CPACE Confidential
CPACE Confidential
Episode 2: Brent Connell
This week our guest is Brent Connell. As the Senior Marketing Representative at Geneva Capital, Brent knows how to get deals financed with creative capital solutions.
Welcome to the sea pace confidential, where you'll hear about the hottest happenings in the world of sea pace, commercial real estate and beyond, we speak with the top players doing the most exciting projects and discover just how sea pace has evolved into one of the most innovative financing options in the industry and how you can use C pace to be more successful in your business today. Now, here's your host, the C pace guy, Adam Lipkin. Hey, everybody,
Adam Lipkin:thank you so much for joining us today on episode two of the CBS confidential, I really appreciate all the great feedback just launched the show last week, and I really enjoy hearing all the comments, just trying to continue to improve it and be able to continue to add as much value as we possibly can to those of you tuning in. So in that regard, really excited, gonna, you know, jump right into things with our guests. And, you know, really happy to have them on the line. We've done quite a bit over the years, really in the trenches, getting a lot of really exciting things done together. But I want to start out with a question a day for you. And in that regard, I want to know from you specifically, what leads to best execution, what leads to best execution when it comes to financing your commercial real estate deals, leave us your answer, we're going to ideally get it live at the end of the show. Just want to hear how you put things together, and also want to be able to make sure we get everything answered any questions you guys have. So if you're tuning in live, and you do have a question, make sure to also put it in the comment section. While y'all have a chance to be able to get it featured at the end of the show. We'll try to answer everything that we can so appreciate that as well. All right, with no further ado, I'm going to bring on a good friend of mine. Guy we do do a lot of really exciting things with want to bring on Brent Connell Brent, with Geneva capital.
Brent Connell:Hey, Adam, how you doing? It's a great, it's really a pleasure to be on the show with you.
Adam Lipkin:Yeah, I'm so excited to have you on man, it's gonna be a real, real fun conversation. I feel like we're talking multiple times a day or week. So lots to discuss a lot to share about and always such a pleasure to be able to, you know, have a conversation. So let's just get into a little bit of background love for you to just share a little bit about your brand. Connell a little bit about your background in commercial real estate and Geneva capital and what the focus is.
Brent Connell:Yeah, so I'm, I'm at Geneva capital, obviously, as you said, it wouldn't work out of Chicago. And then we also have another office in Indianapolis. And I've been there, I've been to Geneva capital almost four years. And there are a couple of things that we do. And one big thing that we do is that we've got a bank syndication program, where we are heavy in construction lending from the five to $15 million range. And we've got a grouping of about 40 community banks in Illinois, Indiana, and Wisconsin, where we will write the paper in our name, we will service the loans, and we'll manage the construction draws, we think that we bring a lot of expertise to the community bank, since we've been doing this for 31 years. And since you know, a lot of the community banks have, with the increased regulations, they just don't have the expertise to properly execute construction lending. And sometimes it's a real painful process. So we're able to bring bigger and higher quality projects to the community banks that normally would not have the legal lending capability to do that. And then with that, you know, that the bank, the loans that we're doing, those are, you know, those are traditional bank loans. So they've got, they're in a tight lending box. So there are lots of loans that don't quite fit in that box, they fall out a bit. Or once you get about 15 million, it's you know, you're hurting too many cats, so it's difficult to get it to get a consensus on approvals, or any modifications. So once we get above that size, we will migrate into private deals that we're doing a lot of note on note lending. And then also, you know, we've we're doing some lending that will include some sea pace or some SSA bonds or some ground leases or some including some mez lending or prep equity layered on top of the transaction. So I think you know, as his construction costs have gone up, and by and large, the banks have, have non got not gotten hog wild in their advances, it's really created a need to provide creative lending and creative lending not by you know, things that don't make any sense by prudent creative lending, while you know, adding to the capital stack with different transactions that work out for all parties, and that's, you know, one thing that we've worked on doing and we've we've had some success in that lending arena and a lot of that a fair amount of those deals was I can attribute to Adam is helped us on it. A great thing that Adam and I have is we I believe we've got a common philosophy is that, you know, we're not afraid to discuss deals back and forth with us each other and you know, say, Well, what do you think about this deal? You know, and sometimes we'll come up with ideas that that Adam would not be a part of. But I think, you know, it's great that we can have an open and honest dialogue, where I don't feel that Adam will hold back on providing the input on what what he feels is Beck's execution on transaction. And I do the same with him, I believe, yeah, for sure, I think, a great relationship.
