(In)valuable relationships


Strong leadership can help secure financing and grow a commercial real estate business

Loyalty to people and institutions who’ve helped you scale is a tenet of leadership that’s often dismissed yet can have the most profound effect on future success. Commercial real estate is a relationship business with all stakeholders relying on and trusting in each other to get deals closed. These relationships are on a continuum with value built over time. Borrowers who are good leaders will protect and nurture these connections because they know, the next time they need financing, they’ll start out already ahead. Furthermore, borrowers who are becoming more sophisticated may outgrow community banks or credit unions who can’t lend above certain thresholds, making having an expert intermediary with deep institutional relationships by their side even more critical. Commercial real estate ownership is a journey and bridges should be protected not burned.

As an example of the importance of loyalty, let’s consider a situation where a financing intermediary was able to successfully negotiate a cash out refinance for a borrower despite the borrower’s lack of experience, background issues, or other pain points. If that borrower is serious about growing the business, he or she will put stock in the groundwork already laid and work with the same intermediary for the next transaction. The intermediary knows the nuances of the borrower’s business, has heard the back story, and previously mitigated potential obstacles that could derail the transaction. Already having a clear vision of the transaction and the borrower’s goals ensures the intermediary can get to work right away and, more importantly, can start providing value.

And, we see the effects of good leadership in relationships every day. Recently, a certain client had a loan that was maturing and was having a hard time refinancing or selling the asset. After three extension requests, the lender was running out of patience and the borrower contacted Mag Mile Capital for help. Fortunately, the company happened to have a great relationship with the lender’s president and was able to negotiate one last extension without any fees or penalties. This gave the team time to find a new lender willing to refinance the loan, saving the client at least a million dollars in fees and other expenses. This illustrates how the team was able to push and pull through existing relationships to achieve a positive outcome for the client and the existing lender. By showing leadership and enlisting an expert to deal with a negative situation, the owner avoided foreclosure, and Mag Mile now has a client for life who has already referred new business to the company.

Prudent owners also will show leadership in how they perceive and interact with their franchisor. Instead of seeing a required PIP as an affront, leaders recognize that the franchisor has a vested interest in the asset’s success and is only trying to preserve their brand. Having a PIP can also get borrowers to the closing table. Capital providers, especially non-recourse lenders, like it when a franchisor makes owners invest capital into the asset because it improves the collateral and decreases the likelihood of default.

Approaching lender and servicer relationships from a perspective of leadership also is key for a more successful outcome. Owners who demand unreasonable discounts are perceived as amateurs and not taken seriously. Conversely, leaders enjoy more favorable outcomes because they approach loan negotiation as a give and take and don’t ask for concessions without giving something in return. We see this play out when approaching bankers and capital markets in the current rate environment. Regulatory and market pressures make it impossible for a banker to lend money at 5% when the prevailing market is 6.5%. Owners will have more chance of success if they are up to date on market dynamics and accept reality before asking for unrealistic loan terms.

rushi shah

Rushi Shah is Principal and CEO of the commercial mortgage and real estate investment banking firm and AAHOA Allied Member Mag Mile Capital. As a leader in hospitality financing, Shah specializes in structuring and placing high leverage, nonrecourse bridge and permanent debt with cash out for full- and limitedservice hotels nationwide. Since joining the firm’s predecessor, Aries Capital, in 2015, Shah has structured and closed hundreds of millions in financing for all property types. Shah has held previous positions at Northern Trust and has an MBA from the University of Chicago’s Booth School of Business.


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