CFD 546 – Tower Capital and Financing The Real Estate Business

September 4th, 2019

Adam is the Founding Partner and Principal at Tower Capital, a Phoenix-based Commercial Real Estate Finance firm. Since 2015, the firm has been involved in over $500 million in successful debt and equity placements on behalf of investors across all major asset classes.

Adam is an active member of Forbes Real Estate Council and has been featured and published in numerous national and industry publications including Forbes, Globestreet.com, National Real Estate Investor, Phoenix Business Journal, Commercial Executive Magazine, Multi-Housing News, and many others.

Podcast Highlights

  • Who is Adam Finkel?

Adam is a regular guy from Boston, Massachusetts. When he turned 18 he headed out west and went to school at Arizona State University. It was there where he found an opportunity to get his foot in the door of doing commercial real estate from some of the older members of his fraternity. Prior to that Adam didn’t have any experience in the industry, he just saw the opportunity that was available and went for it.

Doing the transactional deals and putting in the work gave Adam a good understanding of what tenants and landlords need, and that served him well once he moved onto the finance side of the business.

Investing in real estate doesn’t need a college degree, anyone can do it, which is the great thing about. Adam recommends that people start small since it’s more attainable and makes financing larger deals much easier. The first question Adam gets asked is “who is the sponsor?” because that’s even more important about the details of the deal itself.

  • Getting Started In Real Estate

Many people get their feet wet in the real estate business by buying single family homes. That’s where Adam tells people to get started in real estate. From there it’s possible and easier to move onto multi family homes, apartments, or commercial real estate.

For some people, they have to learn from personal experience and make those mistakes. For those people they usually find that it can be very challenging trying to buy a larger building and they end up starting off small anyway.

When Adam was getting into the real estate business in 2003 the market was picking back up again and there was a lot of activity in his local market. He believed that there was no better way to build wealth than real estate so it seemed like the perfect opportunity.

Adam loves working with people and finds the capital markets very exciting. There are so many facets to commercial and traditional real estate so there is tremendous potential for people to tap into. With most things in life, it takes exposure to many different things to find out what you like and don’t like. If an opportunity comes along you should try it out and see where it leads you.

  • Tower Capital and The Finance Side of the Business

Adam wasn’t particularly interested in getting into the financial side of things. After working for a few years he began to get tired of the tenant rep leasing side of the business. He met a man named Neil Churney who invited him to work with Johnson Capital as an analyst helping Neil with the finance side.

Johnson Capital was acquired in 2014 which was the perfect opportunity for Adam to start his own business with a long time friend. They started Tower Capital and has since built a business with 8 employees and will finance between $300 and $400 million dollars worth of deals this year.

Tower Capital isn’t focused on one particular asset type. The typical loans are a million dollars and up. They have a very collaborative approach and all of their capital advisors have unique experience that they bring to the table.

  • Short Term Rentals

The short term rental space is still a difficult space to get financing because it doesn’t fit into the established boxes. With an apartment building there is more stability and with hotels there are other criteria they take into account. Over time we are going to see more programs available for short term rentals but right now it’s still a challenge for most lenders and borrowers.

Short term rentals can definitely be more lucrative than the traditional rental model, it’s just going to take time for investors to wrap their heads around it.

  • Finding The Right People To Work With

Tower Capital focuses on getting an understanding of what the borrower’s needs are and matching them together with the right capital source. Family offices tend to be more long term and conservative investors whereas the debt funds are the ones providing much of the bridge money. They are very concerned with the exit strategy which can create another hurdle for people with their deals.

A lot of lenders have capital sitting on the sidelines that they need to deploy but strict underwriting parameters are still preventing them from doing so. For the right deals lenders are having bidding wars on who gets to lend so for the right deal and the right borrower it can be a very advantageous time.

The capital markets are very complex with a lot of forces at work that can be difficult to wrap your head around. Interest rates definitely have an impact on the business but they are not the only factor. When interest rates stay low that means borrowers can access bigger loans, but when they go up there is a lot of downward pressure on property values.

Everyone is very cognizant of where the market is in the cycle. There is a lot of caution around deploying capital to deals where the borrower is overpaying for property just because the rates are low, but at the same time they have money they need to loan out. The thing that people need to focus on is coming up with a good plan and underwriting with a cushion on the rate.

When a lender is underwriting a deal they are looking for a 1.25 debt servicing ratio. As long as the US economy is still strong lender will continue to look for the right deals.

Any dramatic increase in interest rates are likely to greatly reduce the transactional velocity in the market right now.

  • Adam’s Takeaway

Get your personal financial statement and schedule of real estate buttoned up. Be cognizant of what the lender’s underwriting parameters are, when buying a commercial real estate property they typically want to see a net worth equal to the loan amount and cash in the bank equal to 10% of the loan amount. If you don’t have those in place you’re going to need to find someone with the right balance sheet to help you get the financing you need.

Links:

Give Adam a call 480-426-0576

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