Adam Lipkin:It's been awesome, I definitely don't get into that just, you know, it just creates so much more possibility, when you could have that trust. And sometimes you gotta just say, I'm going to give it you know, before I expect it, but it's been awesome. You know, we'll talk a little bit more about what that led to. But let's just back up a little bit more about the background, cuz I found it so fascinating. When I learned about you know, what you're doing with Geneva, it's such a neat, because, you know, to your point, so oftentimes, banks are limited with what they're able to do within their box. And it's like, what happens to like 90% deals, never looking at it, right? So it's kind of like, you know, I saw that happen firsthand. I was I was at a shop where it was part of a larger regional bank. And I was like, you know, what are you guys doing with all the deals that you're that you're saying no, to? It's like, you know, let me let me take them out to market Let me place them, you know, until I, when I first found out about your model, I said, that just makes a lot of sense. You got all these, you know, great banks that have just lots of people come in, and lots of good customers, and they want to be able to provide best execution, they want to be able to serve them. And what better than to have just a really strategic relationship with you and Wayne in Geneva, to be able to say, hey, this, this might not be a fit directly for the bank. But you know, by the way, you know, we have, you know, partners that might be able to help you for this specific needs. So, I think it's awesome. Tell it tell me a little bit, though, I think I heard the story. And I thought it was really interesting how a lot of times innovation comes from adversity. How did how did this syndication platform gets set up 30 years ago? Well, it
Brent Connell:came, it came about from the principal owner of Geneva capital, Wang, Massey, he was lending he was doing a lot of leasing in the 90s. When the and and the 80s, late 80s. When that was a big program then and he was doing his coincidentally was doing a lot of leasing for, for when you if you're flying over the the middle of America, and you look outside you're playing, you may see a lot of green circles. And those are, that's those are, you know, that's agriculture, that's being grown. And that circle is is is a irrigation system, that, that basically goes around the circle. And, you know, it's segmented times, you know, I don't know, once every three days or whatever, what do I don't know enough to be dangerous about agriculture. But But those irrigation systems are, you know, depending on the size of the acreage, or you know, it could be several million dollars. So, his, the company that he worked for was manufacturing that equipment, and they had a need to lease that equipment. So they would, they would lease it, and then they would sell the baby paper to a bunch of community banks. And then, you know, when the, the tax laws changed, and made it not as productive for the banks to do the leasing programs, he had a bunch of banks that, you know, we had the need for paper. And he moved back into what he originally started his understanding with, when he got into the banking world was real estate lending. So that was kind of how he morphed into the program that he has now. And we got
Adam Lipkin:to do like when I think about the philosophy with that and be able to do more together, I think it just really is a great catalyst to get right into our relationship and how it started. I think we got connected a few years ago, I want to say was at the Caribbean conference, but it's always it's always like a good time it created then it was fun to it to go to the one recently, I'll tell you, I had no idea what the turnout was going to be. I was like it's either going to be just absolutely crazy packed, because people haven't been to a conference in 18 months, or is going to be a little late. It was a little late, but it was still awesome to see.
Brent Connell:Yeah, I think it was about 50% capacity. That was my guess on it. But yeah, there were a lot of quality guys there that were decision makers so
Adam Lipkin:much agree with that. I mean, it's just really good quality guys, a lot of people we knew a lot of good people that we are now starting to do more and more with so it was really cool. It's always a good venue but I think we met back a few years. years ago, I just gotten into the sea bass world. I don't know if you're familiar, but tell me what was your first impression when this guy's like Hawking you about this? You know, sea pace? Did you know about it? Were you kind of like, what is it? I
Brent Connell:knew nothing about it I Well, I'd heard about from some other program as somebody was considered this the new hottest thing that could get done. Right. And then all of a sudden, you know, from our experience in the, you know, in the community banking industry in the lending there, I was like, Well, how can that fit into the program that we have, it probably is more conducive to the private lending arena, you know, maybe at a later date will be adopted by, you know, community banks, as you know, they're more just like, it took them a long time to get comfortable with. With ground lease.
Adam Lipkin:Yeah. Yeah, for sure. I'm
Brent Connell:assuming it's just been going on forever. I'm not that well.
Adam Lipkin:Look, it's you know, just sometimes, you know, what you're familiar with, you're more comfortable doing so I mean, people, you know, ground leases have been around for 1,000 plus years now in a new structure that makes it more user friendly. But, you know, with CPACE, it's kind of one of those things that was bifurcated, and how it got rolled out, you actually found a number of the community bigs doing it when it came to stabilize real estate, and borrowers that wanted to like say, hey, I want to, you know, do new HVAC, or do new lighting. And you could kind of say, Oh, I'm going to finance these types of improvements, because it led to energy savings, what we're focused on, and what you and I have had some some fun with, is really using it for what I think is the bigger area, the bigger pot that's growing now over the last several years and lead to much larger transaction sizes, but using CPACE, with construction projects where there's oftentimes no income, and you typically have to couple it with the other pieces of the capital stack, most notably, the construction lenders. And so let's kind of talk about, you know, so we connected up, started looking at deals together. So what did you initially like about CPACE? What did you find interesting about it? What intrigued you?
