Feature Story
Laureate Helps Clients Capitalize on Red-Hot Commercial Market
By Elizabeth W. Pearce

You don’t have to be a mover and shaker in commercial real estate to be a client of Laureate Capital but it certainly helps. Although clients’ names are not for publication, rest assured they are some of the most influential people in commercial real estate throughout Florida and the Southeast.

“We think we work with the very best and most sophisticated developers and investors in the market,” says Matt Rocco, manager and loan originator for Laureate Capital, LLC, in Naples. That’s a good policy for a firm that provides non-recourse lending at fixed rates and for long terms. With a non-recourse loan, borrowers can simply turn in their keys and walk away from a property without a deficiency judgment should something happen to sour the investment.

To date, that hasn’t happened, even though Laureate’s Naples office has originated more than $575 million in commercial loans over the last seven years. Rocco attributes the perfect record to the company’s experienced, well-capitalized clients and “excellent underwriting.”

Based in Charlotte, North Carolina, Laureate Capital is among the top 20 commercial mortgage banks in the U.S., investing exclusively in commercial mortgages on behalf of life insurance companies, capital market lenders and other institutional investors. It is a wholly owned subsidiary of BB&T, a $100 billion diversified financial services company also based in North Carolina.

Naples is one of Laureate’s 14 regional locations nationwide and the only full-service mortgage banker in Southwest Florida that originates, holds and services only commercial loans. Since opening in mid-1998, Laureate has provided many of the area’s most prominent owners, investors and developers with financing for their commercial endeavors, which range from apartment buildings to office, retail, medical office, industrial and industrial/flex space. The company has also financed special-purpose properties such as hotels and self-storage.
Because Laureate does not buy and sell real estate, it doesn’t compete with commercial real estate brokers. In fact, brokers are one of the company’s main sources of referrals. So are banks.

“Although we provide a product of finance, we do not compete with banks,” says Rocco. “Commercial banks typically don’t offer long-term, fixed-rate non-recourse loans which we do. That’s great because we don’t do construction loans, which are a big part of their business. Furthermore, we don’t wish to acquire their checking accounts, savings accounts or wealth management accounts. We only make non-recourse loans on commercial real estate.”

Borrowing Benefits
As a larger lender with a local presence, Laureate offers customers certain advantages over some of its competitors. For one thing, it expedites loan approval, which typically is a lengthy, arduous process.

According to one local investor, “We knew well in advance whether or not our loan would be approved - not at the last minute, two months into the application process. Working with Laureate has always been a very positive experience.”

Perhaps the greatest benefit to borrowers is that non-recourse loans don’t affect their ability to borrow from other sources. “A lot of people appreciate non-recourse lending because it is not a contingent liability on their financial statement,” Rocco notes, adding that the company’s products also appeal to commercial clients interested in cultivating a market presence. “Our (loans) really start at five, seven and 10 years or more, and are fixed. Currently we’re offering a 20-year fixed, non-recourse loan on a retail center at 5.35%.”

Favorable interest rates and strong demand for commercial real estate have helped the firm expand its customer base and market share considerably in recent years. “The Naples regional office comprises the best professionals in the industry,” Rocco says, crediting John Nicola, Dan Neal and Rhonda Wing for enabling Laureate to originate and service loans throughout Florida. To assist in those efforts, Laureate recently added a regional office in Tampa. Market Shifts
“We basically have a footprint throughout the state,” says Rocco. “Essentially, we’ll go anywhere a customer takes us; wherever there are solid investment opportunities.”

Increasingly, that has meant looking outside Southwest Florida and to markets such as Tampa, Orlando, Miami, Tallahassee and even beyond the state line. “Local developers are no longer just local. They’re buying properties all over the southeastern U.S.”

He says the same is true of owner-investors, who previously wanted to manage their own retail shopping centers and weren’t willing to drive more than about an hour-and-a-half to do so. But now, with investment property in short supply, “our clients are buying in new markets for the same reason we’re willing to finance them. With competent, professional and expanding management ties, as well as national firms offering other services, we see no reason not to explore (regional and national) markets.”

At the same time, Rocco says that regional customers in particular recognize the long-term value and appreciation of Florida real estate, and want to work with someone in state to service their needs. “We’re already serving their needs in the Midwest and Southeast, but now they see greater opportunities in some of the markets down here. And we think Florida, especially Southwest Florida, represents the longest-term, positive growth prospect in the nation.”

Investors seem to agree. According to Rocco, investor demand for commercial real estate is at an all-time high, supported by historically low interest rates. While this has contributed to an extraordinarily competitive market, Rocco says that the rush to buy real estate also underscores the need for proper underwriting and a thorough understanding of the positives as well as the negatives of rapid growth.

Trying Times
“I do believe it’s a very trying time for investors because the risk premium associated with commercial real estate is as low today as it has ever been,” adds Rocco. For example, he says that five years ago, investors were willing to invest provided they could get a 10-12% cash-on-cash return on investment. “Those same hypothetical investors are now happy to get a 5-8% cash return because supply and demand is not in equilibrium today.”

This has benefited lenders like Laureate Capital, which Rocco says is “basically selling interest rate insurance. By securing fixed-rate financing, an investor’s cash flow is protected, even if interest rates rise to 9%, where they were just a few years ago. And if you can buy 10, 15 or 20 years of interest rate protection at rates ranging from 5-6%, doesn’t that allow you to sleep a little better at night?”

With so much money chasing so few deals, investor discussions about a real estate bubble abound, albeit to a lesser extent in Southwest Florida’s commercial arena, which continues to experience unprecedented growth. Nonetheless, Rocco always cautions investors to be prepared for down times. “Investors today need to be financially committed to stay the course in case, for instance, a couple of tenants leave them with unexpected vacancies. In order to realize a long-term capital gain in commercial real estate, they must have the discipline, expertise and management to weather any possible storms.”

Accordingly, Laureate scrutinizes the financial strength and experience of every potential borrower, and analyzes each transaction before making a lending decision. “We can’t do every deal, but if we can’t do it, a quick no is better than a long yes,” Rocco says. “(Above all) we want to ensure that our products and services meet the investor’s ownership and investment objectives. If they do, we think that there’s a perfect fit.”

This logical, measured approach has paid off handsomely not only for its clients, but for Laureate. This year, the company’s national goal is around $2 billion in loans, including $150 million or more out of the Naples office. “We think that if we continue to work hard and provide a consistent, high level of customer service while cultivating our customer base, we’ll continue to be successful.”
 

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