Navigating NAV and National Security in Commercial Real Estate with Ani Ravi and Hrishi Hari

Dechert global finance partner Ani Ravi joins Dechert 4 Real hosts Jon Gaynor, Ella Smith and Sam Gilbert for an informative discussion about the relationship between NAV facilities, subscription lines and repo financing, the evolving nature and implementation of NAV facilities, potential NAV pitfalls and the growing interest in this market segment. Plus, Dechert national security partner Hrishi Hari joins the podcast to discuss recent developments with respect to national security reviews of foreign ownership in real estate. The hosts also share their Labor Day weekend plans and much more! 

Show Notes 

Lawyer Up: 16 Big Law Podcasts to Tune Into, Law.com International (August 2024)

THE CRED: Legal & Business Insights for the Private Credit Industry

Transcript

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Hello and welcome. This is the Dechert 4 Real podcast, where we discuss current issues and trends in commercial real estate finance. We aim to bring market commentary about developments, updates you can use, and hopefully a little bit of banter along the way. I'm John Gaynor, a counsel based in Dechert's Philadelphia office. Hi, I'm Ella Smith, a partner based in Dechert's Charlotte office. And I'm Sam Gilbert, a partner based up in Dechert's Boston office. Today we're recording in our New York City office, gathering together to enjoy these last few days of summer. Joining us today will be Dechert's own Ani Ravi to educate us about net asset value - or NAV, for those in the know - facilities in the commercial real estate space. Before that, in our 411 segment, where we talk about issues percolating in the market, we'll talk with Dechert partner Hrishi Hari about recent developments with respect to national security reviews of foreign ownership in real estate. But first, let's get 4 Real with the hosts to break the ice. Summer is winding down. The pumpkin lattes are just about back, and the Halloween decor is already up in the stores. That means it's time to get in those last few beach and lake days before we roll into September, and for many of us, get the kids back to school. I always look forward to Labor Day weekend as the calm before the end of the year. Storm today is for real icebreaker. Do you have any Labor Day traditions? Or what is your favorite thing to do on Labor Day weekend? Ella, why don't you start. Thanks, Jon. So Labor Day is one of my most favorite holidays, because my birthday is September 3, so I generally have a birthday that falls sometime during the long weekend. So I've always really loved having an extra day off work just for my birthday, and also Labor Day, but we all know which one is more important. What about you, Sam? Yeah. I mean, I don't really have any Labor Day traditions anymore. I mean, it used to be going to the beach or going to, like, the lake, like you said, and kind of getting the last days of summer. But now I feel like Labor Day is no longer kind of the end of summer, right? I mean, my kids are going back to school next week, which is before Labor Day. I feel like summer sort of ends early. So my hockey team, their practices start tonight. So I feel like Labor Day is no longer the sort of unofficial end of summer. I sound like an old man kind of screaming at the clouds here, but my Labor Day traditions have been destroyed by people going back and ending summer early. But Sam, is it ever actually really summer in Boston? It's actually ... it's about 65 degrees today, so it's starting to turn into fall. But the last couple weeks, it was warm. We had a couple weeks of summer. My kids are not starting school until after Labor Day, so I am going to sneak in the last beach vacation. At the end, we're gonna go to Wildwood Crest, as is our tradition, and hang out, doing some, you know, beach stuff, and then sneaking over to the boardwalk and maybe doing like rides and arcades down there. It'll be a really good time, and I think that counts as getting 4 Real with the hosts. So that brings us to our 411s this month. Thanks, John. So I want to introduce Hrishi , who's a partner in Dechert's national security group based in our Washington, DC office. Rishi was kind enough to help us with our 411 this week, and is going to tell us what the commercial real estate industry needs to know about national security reviews in the real estate space and something called CFIUS, which sounds very national security top secret. So hey, Hrishi welcome to the pod. Thank you so much, Ella. I'm delighted to be here. We are very excited to have you. We rarely deal with issues of national security on this podcast, so this should be fun. So first, can you just tell us what CFIUS is and what it does? I'm sorry, Ella, that's classified. No. I know. That was too easy. I'm sorry. So CFIUS, or the Committee on Foreign investment in the United States, is this interagency committee whose whole job it is to protect the United States from national security risks that are posed by foreign investments in us, companies or assets. CFIUS is led by the Treasury Department, and has all of the usual suspects like the Department of Defense and Homeland Security, Justice, commerce agencies you'd expect to be involved in national security related decision making. And just like when you tell your kids they can do something if they meet certain conditions, when CFIUS reviews a deal, they can impose mitigation measures as a condition for clearing the deal. "We will approve this if you will do X." CFIUS can also recommend that the president block a deal or unwind a deal if it's already been closed. CFIUS