Brent Connell:Well, what intrigued me about that is it was similar to, you know, a special assessment on the tax rolls. And the funds were being used specifically for some energy efficiency improvements. So there was a limited lifespan for the the funding dollars, and I'll be it you know, it is a priority lien on the on the project. There is some limited clawback as far as if there's a default in it, it's not a default to the borrower it's a default on the property. But there's, but there's lengthy, you've got more lengthy cure times than you would have in a traditional loan or ground lease situation. So there's, there's some attractiveness to that. And it takes people preaching the gospel about, you know, the, the merits of sea bass. Yeah,
Adam Lipkin:yeah. I mean, I also just found in the most basic level, it's interesting. I mean, I remember the guy that ran a shop that I was at one of the things that hooked me Is he was like, you know, you're basically going to be the Dos Equis guy of real estate, was like, I'm gonna run with that. But it was, it was really fun for me to show up with something that was unique, I found that that was a really cool thing. Because oftentimes, you know, it's what we're talking about for, there's a certain philosophy that we have, when we connect with people, we have a chance to add value, but if someone's not willing to give you initial attention, it's tough to add that value. So I found that CPACE was also just something very unique that you could begin a conversation with. And there's often times where and even with us we've had conversation and we just relay, it's just not going to be a fit here like this is just going to be too much of an uphill battle. There's too many people that need to get comfortable with this, that maybe don't know what this is. And we might just say, we got to pivot to another solution. So I found that what was so intriguing about it was it was just interesting, and it was innovative. And it has led to typically connecting with people that resonated with looking for innovative solutions. So I like that a lot. And I thought you'll think about it had we not had something intriguing to talk about, you might have just been like, you know, what's this guy going to do different than the other 20-3 guys, I'm going to meet at conference, you know, it's like you know, I know about all thes other, you know, traditiona lending products, but oh, I'v heard about this, or I mayb didn't know much about it, le me find out more. And so I like it, it creates opportunities t create, you know, mor connection with interestin conversations
Brent Connell:It's also important, you know, I think to once you've assembled, you know, some lenders and some CPACE groups to try to, if you can stick with those groups a little bit more because because of the company you know, you do have some complexities and some nuances in the intercreditor agreements and even you know, attorneys are it doesn't take long to run up a big attorney bill for that. So you don't want to be reinventing the wheel all the time. And having complexities in the execution
Adam Lipkin:Yeah, Yeah, I agree. I think sometimes you having like a good core group for specific needs and sea bass is certainly one of them that you feel you can trust you can rely on get honest information is huge. It's everything so there's no There's a lot of there's a lot of sugarcoating in the industry and certainly with CPAs, a lot of over promising under delivering. So it's important to have somebody that's going to tell you, you know, what's real, you know, what's what's not Bs, and hey, here's, here's what you might be able to do, here's what's happened, we could push the envelope, but I always try to subscribe to that philosophy of being like more of like, let's be real with what's actually happening. And let's still be optimistic about what we could do. But you know, let's not, let's not pretend that we're somewhere where we're not so
Brent Connell:no other problems too. On the on the the borrower side, too, we had a situation where Perfect, perfect retrofit for see pays transaction, we went there all the way down the path. And the borrower told me that that they had the senior lender was all on board with that, and then all sudden, you know, at the end of the day, the senior lender wouldn't sign off on the transaction.
Adam Lipkin:I mean, let's talk about that is like such an important thing. I mean, it is like one of those delicate balances of being able to make sure you get the important questions answered, but also trying to like really drill in like, Hey, you know, this is really going to come up. So we want to make sure that this is something that's been addressed. So I've seen that a lot, you saw that, Oh, no,
Brent Connell:I got that covered. I gotta cover it. I said, Well, they said they weren't. But now they're not.
Adam Lipkin:Alright, let's, let's cover this for just a couple minutes, when you are working on a deal, and somebody is mentioning c paste or introducing it, one of the biggest things is you need to make sure that the lender, if there's a current lender in the transaction, has done a sea bass deal, or they're comfortable with it. And not just they're comfortable with it. But at the specific dollar amount that you have in mind, I would say go so far as to get it in an actual term sheet where that CPAs is front and center. And it's not just some verbal with somebody at like, you know, a bank or non bank that's saying, Oh, yeah, we're good with this. Later, you find out that, you know, maybe somebody has no clue about see pace at the credit level. So
Brent Connell:yeah, that's where I came into the evidence. Yeah, that the NC the copy of the actual loan, integrator document they're gonna sign off on they're like, whoa, wait a second, wait, this one.
