TUSTIN, CA—As GlobeSt.com reported last week, CapRock Partners, acquired two large industrial land sites in Rialto, CA. Locally based Bridgeport Investments arranged the $50-million debt-and-equity financing for the land acquisition and the development of 1 million square feet of big-box industrial buildings on it on behalf of CapRock. GlobeSt.com spoke with Bridgeport partner Randy Bramel about what it takes to execute complex or “hairy” deals and how financing hurdles can be overcome.

GlobeSt.com: How would you describe a “hairy deal,” and how do you tackle it?

Bramel: I wouldn't necessarily describe the CapRock transaction as a hairy deal, although it was a very large and complicated deal. Often, a hairy deal includes land, entitlement issues, distressed property or distressed debt. What we do on the front end as a real estate investment banker is analyze the deal, understand the landmines, understand the challenges and solutions and evaluate whether equity or debt capital will find the solutions acceptable. Before we go to the marketplace, we are underwriting and trying to anticipate at least 90% of the major questions that debt and equity capital providers are going to ask. Sometimes the deal is acceptable to them, and sometimes it's not. But our three principals have been in the real estate business for over 55 years, which is a good amount of experience base to draw from as to whether the deals will fly or not with capital. Our firm is equally knowledgeable about both real estate and capital markets.

A developer might be acquiring a piece of land and getting the necessary entitlements on it and then building the project out or selling the land to another developer. The developer has to decide whether to go vertical and build it out or sell the land for a profit. The entitlement process in California can be very lengthy, and a majority of equity investors will not take a chance on that.

On this transaction in Rialto, the institutional-equity capital markets didn't want to come in and invest in the land until the developer had their entitlements and were close to starting construction. The developer must tie up the property with the seller to satisfy the requirements with debt or equity capital.

GlobeSt.com: How does the CapRock deal represent trends in the market?

Bramel: Over the last couple of years, a number of big-box industrial projects have been built in the Inland Empire because of strong demand, but they've primarily been done by large private developers or institutional developers. CapRock is a strong, growing mid-market developer, and we were able to bring debt-and-equity capital to the table for them. There haven't been a lot of mid-market developers that can develop a million-square-foot project. That's one change: capital is coming down and looking for good talent among mid-market developers that have good projects.

Another thing is that one of these two buildings was subject to a presale agreement where an institutional investor came in and said, “Once you finish this building, we'll buy it from you for a set price.” Pension funds, REITs and life-insurance companies have an increasing appetite for good product, and there's a rise in the number of presale transactions being done in the marketplace.

Also, we were able to get higher leverage on this project through the banks, because of the presale arrangement. We talked to major banks across the country on debt financing for this transaction, and we were seeking limited vs. full recourse. We were able to negotiate limited recourse since banks are more willing to do this in the current competitive lending market.

GlobeSt.com: What financing hurdles are developers facing in the market?

Bramel: In debt financing, the first hurdle is that private entrepreneurial developers are trying to limit the recourse they have on construction loans. A lot of them had sleepless nights and got burned on guaranteed loans since 2008, so they want to limit or find non-recourse financing. However, non-recourse construction loans are difficult to arrange, except for low leverage construction loans.