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









The best way to predict the future is to invent it.
Alan Kay

Scott Lynn  Principal / Director at Metropolitan Capital Advisors

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):

i) Is there cash flow currently? If so, how much, and how durable is it?

ii) Where is your asset, and how does it compare to the broader market?

iii) Does your business plan represent a proven concept?

iv) What is the track record of the sponsor?

For recourse lenders, the most important factors are:

i)  Who is my sponsor, and how strong is their balance sheet?

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. MCA has been doing exactly this for its clients for over 20 years on over $9 billion in closed financings. To further discuss your financing alternatives for your next commercial real estate project or property acquisitions, contact me or visit our website at



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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 Investment Properties in Phoenix.



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Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial Investment Real Estate Broker in Arizona now for 20 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.





we are at on the a rise of the cycle in Commercial Real Estate.  so there is only one way and it’s called we are going up and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix.  The prices on deals I may get you will not be around forever.



  We barely could give land away the last few years, but times are changing.  Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.


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 in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could 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




Thank You


Walter Unger CCIM

Associate Broker,  West USA Commercial Real Estate Advisers

7077 E. Marilyn Road, Bldg 4, Suite 130

Scottsdale, AZ 85254

Cell:      520-975-5207   

Office :  480-948-5554

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