Adam Lipkin:Man, I've seen being told, right, like, you got these big organizations and you got like, maybe somebody in business development has a great relationship with like a client. And it's like, you know, sure, we could do this, you know, thing, if other banks are doing it, whatever. And then next thing, you know, just nobody's even looked at it. Or if they did it, it was under the most unique circumstances, I think it's such a talk about an insight to be able to not have to go through just a lot of pain. Get that flushed out early on. So I'm curious, have you done that over again? What would you do? If, if that came up? And somebody was like, Oh, yeah, I got it covered? Would you? Would you dive deeper and say, you know, you got anything? In writing? Yeah.
Brent Connell:Yeah. I would say, you know, I think it would be advisable that for us to, you know, sometimes, you know, obviously, you're walking a delicate balance when you're wearing your, for that element, I was wearing my broker hat. But it's like, Hey, I think, you know, why don't we have a conversation so with with your senior lender on, and let me be involved in that, so we're all on the same page. So there's no mission. Next and we can have, we can have a simplified and and expedited execution. So I mean, put it in the right terms.
Adam Lipkin:It's like one of those conversations, like, you know, you never have a good time, bring it up. But it's like, you know, you know, listen, you there's some lenders that might be challenged if there's ever been a felony criminal, created by anybody in the board entity, but you need to get that flushed out to and later because if that comes up down the road, you're probably just, you know, you know, up, up, you know, like a really tough position. So, I think that, you know, be delicate, and how you introduce things is huge. What I've erred on the side of is trying to get it in a proposal, if there is, in fact, a lender, I always say, you know, let's, let's see, if we have some kind of documentation that shows you know, at what level and if not, you know, even if there was a verbal that somebody said they allowed a certain amount, it's important to say an amount, not that they're open to it, because it shows if there's a specific amount that's been considered, clearly it's been reviewed, internally, lenders are sizing this to a certain acceptable coverage, usually, you know, they're looking at it as long as it's still above their minimum debt service coverage ratio, even if they look at it as like, you know, unfortunate what happens a lot like an operating expense, at least you can still cover because you're financing energy savings. And so if at least somebody would have done that kind of, you know, iteration and underwriting, but this is specifically for existing stabilized properties, where you have a seasoned loan, and you want to just flush out has the lender confirmed it and you know, allowed it, if it's, if it's a new construction, let's talk about a couple of those scenarios, because we've been involved with some really exciting projects where, you know, it was oftentimes a client of yours, were going out in the market, you were looking at a variety of ways to execute on, you know, pretty, pretty large financing requests, and CPS became a consideration that got into the equation. And so let's maybe pivot to using CPS with construction. And maybe there's like a project or two that you could think about that over the last year or two that we looked at. I'm thinking of a few of them, but you know where that entered the conversation, either the bar brought it up or You brought it up, and then maybe just talk a little bit about it, uh, you know, to kind of like how that came about, and maybe some of the experiences with the particular project, if you could think of one, we could talk about that.
Brent Connell:Yeah, I know, there was a, there was a Midwest hospitality transaction that were both involved in, you know, that took a long time to evolve in a long time working to we, we had a feeling that that would probably be the best execution on that transaction. And that took several iterations with a couple of different lenders that we went down the path a little bit with, but it was, you know, was a big, it was $100 million project. So it's a large project, and it had, you know, what did that have 20 to 24 million pesos? Yeah, that's 22. Yeah.
Adam Lipkin:And it was another one of the larger ones that have gotten done to date.
Brent Connell:Yeah. So you know, we finally got the we got we got the right lending team in place. And well, then then we had other iterations with it with the municipality that extended that the timeframe a few months on that one as well. But it took it took a lot of diligence on all parties. But But it turned out to be a real good execution for for the, for the borrower, and the borrower.
Adam Lipkin:Had you What had you think early on that, oh, this might be a fit for C pace was, was there something in particular was it, hey, this is going to be a complicated deal, this is going to be something that there's going to be a need for more of a private lender, what did what there was
Brent Connell:a complicated deal where it needed to be a little bit of a private lender, and the amount of you know, the complexity of it being a a vertical subdivision, you know, that added to the complexity of it, and the lien release that was needed for the, you know, the specific number of floors in the in that vertical sub division. So it was stretching the capital stack.
Adam Lipkin:Yeah, yeah. What do you think ultimately led to that getting actually executed? I have a couple thoughts on it. But I'm curious, like, what do you think led to it getting done the way it was getting done?
Brent Connell:I think it was just perseverance on all parties. Yeah,
Adam Lipkin:yeah. I think it for sure. It definitely took some time. I also think that there's something to be said about, you know, going back to what we're saying before is having an option, I think, if I remember correctly, there was a, there was a backup option, which the thought was, Hey, you know, we're going to go this route, if we don't get what we want from what ideally was going to be the primary choice, which ended up working out. But I do find when it comes to somebody like yourself, you know, if you're running a process, you're going to market, there's infinitely better of a chance and getting CPH, or ground leases or any of the structures involved, when you have a little bit more of a competitive bid. Ideally, two, if not three lenders that really want to do business with the sponsor, like the business plan, and you could really kind of use that as a way to be able to, you know, let's see pace be something that could be a part of it to make it a little bit more advantageous. So you're
Brent Connell:trying to apply that lenders may have a little bit of a lemming mentality?
