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NEWPORT BEACH, CA—Today's investors are a lot savvier than they were 10 years ago and don't feel they need sponsors to manage investment properties, Knightsbridge Realty Capital's principals tell GlobeSt.com. The firm, a middle-market debt and equity lender for Orange County developers, recently completed four cash-out loan transactions: a $25-million 10-year CMBS refinancing for an RV resort in New Jersey, a $12-million bank mini-perm refinancing for a mobile-home park in the Inland Empire, an $8-million bank mini-perm refinancing for a multi-tenant industrial property in Orange County and a $5.5-million land loan via a private lender for a for-sale residential property in the Inland Empire. GlobeSt.com spoke with principals Jeff Tomei, Curt Fleming and Bill Campbell about the shifting roles of sponsor and how the borrower profile is changing.

GlobeSt.com: What trends are you noticing in the type of financing you do?

Tomei: The way I the see the business today, each deal is unique and of itself. When you're structuring both debt and equity for a specific transaction, it's unique and it's hard to compare it to others. Back in the mid-2000s, we primarily were focused on attracting institutional equity for our client, and there was an ability at that time for the sponsor to negotiate a certain level of a promote that made sense back then. As properties got more expensive and the market started to rebound from the recession, we have seen the institutional money, while out there, become very particular in how it invests in assets.

Fleming: One of the most significant trends we've seen is that there don't seem to be enough deals. There's more money than ever in debt and equity and more players that want properties, but there's a scarcity of properties. Equity is being very particular—we're not doing a large volume because they're being very selective. Most institutions are doing a small handful of deals and are particular about what they choose.

Tomei: On the debt side, it's a great time to be a borrower. Rates are low, and you can get leverage that would attract both private and institutional owners.

GlobeSt.com: Is the borrower profile changing? If so, how?

Fleming: Deals are scarce for those trying to acquire properties. For those that have, there's plenty of debt available. Banks, life companies and the CMBS market are being extremely aggressive, and there's an abundance of capital from the debt side for refinancing or acquisitions. The scarcity is if you wanted to buy a property, you're competing with a whole bunch of very sophisticated people, and it's hard to win those deals. Buyers today are coming from all over the world: there are Chinese sovereign funds, Middle-Eastern, Dutch and Australians—it's more of a world market with robust competition to buy US assets in the coastal, higher-profile markets. A-quality markets and properties are highly sought after, and those buyers are really paying up for those properties today.

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Tomei: Institutional investors primarily want to be focused on the coast. It's different today. Institutional investors are looking for sponsors who can add value more so than they needed to in the past. They've become more creative and need to think outside the box. That's how institutional investors will ultimately partner with a sponsor.

Fleming: In the run-up to the recession, investors were slightly less sophisticated than they are today, and they needed a joint-venture partner in the developer partner in order to transact. Local-market knowledge was highly valued, and sponsors were sought after to team up with the capital or investor capital to make a transaction. Today, the investors have very deep teams, they are sophisticated, and they believe they can buy a property and manage it as well as the sponsor may be able to. Investors are tending to buy assets for themselves, rather than partnering up with a local sponsor, which is a shift from 10 years ago.

Campbell: The value-add part is the key concept. The reason they're doing that is because they feel in order for them to raise money, they need to prove to their investors that there's value being added in the process to justify their sharing in the profits. Before, they just wanted to get money into the sectors. I think you see that in the fundraising environment. It's becoming a world of haves and have-nots, a Darwinian environment. “If you're bringing something to the party that we can't bring to it on our own, we're happy to give you the money, but you have to prove that that is the case.”

GlobeSt.com: What types of properties are being financed or refinanced now?

Fleming: It's harder to get a deal done at or near stabilization from an equity standpoint. Not a lot needs to be done—

Tomei: —because it's stabilized.

Fleming: The main food groups—office, industrial, apartments and retail/commercial—really not much has changed with that. There's plenty of debt available today, as it was during the run-up. There's plenty of capital for the main food groups. The change has been for less common products like self-storage. These are not as discriminated against as much in the capital markets in terms of debt. Assisted-living facilities and other product types have really good access to debt today. There are plenty of lenders to fill the gap and plenty of capital available across the lending spectrum.

GlobeSt.com: Are there shifts in the types of loans being offered to borrowers or the types of loans that borrowers are seeking?

Campbell: There's more flexibility in prepaid provision CMBS loans, an option not generally available in the last cycle. More banks are willing to do portfolio product—mini-perm fixed-rate portfolio product has some prepayment flexibility to it. With life companies, not much is changing, and construction financing has not changed much from pre-'07.

Tomei: Banks are starting to look at more non-recourse options for borrowers. They have to be more competitive with non-CMBS lenders, so they're starting to offer non-recourse programs.

Fleming: It seems to us that the banks are healthy, even down to the smaller banks. The ones that were really in trouble during the recession have been absorbed and have regained their footing. Small to medium-sized banks are very interested in putting capital out in real estate.

Campbell: Pre-'07, we didn't go to banks very much, but now they want to see everything. They're interested in being competitive.

Tomei: Pre-recession, lending was very relationship oriented; post-recession, it is more transactionally oriented.

GlobeSt.com: Are you noticing any other common themes in your transactions?

Tomei: The four deals we recently completed are all cash-out deals, and that's something noteworthy. But that's the only common theme. Each deal is a unique animal in and of itself. The RV park in New Jersey is probably the first of its kind to be securitized in the CMBS 2.0, and that's because of its seasonal nature—it's only open part of the year. It's a unique aspect that hadn't been securitized in the new CMBS before.

Campbell: It's unusual to see a land loan with cash out. It's a refinancing of an existing loan. It's pretty unusual to get cash out on raw land.