October 31, 2017 | BY CAPSTACK
So can you get that 60-day close and beat the Jan. 1 deadline that threatens to kill your deal?
Maybe — probably — but it’s going to require a committed deal team, nimble organizations prepared to move quickly and an unwavering focus on the finish line.
And don’t forget that “60-day close” is a misleading concept in the holiday-filled final weeks of the year.
“Two months is two months except when those two months are November and December when two months really are 50 days,” says Adam Horowitz, founder of Lever Capital Partners, a New York-based investment banking firm that specializes in structuring complex commercial real estate transactions.
Making matters even more challenging, the time available to close a transaction becomes even more squeezed as these 60 days come to end. Just when more time may be needed, less time is available because participants close up shop for the holidays.
And remember that you’re not alone. A rush of deals is hitting lenders, lawyers and other professionals as the year-end deadline looms.
So how are you going to pull this off? Start by being honest with yourself, says Heather Goldman, founder and CEO of Capstak, Inc., and a long time industry capital markets executive.
“Have realistic expectations,” Goldman says. “Understand that the underwriting process is about lenders being able to protect their principal through an accurate valuation of your project and its cash flows, and establishing a long-term business relationship with you, the borrower. This is not about you selling a rosy, best-case scenario in a one-off trade.”
This isn’t the time for extended back-and-forth about the underlying economics of the project. It’s a time for quick agreement.
A good advisor will provide a clear-eyed view of the project, ensuring that your team isn’t blinded by its own optimism. A good advisor, Goldman notes, also can ensure that you’re not leaving money on the table by helping optimize your capital structure and who understands the current market.
“Go with the advisor who challenges your business plan,” she says.
Horowitz says the entire deal team — lenders, lawyers, appraisals and other professionals — needs to be committed from the start to closing the transaction by the end of the year.
“Only certain lenders can close within a 60-day time frame,” he says. “So make sure that your expectations are established up front, and make sure everyone understands their responsibilities.”
It’s equally important that the advisor keep numerous options open.
“Go into the deal with an advisor who can manage multiple term sheets for potential back-ups,” Goldman says. “Have a well-considered plan if your lender isn’t able to fund at closing, or not able to close on the same deal terms.”
An accelerated closing may be more costly than one completed on a conventional schedule. Lawyers and lenders may appreciate working on a highly efficient schedule that reduces the risk that deals will fall apart, but as Horowitz notes, lawyers who are called into work over a weekend during the holiday season are likely to charge premium rates.
The need for efficiency begins with your own organization.
“You don’t want to be the reason that things get delayed,” says Goldman. “Be immediately responsive to lender requests for information. Understand their internal process so that you are prepared to meet due-diligence requests, able to clear any legal conflicts early and ready to meet the requirements of the lender’s credit committee.”
Throughout the process, keep a close eye on the potential risks associated with moving too quickly — risks that range from typos and math errors to the loss of negotiating power and major strategic errors.
Take a deep breath, suggests Horowitz, and give your desire for a year-end close a fresh look. Make sure the effort of trying to close in 2017 clearly outweighs the ease of closing in Q1 when you can take your time and possibly negotiate a better deal.
“Know when you are cutting too many corners which could be costly in the long-run,” says Goldman.
If the costs and risks make sense, time is ticking.
Today is the day to inspire your organization, put together a deal team committed to a year-end close and get to work.