Adam Lipkin:Of course not. So I think that was an interest. I mean, that was an unbelievable execution. That was incredible. But I think having not it's almost like a poker game. If you didn't have the leverage to say, listen, we're gonna go No, absolutely, absolutely. poker. Let's talk about some of the recent opportunities I move involves amazing things this year, you've had a tremendous year, some really cool projects that you've been involved with. Let's keep it rolling. Let's knock on wood. Man, I'm with you on that, you know, let's keep it going. Let's talk about some recent success stories. And let's see, like, Look, we're still in this COVID environment, it kind of shut down. A lot of hotel financing. In large part. I know we've been really doing quite a bit in the residential side, a lot of multifamily. But let's talk about what's happening right now in multifamily construction. I've seen a few things over and over again, where you have, you know, an experienced borrower that might have a great site that they've now gotten titled ready to go, but they might be doing a project that's a little bit larger than what they've done historically. And you'll get involved with those deals, and you have to look at it from really creative lenses.
Brent Connell:So with the cost creep that's come on, you know, that's, you know, that's adding, you know, significant dollars to the amount of the construction costs on a transaction. Yeah, you know, one transaction that I've recently completed this summer was not a C pace, but it was actually an SSA bond and an S. If you don't know what an SSA bond, it's a special assessment bond and instead of acting as the as a CPS which goes toward energy efficiency, the SSA bond is Generally toward the infrastructure on a project for the, for the sewer systems and the the the road systems internally that are in the project, you know, it was used very heavily in the early 2000s in Metro Chicago for big sub single family subdivisions, when there was going to be 600 lots, and it would take, they're expecting it was going to take a long time to sell out the project. So that so, you know, they had a $20 million special assessment bond that was paid out over 20 years. That was a more efficient way to fund the project except for when things blow up in a wait. And you had these lots for sale and they are subject to you know, an extra$2,000 months SSA assessment. It really turned the lots value to zero quickly when other options that didn't have the SSA lots available if that's that's turned around as it happened. Yeah, but that was a transaction that we completed that we were able to get a 90% leverage on that on the capital stack with with the senior lender and the SSA bond the SSA Bond was probably about 12 or 13% of the capital stack so that they knew it real good execution.
Adam Lipkin:Let's talk a little bit more about it because I think it's such a such a creative execution, very creative, and it was you know, recent so this was like 70 $80 million project.
Brent Connell:It was it was 60 $65 million project so so so
Adam Lipkin:large large ground up multifamily, right yep, yep. Right on multifamily. $65 million apartment style
Brent Connell:apartments, they're forced, you know, it was four storey with a few townhouses.
Adam Lipkin:Yeah so so what comes up right so maybe you could talk a little bit about a lot of times clients there's you know, maybe a historical approach where it's maybe you know, and this might be a better fit for your bank syndication side where you guys are looking at it clients may be doing 60 65% leverage with like a traditional bank they're putting in the equity maybe a project is anywhere from 1020 30 million and that works maybe they've done 1235 deals and then they you know come into a much larger project and in the case you know where they have now a great site familiar with the market now it's double triple the size and oftentimes banks get tapped out either due to size or due to just exposure to a client well
Brent Connell:then plus also this was a well this was you know, a well established sponsor developer in in the area but you know, they taken their lumps in the you know, in a way like a lot of people had and they're you know, they're clawing their way back so they weren't in a position to provide you know, to traditionally the banks want to you know, want to borrow this got 10 to 15% liquidity of the loan amount and you know, net worth equal to the loan amount so when you're getting into a$65 million project you got to be good good size player or have you know, saved save a lot of money over the years and that taking your lumps on some deals to be able to qualify for that so this sponsor was not in a position to qualify for a traditional bank loan so we had to look at other creative financing on it so that's kind of how we lead the path on this and you know, this is a transient you know, unfortunately, transactions that I work on have a long lead time this you know, was probably approaching three years of gestation period between original conversations and closing so you know, fortunately I've got enough deals in the pipeline that I can I can put food on the table in between the paydays
Adam Lipkin:Yeah, for sure. You know, it's interesting, it's like you know, sometimes you you kind of have a sense of how it's going to play out given that you know, you've been in the market a number of occasions and you kind of like, hey, it's probably going to go this direction. I think a lot of these situations a lot of folks there's a concern about when the project's larger than what they've typically done and there's very likely going to be a need to bring in like a partner, some kind of CO GP, that's going to be able to get lenders more comfortable and just be able to ultimately execute on a much larger financing. It's like you almost are very sure it's going to go that direction but it's like you almost have to have the borrower get to that conclusion you almost have to make a market best efforts go out there get that feedback, but it is it is interesting to see how to absolutely reach
Brent Connell:out and do that because a lot of these projects you know that the sponsors put you know, they're you know, blood and guts into the transaction, it's their baby and there's like Who the hell are you to tell me that I've got to give up you know, percentage of my project when I can do this all myself? Yeah, yeah, comes delicate balance working and through that process to get to the destination that you have an idea that probably needs to happen, you know, early in the process.
