AFC Launches Program to Invest $500M

NEW YORK CITY-AFC Realty Capital has established the AFC Co-Sponsor Investment Program. The program was developed to invest in more than $500 million of transactions in 2008, according to AFC principals Paul Fried and Michael Sonnabend.

Fried tells that the reasoning behind launching this program is that AFC views the current market as a "deleveraging cycle." In other words, "in this cycle, the capital markets are looking to provide less capital--less 'leverage'--as a primary means of lending 'defensively,' more conservatively and more safely." He notes that references to "capital crunch" and "credit crunch" for example, are "just a prominent part of the deleveraging of US real estate assets. In light of concerns of a slowing economy, this is understandable." Fried continues that "if a slowing economy means that real estate assets will experience declining cash flows--or at least not the growth that was projected during the prior 'aggressive' growth cycle--one way to provide capital but defend against declining cash flows is to provide less capital, whether in the form of debt or equity."

He explains that in light of this trend among capital providers, AFC's clients and transaction partners are faced with having to provide more capital--sponsor capital--for its transactions. "AFC has typically provided capital in such situations to get its clients' and partners' transactions closed."

Fried tells that AFC's co-sponsor investment in these transactions is usually the difference between the transaction happening or dying. "In a recent transaction, an institutional group which was providing the joint venture equity for AFC's client decided to provide less capital--the sponsor was able to provide some of the balance, but was not going to be able to provide the entire sponsor requirement in time to close the transaction. AFC provided the balance to close the deal on time."

Sonnabend says that "this program simply formalizes AFC’s historic activity of co-investing with its clients when additional capital was needed to close transactions. Over the last 20 years, AFC has stepped up to fill a need for its clients during market cycles when capital has pulled back, and where the most compelling value-add transactions are threatened. We find ourselves in that environment again, and are well capitalized to make a difference in the success of many of our clients’ deals."

Fried says that most of the capital providers that AFC talks to are concerned about providing funding to "typical" and "standard" transactions. "It's as if current market conditions have caused them to wonder if they know how to recognize a good transaction and determine whether it has the attributes to succeed regardless of the overall economy; others are anticipating 'distressed' transactions that will be more profitable than standard transactions." He continues that he hopes AFC's investments will be part of an effort by many parties to continue to do good standard transactions. "Continuing to do good solid transactions is an important counter balance to the general concern that there aren't good transactions, or that the only transactions to be done have to be distressed."

AFC Co-Sponsor Investment Program is just part of the firm’s overall business capabilities. Fried says that he expects the outcome of the program to be that AFC's clients and transaction partners will "continue to get their transactions done--the terms will reflect current market conditions--and the transactions will have to stand up to the diligence required in an unpredictable environment. But these transactions will close." In recent years, AFC has co-invested with clients on new development and redevelopment transactions involving multifamily, hotel, industrial, office, retail and self-storage properties around the country.


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