has jurisdiction over filings that are made voluntarily, but certain investments outside of real estate also can trigger a mandatory review. Wow. Thanks for that overview that was really helpful. Can you tell our listeners? More about CFIUS real estate regulations and how the commercial real estate industry might be affected. CFIUS jurisdiction extends to real estate transactions. It includes not only purchases, but also leases and concessions of real estate in or near defense installations that can be military facilities, government sites, but also things like airports and seaports. Land that's near one of these sensitive defense sites and involves a foreign investor would be a covered real estate transaction. And it's worth noting that this is a voluntary review process in the real estate context. Huh. So CFIUS can only block a transaction if the property is located in these certain areas that they define as the covered areas. So if we have a commercial property that's outside of those covered areas, then we just don't need to worry about this. That's That's right! No, just kidding. Again, it's a little bit more complicated. There's a patchwork of both state and federal regulation that comes into play here, as you might expect, with That actually seems really broad. How has the Biden national security related issues, there's a tremendous amount of politicization. State legislatures are often pressured by local constituencies who think that CFIUS often takes too narrow of a view of what falls in the committee's jurisdiction, and so states are also imposing their own national security related review processes. Over two dozen states have their own laws. I think almost another 10 or so are actually thinking about imposing restrictions on foreign investments involving investor's from so-called"countries of concern," typically this impacts Chinese investors, but also sometimes Russians, Venezuelans, Iranians and North Koreans get lumped into these laws, and it creates a pretty complex environment for the real estate investment community. administration responded to these state level regimes? As you might expect in an election year, they've been pretty sophisticated with how they've addressed these laws. There really isn't a domestic constituency in the United States that opposes restricting foreign investment into real estate. And so the Biden administration has had to get crafty. They have, of course, CFIUS, which will review certain foreign investments, and they're trying to educate stakeholders at the state level and in Congress about when intervention might be necessary outside of CFIUS, in their view, there is a small set of circumstances in which that's the case, but they're not going to go out and pound the table, because there aren't a whole lot of voters who are looking to eliminate these laws. So with these laws in place, and seems like they'll stay in place, what can we do to help our clients who are in the commercial real estate industry navigate this evolving national security and real estate landscape, So, all of our clients should have a playbook when it comes to their transaction work. I'm sure that playbook in almost every context includes due diligence, and we happily can get involved to think about when a national security issue is likely to come up in a real estate deal, we can figure out if there's a potential for an investor in the capital stack and see if that investor or the underlying assets might be considered sensitive. And if we do find a potential issue, we have ways of structuring deals to make problems go away before they become impediments to closing on a client's preferred timeline. Thank you, Hrishi. Closing on a preferred timeline is always of the utmost importance here. So I must admit that dealing with matters of national security has made me feel a little bit cooler today, like a Top Secret Agent. OO Ella, I would call myself. Thank you for coming and thank you so much for all this information. My pleasure. OO Ella until next time. Until next time. Okay. Today, we welcome Dechert partner Ani Ravi to the podcast. Based in Dechert's New York office, Ani is a global finance partner with expertise in all things leverage in capital markets, but with a particular affinity for Nav or NAV or net asset value facilities. While technically, a member of our corporate and securities practice here at Dechert and not our finance and real estate team, Ani, ably straddles both groups and, especially recently, has worked on a large number of fascinating deals with real estate at their core. So, Ani, we're delighted to have you with us today. Thank you, Jon. I'm so happy to be here. All right. So we look forward to unpacking NAV with you, but it is our tradition here to get 4 Real with our guests. So, can you tell us about your Labor Day plans? Sure. So I'm a big tennis fan watching more than playing, and actually so are my parents. And so, you know, most years they come to visit me for the Labor Day holiday, and we all go to the U.S. Open for a day or two. So we're gonna spend Friday kind of at the grounds and then catch That's amazing, an evening match on Saturday. So I'm looking forward to that. That's something we've done for the last few years. Are you ever, like, on camera? Hope not! So, all right, with that out of the way, why don't you tell us a bit about yourself and your practice? Sure. So I have a pretty generalist finance practice that spans sponsor, acquisition finance, direct lending to corporates, lending to either as borrower, lender to credit funds, and then also the NAV facilities that will be talking about in this session. And so those are, there's