Adam Lipkin:And I think it's interesting too, that you could actually have both, you could have a partner and still get very high leverage where you could still retain quite a bit of the promote and the UPS And do it all. And so I think you know, so it was very interesting. Let's talk a little bit about that. So you mentioned was a $65 million project and you got 90% leverage. That's incredible in this market. I mean, even though multifamily has been like the hot product type, you're still finding that by and large private lenders, you know, probably more like in a 75 to 80% level, they kind of are all looking at it under similar lenses. And so to now go past 80% into that 85 or 90, very challenging. Obviously, everybody wants as much money as it could get for as little cost as possible with as much flexibility. Usually, you have to sacrifice in one area. But could you share a little bit about like the process and how this, how this got done under, you know, really unique circumstances?
Brent Connell:Well, fortunately, you know, real estate's all about fortunately, or unfortunately, you know, real estate's all about location, location, location. And this was a, this was a great location project. And it took a little while for, for people to figure out the uniqueness of this project, and that there was actually going to be true value creation. And that's how everyone got comfortable with it, including the lenders got comfortable with that high advanced rate, because there was true, well, you never know until the end of the day until the project's finished. And it's lacing up, but everyone is very confident of the true value creation that's being done in the construction project versus, you know, there's some other products that are in good areas, but you know, all of a sudden, since it's a good area, the value of the of the lands bid bid up, and they haven't owned the land for a long period of time and all sudden they're facing 20%, construction cost increases, were there all of a sudden, the other day, it's a great potential project and a great area, but all of a sudden, on a loan to cost basis. There's not it's it's very slim. So what's forcing, the reduction in in the ultimate advances on the capital stack is, is what's going to be the projected value of the project at the end of the day, and all sudden you're not creating that much value. So it's difficult to have a high advanced rate on the loan, the cost.
Adam Lipkin:Yeah, I get that. Talk to us a little bit about just what was that process when you knew there was this SSA structure? In a lot of ways it's almost identical to see pace, it's just different improvements to your point. Yeah, not energy efficiency related, not resiliency, it just more infrastructure. And so it has this tax position, you have a lot of the things come up that lenders say that Oh, you're you know, you're priming me this that and the other even though technically it's a tax with no rights. What was that process? Like when it came to speaking to lenders that you find there was particular talking points that resonated? Maybe just share a little bit about that?
Brent Connell:Well, there was some situate, you know, we got into the same situation where you'd have some lenders are like, Hey, you know, I like this project at all, you know, I think it makes sense. And then all of a sudden, when they're realizing that, you know, it's it's, it's got the, the SSA bond component to the outdoorsy bait paste component to it, their leverage is being more advanced, and they can or, you know, they could for the, for the existing timeframe a lending institution may habit with, within their, you know, their loan policy that they're precluded from doing these laws, even though they, they feel it's, their senior lenders feel it's a good idea to do that. They're like, Well, you know, right now, it's a non starter for us, unfortunately, I, I hear you, you know, everything that you're talking about, is there good points. But right now, we're not going to be able to get it through our loan committee, at the end of the day, we can't get our policies change. So getting through to a lender that that had the policy approvals that they could, they could do the transaction and they they saw through, you know, what was ultimately going to be the end product.
Adam Lipkin:I mean, I just think that is such a need when it comes to doing these creative solutions. I mean, it's so funny that oftentimes over the years, I've gotten requests, like Hey, could you send me a CPS lender list as if like, you know, and there was like, these lists going around that were from like one of the organizations that puts together some information I was like, it's gonna be so misleading you know, if you have a lender on that list, that's you know, maybe what they did was like a, you know, $100,000 si pays for like a lighting job on like a $40 million stabilized mall. And somehow somebody is going to see that and say, Oh, they did it. So now they're going to do 20 million CPAs on my 100 million dollar ground up project. So I still find that when it comes to like a CPAs project, or SSA, Groundlings, you name it, there's such a need for a capital advisor expert in this area, that's like going to almost create it, you know, it's like you almost have to back into allowing it once you have the strong sponsor, and you frame the business plan to them back into look, we could probably get comfortable with the structure. We'll show you all the risks. mitigates. So I think there's such a need it's not just like, oh talk to us lender it's there's definitely something to be said about lenders that are more likely to be open a structure so there's just some and it's not just non banks I mean there's a number of credit unions that they're able to go a little bit out of the box if maybe it's a project in their community and they're like, Look, we want to help out to move this project forward, we want to see it be successful. So I do think that there's such a need and a role for what you're doing to be able to creatively structure and and I mean, it's an incredible win to be able to get that kind of leverage for their client, I mean, that reduced their equity need, you know, I mean, dramatically and gave them such an upside So no, I really think it's, it's something to be able to do that.
