Popular Articles

Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

read more
by Gary Nelson
April 2007

Related Article

Augmentation examples: AI & VR at work

Read more

Placement agents can streamline project financings

AS REAL ESTATE developers and borrowers seek the best ways to finance projects, some are using a process that allows them to access several funding sources.

Both developers and borrowers are using this process as they pay for developments, expansions, acquisitions and refinancings. They are turning to placement agents instead of taking the traditional route of approaching a single bank for financing.

Unlike a traditional broker, a placement agent develops the structure of the financing transaction that is specific to each borrower’s needs, property and circumstances.

Expertise in complex financing scenarios, including senior housing, hospitality, multi-use properties and Tax Increment Financing (TIF) is often available through an investment banking group that acts as a placement agent.

A placement agent can test the anticipated financing structure with its network of participant banks to ensure the terms are acceptable to the bank market. The placement agent then presents the loan transaction to several banks for review.

Spreading the risk

A developer previously would submit a $15-million loan request, for example, to a single bank to construct a senior housing property. This loan amount may be at or near the bank’s lending limit and could require several levels of approvals.

Using a placement agent, the same loan could be placed with several community banks that each takes $1 million to $3 million, allowing each individual bank to assume less risk. Officers at the participant banks can then more easily obtain approvals and diversify their loan portfolios.

Also, the bank involvement is now at the level of the community bank president or chief lending officer. And one of the most pleasing benefits is that the accompanying loan documents resemble a paperback book instead of the typical documents that more closely resemble “War and Peace.”

In Minnesota, several commercial loan transactions have been completed using a placement agent, over the past 15 years or so. Recent examples include the acquisition financing for the 78-unit Minnetonka Assisted Living Community in Minnetonka and the Tax Increment Revenue financing for the Bluff Block condominium and commercial retail project in Elk River.

Many eggs, many baskets

The loan placement agent prepares a credit underwriting presentation of the transaction and submits it to many potential banks. If a bank is not interested in the transaction, other banks will likely find the financing attractive and suitable. Therefore, all of the eggs are not in one basket.

This is an important difference from the “one bank” approach. A borrower can invest valuable time and resources with a single bank and get repeated green lights.

However, it only takes one red light, often after substantial time and effort is invested, to send the borrower back to the hunt for financing. This can result in loss-of-opportunity expense to the borrower.

Using a placement agent may allow the borrower to avoid making a significant, nonrefundable application fee before learning the interest rate or reserve and reporting requirements.

Also, for borrowers developing or acquiring properties in multiple locations nationwide, it is difficult and time-consuming to invest the travel time in order to present their financing package to local lenders at each location.

Alternatively, placement agents can use their network of bank contacts across geographic markets to present the financing to each market. Instead of investing time in the search for financing, the borrower’s executives can focus on their core business.

Loan placement fees typically range from 0.75 percent to 2 percent of the loan amount depending on the size and credit quality of the loan. The placement fees are paid at the loan closing similar to a bank origination fee. If it is necessary to pay an origination fee to the lead lender or loan participants, this is paid by the loan placement agent out of its loan placement fee.

Loan placement agencies may service the loans themselves, and about two-thirds of the companies do this, so the borrower has one contact point for payment even if many banks are involved. Or, placement agents may designate a lead lender that will service the loan, and all the lenders participate through that single document.

More deals to see

Bankers routinely participate on loans with other banks, of course, but they tend to have developed relationships with a finite number of “friend banks.” With loan placement agents, the participant bank, typically a community bank, can benefit from the chance to be involved in financing opportunities the bank may not normally see.

Often banks are interested in lending in areas outside of their own markets but do not have a way of locating transactions in other areas.

Banks can diversify their portfolios by industry, borrower, geography, interest rate, structure and asset class.

Bankers can work with a placement agent to leverage the size of the financing they can accomplish. The placement agent can place any “overline” (amount above their lending limit) with other banks.

This is especially important when the bank has a very good customer with total borrowings, or a project size, that exceed the bank’s limit. It is important for the bank to meet the financing needs of a reliable customer, retaining this valuable relationship. The placement agent can also help streamline communications by working with the one lead bank or servicer.