Serving the hedging needs of our real estate clients has always been a primary focus for our firm. Whether the hedge is being procured to satisfy the lender’s requirements or the borrower’s own hedging goals, SFG works with each borrower to determine a tailored hedging strategy that minimizes risks and costs.
Once a hedging structure is chosen, SFG works with the borrower to implement a plan for the hedge execution (whether by competitive auction or negotiated procurement) and we assist with all pre-trade Dodd-Frank/CFTC requirements, documentation negotiation, and final pricing. Assuming the hedge is required by the lender, we work closely with your lender to ensure a seamless closing.
SFG was one of the first independent hedging advisors in the market and we only serve borrowers, never the banks. Having worked with countless borrowers, nearly 100 different lenders, and over 30 unique hedge providers, we run a hedge procurement process that is efficient results in getting you the best credit terms and pricing for your swap or cap.
A few notable characteristics that set us apart:
- – We cater to a wide variety of real estate clients. Clients include investors, developers, property and fund managers, and REITs (both public and private). Our long list of repeat clients highlights the long standing partnerships we develop with our clients.
- – Excellent transactional experience. SFG handles hundreds of hedging transactions each year (through competitive auction and negotiation) that vary widely in complexity and size – ranging from smaller loans of less than $5 million to large syndicated loans and tax-exempt bond financings that can approach $1 billion.
- – Experience with many asset types and financings. Deals typically involve multifamily housing, assisted living/senior housing, office, hotel, industrial, and retail properties. Financings include floating rate senior secured loans, mezzanine or subordinated loans, and construction loans, as well as tax-exempt private activity bonds and LIHTC deals for affordable housing transactions.
- – Strong knowledge of lender requirements. Having closed transactions with nearly 100 different lenders, SFG is familiar with standard lender requirements (for lender required hedges). We work with multifamily lenders/servicers within the Freddie Mac and Fannie Mae lending programs, large commercial and regional banks, life insurance companies, debt funds, and other securitized market lenders.
- – Expertise in hedging products. We execute a variety of hedging products, including interest rate swaps, cancellable swaps, total return swaps, interest rate caps, floors, collars, corridors, swaptions, and rate locks; as well as the underlying floating rate indices (e.g., LIBOR, SOFR, Fed Funds, Prime, and SIFMA). We advise on new trades, novations and assignments, amendments, and early terminations of existing hedges.
- – Experienced negotiators on pricing and documentation. Our long experience in this market enables us to effectively push back on unfavorable terms within the ISDA hedging documents (and also the loan agreement itself) and to negotiate fair execution spreads on hedging structures. We can help you level the playing field.
- – An authority on the hedging markets. We conduct educational sessions for borrowers and lenders alike. SFG professionals are regular speakers at conferences around the country and participate on working group committees of the Alternative Reference Rates Committee (ARRC) to aid the market’s transition away from LIBOR
SFG can help you address critical hedging questions:
- Should I go fixed with a swap or floating with a cap?
- What are economic forecasts and forward rates saying about the future direction of rates?
- Are there alternative hedging structures that I should be considering?
- Am I getting the best pricing on my hedge?
- Am I getting the best terms under my hedging and loan documents?
- What if my hedging counterparty faces a significant credit deterioration?
- Are there ways to mitigate significant downside risks that could arise from the discontinuation of LIBOR?
- What is the risk of an early termination payment under a swap if I want to refinance or sell the property before the loan matures?
- Am I satisfying all necessary Dodd-Frank and CFTC requirements?