Brent Connell:And that has to be you know, lenders that you've got a relationship with, I believe, you'll be able to talk through the nuances to be able to get to it or, you know, you really run the risk of getting a long ways down the path and realize that was originally a non starter and you wasted everyone's time. And that's you know, we're about making you know, we're we're about making money but I believe it's about making successful projects if if you put together successful prize Can you team up successful people you will be successful
Adam Lipkin:in its, it's really so needed to have the right attention, which comes from that existing relationship. Oftentimes, I mean, I think that people are so flooded these days with deal flow, it's almost like a filter out exercise. So if you're seeing 100 deals, and you know, you got all this stuff to look at, you're probably going to filter more towards the the folks that you have relationships with at least give it attention, and then be able to willing to hear a story. So I think that's something you got to lean on. And with regards to anybody that's looking at something like a CPS or an SSA bond, or Frankly, I know we talk a lot about grounding structures as well, there's probably nothing better than speaking to somebody that's actually done it. I mean, there's a lot of people that talk theoretical, they talk about what they could do. And at the end of the day, they still haven't even done anything with it, you know. So it's like, it's really you could get yourself in a lot of trouble when you know, you're seeing these advertisements about, you know, these crazy rates and this leverage and somebody getting this done. And when you drilled in, I mean, you drill down into these things, and you're just shocked that it's not been done yet, you know, and so you really need to get some some diligence done, find out what somebody has done recently. How much of it Have they done, it's so important. So I thought it's great to have somebody like yourself on this just to be able to, you know, highlight some of the recent success with this type of creative structure that, frankly, most people never heard. Let below jejak do it. So anyways, up. So let's talk
Brent Connell:about Yeah, bass is not a bus.
Adam Lipkin:I know. So what's, what's the focus these days? Let's talk a little bit about, you know, some of the exciting things, you know, in this regard, you know, we're doing some really cool projects together. But what's that? What's exciting for you? What do you see on the horizon? When it comes to what's happening? A lot more,
Brent Connell:you know, ground up construction of figuring out ways, ways to get higher up on the capital stack and do it safely. That sounds like an oxymoron is safely putting on more leverage on a project, but figuring out how to prudently do it? Yeah.
Adam Lipkin:In that regard, folks that want that I mean, everybody wants that, what would be some insight that you could share? Having? You know, that's probably one of the things that you do consistently? is you really focused on executing higher leverage solutions? What's something that you could give somebody as an insider takeaway, something to consider as a frame of reference to think of when when going out to the market? Whether it be a borrower that has a project? How should they be looking at it, what's possible, what's really
Brent Connell:is spending the time on the front end to drill down into the project to make sure that you've got an assessment of your costs? And what the what what the execution is so that you can you, you can have the lender be more comfortable about the, the, what the true costs are, and there are some belts and suspenders on the project, you've got some contingency that's built in place, you've got, you know, a little bit extra interest reserve, since we're talking about construction loans, and you've got the proper people in place to execute on the strategy, you know, most of the time, the sponsors will be lacking in some areas, and you try to figure out ways to augment them with the proper professionals that are needed in those transactions. So if you come forth with a good plan, and you go to the lender with a good plan, they will spend the extra time to look at the transaction, do that and then that's how you build relationships. And they, you know, and then they identify that you provide quality projects and you've had successful outcomes of the projects they wanted. People want to deal with successful people. Yes, I think that's
Adam Lipkin:the that's the start, you know, make sure that you're filtering for the folks that have already had some great levels of success, and then you can now be able to expose them to just wider range. have solutions for their projects. But I think if you could start with like the right jockey start with the right bar that's had some really good traction and success. A lot of things could evolve very well from there. So I think that's a great way to go. Where do you think is the future of CPS, what do you think's going to happen? What's a good fit for it now over these next 612 months? Any thoughts on that?
