Behind the boom: Texas Realty Capital on ground floor for financing deals
By Jan Buckholtz
Wonder how some real estate bigwigs in Austin find the money for commercial acquisitions? Is there some secret formula or fraternal society that makes it all happen?
With Austin’s economy in high gear and commercial real estate as hyped up as it’s ever been, the key to securing capital might be as easy as getting to know Jim Lemos and John Morran, the principals at Texas Realty Capital. They connect lenders and borrowers to help deals get done.
Texas Realty Capital has servicing relationships with 18 lenders such as Thrivent Financial and Lincoln National Life Insurance Co., insurance- affiliated companies that earmark a portion of their investment portfolio for real estate loans.
Those companies prefer not to deal directly with borrowers, instead opting to work through third-party representatives such as Texas Realty Capital.
“We’re primarily involved in the debt part,” Morran said. “Our borrowers generally receive between 60 and 80 percent loan-to-value (loans). We’re the only ones in Austin who’ve been here the past 30 years doing what we do.”
That lack of local competition has apparently yielded a very profitable business, but executives declined to disclose revenue.
Texas Realty Capital also facilitates permanent financing rather than short-term construction loans, which tend to be obtained from banks.
“People have the perception that banks are their only source of capital,” Lemos said.
Some of that is due to a marketing edge. Banks often put their names on highly visible signs announcing major construction financing.
“You don’t see signs for us, though,” Lemos said. “We don’t have a retail branch or loan officers in Austin.”
Morran said the structure of real estate financing is pretty simple. There are three major sources of permanent financing: life insurances companies, quasi-government sponsored Fannie Mae and Freddie Mac, and Wall Street-originated commercial mortgage-backed securities.
Fannie Mae and Freddie Mac are mortgage-investment vehicles, while the mortgage-backed securities loans — that were at the heart of the subprime mortgage lending crisis — tend to be higher risk.
Texas Realty Capital represents a significant array of life insurance companies, which mostly are willing to do longer term fixed-rate loans on stabilized properties — ones with rent rolls. For example, it could be a Walgreens with a sale-leaseback contract in place, or a parking garage or apartment building.
The company doesn’t handle land deals, however.
Morran and Lemos noted that through the history of their company and a total portfolio of about 300 loans, only one went into foreclosure “and that lender came out of that fine.”
Creating long-term relationships on both sides of the deal is the company’s main aim.
“Our goal with our borrowers is to find them the best deal in the marketplace, while our goal with the lenders is to get them good properties to invest in,” Morran said.
So how does Texas Realty Capital make money?
The company earns an origination fee at the time of closing that was locked in when the deal went under contract. The lenders also pay an ongoing servicing fee.