sort of an outgrowth of a lot of different kinds of financings that I've done and that we do, and they sort of, in some ways, take advantage of understanding the underlying asset classes that NAV loans are made to. But there's been a specific focus that I've developed in NAV loans to real estate, whether those are real estate physical assets or funds that own real estate debt. Wow. Ani, that's really impressive. It sounds like you do some great work. And jumping into this topic of today, the net asset value facilities, or Nav, or NAV, we should have a survey at the end to see exactly what we should call them. You are the expert here. You can tell us. But really we wanted to get more of a base-level understanding. A lot of our listeners are real estate people. Sometimes we joke about ourselves in the CRE world as being these real estate meatheads who maybe don't know everything about the net asset value financings. And also, there's our mothers listening. Hey, mom! My mom is ... this is going to go completely over her head. Is there any way that you can sort of bring this down to a level, a base level for everyone of what is a NAV facility and how is it different from other corporate level financings? It's a great question, and people ask it all the time, actually, because the term gets used in so many different ways and sort of different confusing ways. But the core idea is, let's say you have a fund and it owns a bunch of real estate, and each of those real estate assets has a mortgage on it. So you're the fund owner, and you say,"Well, how can I monetize my residual equity value in these assets?" So maybe I own, in total, $100 of real estate, and that real estate has $65 of mortgage debt on it, but I still have $35 of residual equity value or, I might say, net asset value, and now I want to go to a lender and say, "Hey, what will you loan me against the collateral or credit support that comes from this $35 of residual equity?" You know, different lenders will cut that different ways and think about it different ways. But at its core, that's the idea. And lenders are pretty willing to loan some amount of money against that $35. Maybe it's only $10 but they're willing to loan something against that. And it turns out, this kind of financing is super useful in lots of different contexts, both in real estate and not in real estate. It can be great for a real estate fund that's already mostly deployed all of its capital, and then says, "Well, gee, we could really use a little bit of extra money, because we have additional investments and Capex that we need to make, but we've already called all our capital. So where are we going to get the money?" It can be useful if you just need to put on a little more leverage if you're investing in a particular asset, and you say,"Well, I can do 65% of the appraised value, but I need a little more to make my returns good." And so there are lenders alone to that, and there are lots of permutations that you can do sort of in between, whether it's a Nav - an NAV, or a Nav - that goes against one or a handful of assets, whether it's an NAV that goes against an entire fund, whether it's meant to be a kind of a specific universe, or it's meant to be a sort of flexible product that flexible product that grows as new assets get added. You know, we've seen sponsors and lenders work together to cut NAVs in all kinds of different ways. And Ani, I know you and I have worked together on a couple public to private deals where we've had CMBS loans, and then there's been a NAV included on that. Can you share with us, you know, some recent real estate fund dealsyou've worked on where you've had a NAV facility in place, and maybe some of the interesting elements of those deals? So, I think those deals, like the one we did, Sam, and some So the Nav or an NAV facility kind of falls inside of a others that I've done, are ones where the NAV facility has two core purposes. One is that in a public to private you have an balanced diet of options for financing, for funds. So can you issue where you need certainty of funding. And you need certainty of funding amount, right? Because you have a definitive amount that you're purchasing the target for, and ultimately the sponsor needs to show up with that amount of money, full stop. And the traditional pure real estate financing model can make that difficult, because you have the concept of a special reserve where, if there are defects in the diligence, then not necessarily the full amount of financing will be provided and some will be escrowed. So that's obviously not great for a sponsor who needs to have talk a little bit about how NAV can be viewed in the context of, certainty of funding. And so we've seen large sponsors take advantage of NAV facilities to bridge the gaps there and make sure that no matter what, the expected amount of debt capital will come in at closing to make sure that they can close their deal and supply the purchase price without adding extra equity from the sponsor. So on those deals, that's kind of Purpose 1 of the NAV. And so you'll often see these NAV facilities will be very large and fully revolving. And the idea is that on closing, maybe you need to draw a billion dollars on the NAV just to bridge a funding gap in a downside scenario. The second purpose of the NAV is that traditional secured real estate debt is not well suited for revolving and working capital management, so sponsors like to have, obviously, working capital facilities, just as you would in a non-real estate context. And the NAV can be relatively inexpensive, certainly, when you compare it to the cost of a full kind of cash flow loan capital