Pictured: Jamie Cutler, Leader of MTIA’s Real Estate & Construction Practice Group, Brandon Keks, Pensio CEO & Co-Founder, Marcelo Dellavedova, Co-Managing Director of Berkeley Capital
M&T Insurance Agency, alongside Pensio Global, is now offering several innovative Lease Co-Guarantee rental income programs to the U.S. commercial real estate marketplace that mitigate some of the income risk events that can be devastating to a real estate company or lender.
Lease Co-Guarantee rental income programs are a new categorization of structured risk management products fully supported by performance-linked surety bonds. Performance-linked surety bonds serve an important purpose for Pensio’s structured risk management guarantee products. In simple terms, a performance-linked surety is an agreement between three parties; Pensio as Principal, an A.M. Best A (excellent) or better rate insurance company acting as Surety, and an asset owner, business owner, lender, or investor, which are called an Obligee.
“As a division of M&T Bank Corp., one of the top ten commercial real estate lenders in the country per American Banker, MTIA has unique insights into the needs of its real estate clients – and the lenders who provide capital. Lease Co-Guarantee and rental income guarantee programs have the potential to change the landscape of real estate financing by mitigating some of the risks associated with owning, developing, and financing real estate. This product is so valuable and has so many facets to it,” notes Jamie Cutler, leader of MTIA’s Real Estate & Construction Practice Group who has nearly 30 years of experience in the insurance industry. Cutler has implemented sophisticated insurance and risk management programs for owners, managers and developers nationwide.
Risk management tool
In 2020, numerous residential pre-development loan transactions stalled or fell through because developers couldn’t get financing. “It wasn’t about the development project, or that the developer wasn’t creditworthy, it was market uncertainty about whether tenants could pay rent, maintain gainful employment, and whether there were preventive mechanisms to offset uncertain external market risks,” says Brandon Keks, Pensio CEO & co-founder. External risks require a more tailored approach to mitigate their impact. How could the pre-construction multi-family residential developer service the debt if more uncertain market risks were to occur? The Pre-construction Lease Co-Guarantee rental income program is the answer, by guaranteeing rent (meaning that it stabilizes and provides certainty to debt service coverage), loan payments will be made regardless of how the asset performs. “Due to the help of immediate cash flow, a borrower may not need a loan that will cover operating expenses for the first six to 12 months, which ultimately reduces the total loan amount, reduces the risk on financing, and has the potential to make it more profitable,” Keks adds.
M&T Insurance Agency and Pensio Global now offer a suite of rental income programs to MTIA clients:
- Pre-Construction New Build Developments. This program is geared to developers, lenders, and investors. Reduces 5-years of absorption and stabilization risk for multi-family residential, senior living, student housing, condominium developments, and single-family home developments.
- Lease Co-Guarantee – Residential Landlords. This program is geared toward owners and property managers, lenders, and investors. Reduces defaulting tenant rental income, marketing, and renovation risk.
- Lease Co-Guarantee – Involuntarily Job Loss. This program is geared towards tenants and property managers. Decreases involuntary job loss rental payment risk for three months after a tenant loses their job. A landlord is paid rent directly, and the tenant does not have to pay back rental payments made by Pensio.
- Lease Co-Guarantee – Commercial Tenants. This program is geared towards owners, lenders, and investors of commercial properties such as offices and warehouses. Helps to mitigate owner and lender defaulting tenant or vacancy risk if the investment-grade tenant does not pay rent or renews a long-term lease option.
Lease Co-Guarantee and rental income guarantee programs can be applied across property types and situations, such as new builds, redevelopments, acquisitions, or refinances to name a few. Lease Co-Guarantee or rental income guarantee programs can be structured to fit unique but determinable outcomes. For example, Cleveland-based Berkeley Capital Ltd. has formed a unique partnership with Pensio that has helped the real estate private equity firm mitigate tenant default and lease non-renewal risks on U.S. net lease assets.
Berkeley Capital structures niche real estate-backed investment solutions that provide secure long-term cash-flows with attractive risk-adjusted spreads, all of which are known at the onset of each transaction, says Marcelo Dellavedova, co-Managing Director of Berkeley Capital. Our investors require predictability of income over a very distant time horizon, and we can offer this because we have the Lease Co-Guarantee program in place. This MTIA and Pensio program is a game-changer, he says.
Listening to create customized solutions together
Lease Co-Guarantee rental income programs can be applied across commercial and residential property types and situations at various stages of ownership or development. Programs can be customized to fit unique situations.
“Pensio’s creation of a Lease Co-Guarantee rental income program covering job loss for tenants addresses the critical issue of housing affordability and income stability. A majority of tenants live paycheck to paycheck. If a tenant loses their job involuntarily, the lease co-guarantee job loss program will pay the tenants’ rent directly to the landlord for three months, essentially allowing an individual to stay in their home while they get back on their feet find a new job. It provides housing stability for renters, and it also provides an added benefit of minimizing turnover for landlords. Key example is one Pensio client, a career professional living and working in Maryland who became inventorially unemployed after signing up for Pensio’s Lease Co-Guarantee Job Loss program; Pensio paid her rent for three months while she looked for new employment, and so she was able to stay in her home,” stated Keks.
Another great real-world example was with a Pensio condo developer client. Condo sales on a pre-construction project had slowed and suddenly the developer was in jeopardy of losing its construction financing. Pensio restructured the sales and marketing program, repositioning sales to investor buyers with the 5-year Rental Income instead of end users, raising prices by over 10% in the process. The project then sold out in a few weeks and the development was able to complete construction on time.
MTIA’s alliance with Pensio Global to provide innovative Lease Co-Guarantee rental income programs is another example of how MTIA is working to serve its real estate clients better. M&T Insurance’s New York City-based specialized Real Estate & Construction Practice Group allows the firm to offer a vertical experience that aligns with M&T Bank’s commercial banking operation. “The insurance market is more challenging than ever,” says Cutler. “Now more than ever, it is important to have a relationship on the insurance side that understands the unique nature of the real estate and construction industry across regions, has the experience, and can be creative in helping clients mitigate exposure to risks.” Cutler’s team is fully dedicated to helping you stay ahead of risk management and liability concerns, while providing the specialized support needed for your complex real estate organization.
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