With interest rates on the minds of many finance leaders, one veteran commercial real estate executive has a piece of advice about staying focused on the transaction at hand rather than the debt market.
In the wake of the great financial crisis through COVID-19, many executives mistakenly chose floating rate debt over fixed-rate terms because they assumed already low rates would continue ticking down, according to Adam Raboy, CFO at the privately-held Flag Luxury Group, a real estate company which has developed such high-end hotels as the Ritz-Carlton New York, NoMad.
“The lesson of that time that we try to incorporate today is that, if the financing works and you can make your numbers pencil, don’t get greedy,” Raboy said in an interview. “If the deal is going to work based upon current rates, current spreads, current metrics, go ahead and lock in and move on because our business is not about arbitrage…it’s about building great real estate assets and over a long period of time the cash flow grows.”
Raboy has been the finance chief of New York City-based Flag Luxury since 2009, joining from Credit Suisse where he was a managing director and co-head of the bank’s North American commercial mortgage business for nearly a decade.
At Flag, which has according to its website developed over $6 billion worth of luxury hotels, residences, and entertainment-oriented properties, Raboy sees himself as a strategic finance chief who focuses on structuring and financing transactions and developments.
“I certainly review and compile financial reports but that’s not my day to day,” Raboy said, noting that he has a team of people who work for him that focus on the accounting and reporting functions.
Raboy also views the current business climate through a glass-half-full type of lens. For one thing, when it comes to financing deals he says the current market is quite liquid and offers a greater number of lenders than were available in previous times. Years ago he recalls that junk or high yield debt, along with a range of private sources of capital now available were considered a novelty: They are now staples, while traditional sources of capital like banks and life insurance companies remain.
To be sure, Raboy says there is no such thing as a one-size-fits all financing route for all properties. But he encourages others to consider long-term holds of several years. “My advice is if the deal works, go ahead for the hold. Don’t be afraid to lock in.”