Brent Connell:Well, I you know, I'm hearing there's a bunch of it. That's going on in, in like in New York City where there's some mandates for some may increase energy efficiency, and I think there's gonna be a fair amount of that coming around. Yeah, you know, so that may the assess, or that there may be a push based on that mandate for the regulators to loosen up their criterions on allowing see pace with with banks. Yes. So lots of times the banks will take some guidance from from the regulator. So if the regular sir, are fine with it, then they will be fine with it
Adam Lipkin:much quicker. Yeah, no, it's really important to know, like, you know, what are decisions being based on and if you have certain people that are loosening up, and maybe even changing certain priorities of guidelines, especially with everything happening towards these mandates of, you know, decarbonisation, it was interesting, I was at this conference a couple days ago. And what came up is, in addition to the regulatory environment, putting pressure on, you know, more and more folks needing to focus on this, what what came up was is that more tenants, more businesses that are going into commercial buildings, are actually having certain needs, that if their building doesn't have a certain energy efficiency, or D carbon strategy, they can't be part of the comp set. So you're talking about, like your major tech companies that are going into pretty big spaces, in major cities around the country, saying, we need to make sure that your ESG policy and your building is operating under a certain standard otherwise, can't go in. So I think even even without the regulatory pressure in certain cities, I still think that all the cities are going to have that need to just stay relevant. And so I, I do see that continuing to happen. I was it was a very interesting insight that came up a couple days ago at a conference so good stuff, man. And yeah, you know, we're kind of wrapping up at any any kind of last minute takeaways, anything, you want to share any kind of things that are on your mind, things that are happening in the business, insights, takeaways,
Brent Connell:um, that, that, I think, you know, the, traditionally, if you look at real estate cycles of booms and busts is, you know, toward the end of the cycle, you start stretching the leverage on on lending. And by and large, I haven't seen a stretch in the, in the lending or in the banking sector, they're starting to be some stretch, I believe, you know, in some of the renovations of the single family houses, and some of the smaller apartment complexes, but a lot of the ground up construction that's going on there is still pretty measured, there's there's it's more conservative, what's going on. So I believe, so that theoretically, should mean that this, that this real estate cycles, got some more legs to it.
Adam Lipkin:Yeah, yeah, I get that. So I had a question asked at the beginning of the, at the beginning of the show, and I asked what leads to best execution. And we've kind of touched on this a few times throughout this conversation. And I just feel like this is just, you know, part of my conversation. ongoingly. But it's typically best execution comes from having options, you know, it's like, you know, one of those things where I think what you do well, and one thing that I focus on, you know, you shared about it, you know, when you nicely talked about our relationship, how we, you know, always brainstorm is, you know, sometimes a particular tool isn't going to be the right solution for your problem, your challenge your opportunity. And so you got to have multiple tools. And I think, you know, CPAs, I always look at it, it is one of what should be a few conversations, you know, that you want to have with a borrower around how you're going to be able to approach the market. So I think, you know, you guys do it, right? You know, when you go to market, and you're looking at how to creatively execute, you're looking at sea bass, you're looking at ground leases, you're looking at lenders that have different profiles. And I think that when you go out with options, and you could run different plays in scenarios, it just leads to more possibility. So I think for me, that was that was the answer that I found when it comes to best execution have multiple approaches. So what about you? Any any thoughts on No, I
Brent Connell:agree with that, and I want to continue on it. I think, you know, that's what my philosophy and that, you know, I probably that's why I joined the Geneva capital where I am, it's kind of similar philosophy is we believe in in a targeted approach, we're not, you know, directly a rifle approach when we, when we look at, you know, a transaction with the sponsor, is we're not going out looking to go out to 50 to 100 different lenders. We're looking to go to a select, you know, half a dozen or less lenders so that we are lenders that we have have relationships with so that we can actually talk through the project. And we can look for, to how to mold the project with the lender and with the sponsor to come up with an ideal solution. And you know, as we're, as we're doing the molding of the project in the best execution, we'll have a couple of lenders that will, will drop off, but we're traditionally dealing with lenders that we've got relationships with, and that we know that we can execute. And we know that there won't be major changes at the end of the transaction. You know, besides you know, there's there are always some little hiccups between, you know, starting and closing the transaction, but we want to work to minimize that.
Adam Lipkin:Yeah, no, I like that. I've written that I think you're, you're in the inner circle, my friend. So I love I love working with you and being in a team. And I think we're just filling in some ways we're just getting started. I think that there's just an amazing, exciting future ahead to a absolute real to realize some more of these possibilities. So thanks so much. It was awesome. I've been able to have you on really enjoyed being able to share a little bit more of this success. And look forward to doing this again, but um, she'll be talking to you probably later today. Yeah. Awesome, Brent. Thanks so much.
Brent Connell:Thanks. Appreciate it.
Adam Lipkin:guys soon. Thank you guys so much for tuning into this episode of the sea bass confidential, please like comment, and make sure to subscribe on this. We're available now in Apple podcast and Spotify, and we hope to see you on a future episode. Thanks so much for tuning in.
Producer:Thank you for joining us on another episode of The see pace confidential. Give this episode a like and subscribe so you don't miss any of the best coming opportunities in the world of CPAs. Got a question? message us on LinkedIn. Adam Harris Lipkin. See you next time for another edition of the see pace confidential.