Recourse vs. Non-Recourse & Higher vs. Lower Leverage.

_______MAIN 111211206578_820177668030915_6580504218007927052_o2ff6695


I can’t understand why people are frightened by new ideas. I’m frightened of old ones.

~John Cage (1912-1992)




Scott Lynn

Principal / Director at Metropolitan Capital Advisors.

Recourse vs. Non-Recourse and Higher vs. Lower Leverage

By: Justin Laub Lender: “How much money do you want?” and “Do you want to sign your name personally to the loan, or would you rather not?” Borrower: “Lots, and, no, thank you.” That is pretty much the call-and-response answer for the vast majority of comments.

Lender: “How much money do you want?” and “Do you want to sign your name personally to the loan, or would you rather not?” Borrower: “Lots, and, no, thank you.” That is pretty much the call-and-response answer for the vast majority of commercial real estate borrowers. The trickier part of the equation is how much you want to pay and what type of flexibility you want. The answer is complex and depends on the nature of the borrower and the asset in question.

There are a few key issues that typically drive the negotiation process with lenders. The biggest factors that determine the competitiveness of non-recourse financing today are (in order of importance):

  1. i) Is there cash flow currently? If so, how much, and how durable is it?
  2. ii) Where is your asset, and how does it compare to the broader market?

iii) Does your business plan represent a proven concept?

  1. iv) What is the track record of the sponsor?

For recourse lenders, the most important factors are:

  1. i)  Who is my sponsor, and how strong is their balance sheet?
  2. ii) Is there cash flow currently? If so, how much, and how durable is it?

iii)  How does your asset compare to the broader market?

The bottom line is that recourse lenders tend to be more focused on the sponsor while non-recourse lenders tend to be more focused on the asset. In some instances the sponsor and the asset in question check all the boxes of both recourse and non-recourse lenders. MCA recently worked on two deals – a ground-up hotel project and a value-add shopping center – for two different clients where this situation occurred. The differences in leverage, recourse, and rate between the recourse and non-recourse lenders made for interesting case studies.

For the shopping center, our client had to decide whether to pay an extra 150-200 basis points in rate to get non-recourse financing for the same leverage, which was in the range of 75-80% Loan To Cost “LTC”. Further, our client had to decide whether they wanted the fixed rate being offered by the recourse lender or the floating rate being offered by the non-recourse lender. As for the hotel project, our client was faced with the decision of a fully recourse capital stack getting to 95% of the project cost versus a partial recourse capital stack (recourse 1st mortgage at 65% LTC plus a non-recourse mezzanine loan) getting to 90% of project cost. The fully recourse option got our client to 95% LTC and cost 250-300 basis points less than the partial recourse option. Conversely, the partial recourse option gave the client better control over his exit and gave the client the comfort of being personally recourse on only 65% of the project cost.

The higher rate for the non-recourse financing that we observed in these two deals is typical in the current market. The issue of leverage is more complex. It is not always the case that the recourse lender will go higher in leverage than the non-recourse lender, and vice versa. The nature of the asset, the sponsor and the deal will determine how recourse and non-recourse lenders approach the issue of leverage. Further, the prepayment flexibility and control over the business plan for the asset will vary depending on the lender and on the asset and sponsor in question.

These are difficult waters to navigate. The Borrower has to be able to find the right Lenders to bring to the table, tactfully negotiate with the interested lender, and finally sort through the maze of options to figure out which execution works best for the business plan and the Borrower.



I am actively looking to build relationships with Real Estate Investors and Owner / Users for Phoenix  –  Scottsdale   –  Tucson   –  Maricopa County  – Pima County  –  Pinal County  –  Cochise County  –  Santa Cruz County   –Yavapai County  –  Gila County   –   Arizona ,  USA   

Walter Unger CCIM –   – 1-520-975-5207  –


 It’s a no brainer,  check it out




Timeline of Phoenix, Arizona history,_Arizona_history


Phoenix, Arizona,_Arizona



Facts of Arizona – year 1848 to 2013

Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix.




View my listings and my profile at:



What is a CCIM?


Join My Mailing List


Investors and owner/users need to really know the market before making a move in commercial investment properties as the market has a lot of moving parts today. What’s going on socio-economically, what’s going on demographically, what’s going on with location, with competing businesses, with public policy in general — all of these things affect the quality of your commercial properties/investment properties.  Therefore, you need a broker who understands commercial properties.  Please go to my web-site and get all the newsflashes and updates in Commercial Real Estate.



Check out my professional profile and connect with me on LinkedIn.

Follow me on Facebook:


Follow me on Twitter:


Follow Me on Google+

Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years.  I am also a commercial land specialist in Phoenix and a Landspecialist in Arizona. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial /  Investment Properties in Arizona,  I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us. 

Please reply by e-mail or call me on my cell 520-975-5207 or Office:480-948-5554


Walter Unger CCIM

Associate Broker,  Kasten Long Commercial Group

2821 E. Camelback Rd.

Phoenix, AZ 85016

Cell:      1-520-975-5207  

Fax:      1-602-865-7461

View my listings and my profile at:


a little about me and my expertise – video


commercial-investment real estate adviser-land specialist



What is a CCIM?


Delivering the New Standard of Excellence in Commercial Real Estate 

  • Commercial Real Estate Scottsdale
  • Commercial Real Estate Phoenix
  • Commercial Real Estate Arizona
  • Commercial Investment Properties Phoenix
  • Commercial Investment Properties Scottsdale
  • Commercial Investment Properties Arizona
  • Land Specialist Arizona
  • Arizona Land Specialist
  • Land Specialist Phoenix
  • Phoenix Land Specialist
  • Land For Sale Phoenix
  • Land for sale Arizona
  • Commercial Properties For Sale Phoenix
  • Commercial Real Estate Sales Phoenix
  • Commercial Properties Phoenix
  • Commercial Properties Arizona
  • Commercial Land Specialist Phoenix
  • Commercial Land Phoenix
  • Multifamily land Phoenix
  • Retail Land Phoenix
  • Industrial Land Phoenix
  • Land Commercial Phoenix
  • Land Retail Phoenix
  • Land Industrial Phoenix
  • Land Multifamily Phoenix
  • Industrial Land for sale Phoenix
  • Land Industrial
  • P
  • Investment Real Estate


Disclaimer of Liability

The information in this blog-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.