUS cash flow modeling and the development of sophisticated Excel‐based Tools

Post-Securitization:

Advisory:

  • Investment due diligence
  • Portfolio mark‐to‐market and valuation
  • Servicing valuations
  • Counterparty fee calculations
  • Valuation model validations

Analytics:

  • Customized bond cash flow modeling
  • Dashboard reporting and monitoring tools
  • Integration software for multiple data feeds
  • Loan origination pricing grids
  • Reverse engineering (RMBS, CMBS, CDO)
  • Collateral quality test tools and interfaces for CDO managers

Collateral Analysis / Site Inspections

AD Capital Advisors Inc industry-standard Commercial Property Analysis Report ("CPAR") has been used by various lenders and asset managers around the country. The CPAR process combines a secondary-market-type property inspection, which records and evaluates the subject's location, neighborhood characteristics, notable environmental issues, fundamental property facts, condition and deferred maintenance with a market study that gathers current market data, describes market activity and examines competitive properties. CPAR's typically address trends to alert the reader to possible property performance declines and the potential need for special servicing or loss mitigation, before they're necessary.


Commercial Property Inspections (Performing / Non-Performing) – Our Commercial Property Inspection of loan collateral is a current qualitative, mortgage risk assessment. This analysis will focus on the characteristics of the property that influence its current level of competitiveness in the marketplace.

Loan Servicing Support

AD Capital Advisors Inc fundamental asset-level understanding of commercial real estate lending and property operating dynamics enables it to offer the very best in mortgage servicing support. Our personnel can audit loan servicing records to ascertain servicing system conformance with underlying legal documentation, servicer/ borrower compliance with loan terms and conditions. We can develop a plan for corrective action, where non-compliance is wide spread.

Capital Formation Services

Corporate and institutional clients as well as national, regional and local sponsors often retain the advisory services of AD Capital Advisors Inc to assist in engineering the proper capital structure for a proposed transaction. Whether you require assistance in either modeling or securing commercial real estate financing. We can assist you in achieving your goals. The following table represents some of the more common layers of the capital structure that are present in many transactions:


Equity:

Traditional equity investment into the ownership entity as a partner, member or stockholder. Investments are with qualified developers and operators in transactions where there is a significant opportunity for value creation or cash flow enhancement. The equity and preferred return are typically distributed on a pari passu basis.

Preferred Equity:

Preferred Equity is best suited for situations where the developer lacks the additional equity capital required to bridge the gap between debt and purchase or development cost. A Preferred Equity investment is typically structured so that the investor receives its investment plus a preferred return and a participation in profits to achieve their target IRR.

Mezzanine Debt:

Mezzanine Debt provides developers with subordinate debt funding up to approximately 90% of the value of the property. This program is attractive to developers who want to retain a greater share of the profits. The first mortgage is typically straight debt and the second mortgage is the higher risk and higher yield instrument, which has either a higher coupon or exit fees. The lender may be the same for both debt instruments or could be two different lenders. This structure is particularly good for developers who want to retain 100% ownership.

Participating Debt:

Participating Debt leverages the property to 90% of the cost and as much as 80% of the stabilized value of the property, typically in a blended first and second mortgage structure. This type of structure has many of the characteristics as Mezzanine Debt, but typically there is only one lender.

Development Agreement:

The investor actually takes the ownership position and through a Development Agreement contracts the developer to build and manage the asset. The developer receives 25% to 30% of the profits. This is ideally suited for developers who have no cash equity of their own, young developers with an experienced background but just starting out on their own and for those developers who want to minimize risk.

Releasing "Trapped Equity"

The concept of "Trapped Equity" is a common misconception in today's commercial real estate market. In most cases equity is only "Trapped" if you don't know how to free it up. Granted, the growth of the CMBS market (specifically understanding the impact of securitization as it relates to more uniform and restrictive loan documents and the increased complexity of servicer, sub-servicer and special servicer relationships) since 1996 has made monetizing on the appreciation of an asset more complex, however not at all unfeasible.

AD Capital Advisors Inc advisory services can assist you in releasing "Trapped Equity" by using anyone or combination of the following strategies:

  • Defeasing assets or portfolios of assets.
  • Using preferred equity, mezzanine or other structured finance solutions.
  • Making entity level investments.
  • Synthetic or derivative financial engineering strategies.

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