Passco and KeyBank: Secrets of a Strong Investor-Lender Relationship
Deal making depends on investors and lenders working together toward a common goal: the closing table. The process works the best when in-depth industry expertise, streamlined processes, and open communications intersect. In these cases, a financial interaction becomes something more: a true relationship with aligned goals.
At the National Multifamily Housing Council in Orlando, we sat down with Alan Clifton, chief investment officer of Passco Companies, LLC., to discuss the company’s longstanding relationship with KeyBank Real Estate Capital and how the two organizations work together to make deals happen.
Passco is a nationally recognized real estate investment firm specializing in the acquisition, development, and management of multifamily and commercial properties throughout the U.S. Since 1998, Passco has operated throughout all market conditions and cycles. The company has invested more than $1.87 billion of funds and acquired over $4 billion in multifamily and commercial real estate in the United States.
One Size Does Not Fit All – Even All 1031 Exchanges
One integral piece of the Passco-Key relationship, according to Clifton, is that Key has taken the time to learn the unique elements of their business. For example, Passco is a leading sponsor of 1031 exchange transactions, yet has a different approach to the process than most firms. Many lenders have one way that they approach 1031 exchange deals, and they pass on transactions that don’t fit their mold. Conversely, Key dives deep into the client strategy, and finds ways to adjust underwriting and funding processes, while still applying its high standards throughout the financing process. This customization in turn allows Passco to differentiate itself in a crowded market.
Passco is also a leader in the alternative and direct investment space, active in working with individuals and family offices that are purchasing in real estate, and a preferred borrower with Fannie Mae. Additionally, the company buys multifamily, self storage, senior housing, retail, and industrial properties. This broad spectrum of real estate transaction types means their financing sources must have equally diverse experience across categories and ownership structures.
Collaborating to Improve Processes
Clifton also highlighted how Key and Passco work together to solve challenges, have mutual respect for one another, and connect on a personal level thanks to frequent, open communications. He credits regular face-to-face meetings, particularly between Passco and Key team members on opposite coasts.
At the start of the relationship, time zone differences and the large numbers of people involved had the potential to complicate and lengthen the deal process. The companies worked together to solve that challenge: both firms reorganized their teams, designated clear roles, and focused on streamlining the process. Passco knows upfront the information they need to provide KeyBank Real Estate Capital teams to elicit a decision, and as a result, Key has improved response time and learned to anticipate Passco’s unique needs.
The Process in Practice: A Case Study
Passco’s acquisition of a Florida apartment property, Ocean Walk, is an example of the mutual trust and partnership between Key and Passco and its impact on getting deals done—even when there is a Category 5 hurricane that threatens the closing process.
Ocean Walk is a 297-unit multifamily property in Key West. At the time of Passco’s acquisition, the property had a floating rate Fannie Mae loan that was currently in its lockout period and could not be prepaid. Although that loan was with a different Fannie lender, Key helped Passco work through the loan assumption process given the bank’s expertise in assuming Fannie loans. Concurrent with the assumption of the existing debt, Key early rate-locked a Fannie Mae fixed- rate mortgage, which would serve to pay off the floating rate mortgage.
But timing is critical in this process—and bad timing nearly took the deal off course. After Passco had purchased the property and assumed the original debt, but before Key was able to close the new loan, the property was hit by Hurricane Irma. The deal was rate-locked during this period, which caused a good deal of concern amongst both the Key and Passco teams, because the potential financial penalties would have been sky-high, if the loan did not close.
The good news: within a week of the storm, a joint Key-Passco team together hit the ground in Key West and visited the project site. After seeing the property firsthand, and the work Passco had done to repair the damage on quick turnaround, Key closed the loan on time and with no change to the loan terms.
Passco and Key Look Ahead, Together
Clifton notes that the growth of KeyBank Real Estate Capital and Passco’s growth have been in parallel, and the companies are looking to the future in parallel as well. The commercial real estate industry over the past year was operating under some uncertainty about how the new administration’s tax policy would affect real estate transactions, and particularly the 1031 exchange. Now that there is more clarity around its impact, investors and lenders can respond collaboratively.
The future looks strong. Much of the business between Key and Passco takes place in the multifamily sector, which offers strong fundamentals, said Clifton, “because people always need a place to live.” The industry expects continued high demand for workforce housing and housing for new household formations. This strength of market is expected to continue despite questions surrounding affordability, rising labor and construction costs, and the lingering effects of two 2017 hurricanes. Together, Key and Passco expect to navigate these challenges, and explore how real estate owners can continue to address the needs of the influential millennial generation through smart technology and other amenities.