structure can be relatively inexpensive and can give you the liquidity that you need to keep operating the business without incurring lots of extra cost. And so you kind of get a two-for-one there, where you have NAV both serves as the initial gap filler and then provides ongoing working capital. So like, a subscription line, or you know, repo financing, or even a securitization takeout? Like, where does that fit? Is it just working capital? Does it sometimes have some term? I kind of like to think of it in two ways. There's NAV as part of a life cycle of a fund, and then there's NAV as a part of a sort of a balanced capital structure, balanced diet. So on the first bit, when, when thinking about subscription lines, I think probably that the high level way to think about it is, when you start a fund, your biggest source of leverage is going to be your subscription line, because you have all the capital. You haven't called it yet, and the subline allows you to draw on that that uncalled capital very quickly. As you start to deploy your fund and invest, the utility of the sub line goes down because you've called the capital, obviously, so there's nothing left to draw on the sub line. But if you still need fund level leverage at that point, the only way you can get it is with the NAV. So what you will see is that funds will want a subline on day one. And indeed, almost every fund has a subline on day one, even before they deploy $1 of capital. But somewhere in their life, a few years down, they say, "Well, it's time to start monetizing some of this NAV so that we can improve our returns without needing to raise more capital or without needing to sell assets." In that sense, it's part of a life stage and life cycle. And then the second question, I think, in terms of the balanced diet, how does it fit in with the other financing products, is, you know, what makes most sense for your capital structure as a whole. NAVs are very good at being working capital in real estate centered assets. I think NAVs also can allow you to just put on extra leverage that you wouldn't be able to put on, you know, with something like a repo. Repos allow you to get cheap financing. I think repos allow you to get very high advanced rates on the assets that are repurchased, but it can be hard to combine repos with other sorts of financings and to have them all sit together. Well. you're reading my mind in terms of where I wanted to go next with this, because you and I were on a call with a client the other week, and this is a traditional mortgage loan originating client. They have a variety of repos, they have securitizations. And the client's reaction when you were talking about the kind of setup and availability of funds is like, "Why do we even do repos?" And so I felt, I wouldn't say, like, umbrage, but I got a little defensive feeling of that, because I think there's room for both, right? So what I wanted to do is maybe walk through, you know, and talk about how they compare, and like, what the use case is. And to me, one of the biggest advantages of NAV is the speed at which you can draw down on a NAV facility. So what's the typical timing for a NAV that's secured by an asset value on commercial mortgage loans that you've made? What is the kind of like middle of the road? You know, because I understand these will be bespoke and negotiated, and different sponsors will have, you know, different arrangements with their financing provider, but what's the middle of the road? So, I mean, I would think you could put a NAV in place for a portfolio of mortgage loans within a few weeks, and you probably wouldn't need extensive due diligence on these. One thing that's helpful is that the diligence can be mainly done at a commercial level. Obviously the NAV lender needs to form a view on the assets and needs to underwrite, but the legal diligence for a NAV loan is pretty minimal, and it's very straightforward to take security over these loans, so you can put these in place very quickly. One caveat I would say there is that you would not expect to get the same level of advance rates that you might expect on a repo. In terms of timing of drawing on the facility. So the repo, you put a loan in front of the bank, and it can be a couple of weeks, because the bank will diligence the loan, they will get a view on the credits. They have to get credit approval sometimes, if it's an uncommitted line. And so it can take a minimum of five business days. But, you know, weeks and weeks, depending if you said to your NAV facility provider, "Hey, I want to draw on the the NAV facility, what's the typical notice and draw timing?" So, in a typical NAV facility, it really takes a lot of cues from corporate facilities, and so you're looking at your standard, you know, three business days, send a borrowing notice, get your money, you know, certify that you're in compliance with your borrowing base, and you're good to go. The key that makes this work, though, is that the NAV is relatively over-collateralized compared to a repo. So that point, too, advance rate. So in repo, you can see an advance rate up to 80% I think is the high watermark, but today it probably floats in the 65-70% range. Net asset value is already a net number. So it's already kind of like, how do you look at net asset value when you've got a portfolio of mortgage loans? Do you include the loans themselves, as well as, like, the capital commitments that are available to the fund, or, like, how do you look at net asset value there? So, we're talking about here a portfolio of unlevered mortgage loans, I think. Like, this is the primary source of leverage.And so what we would expect, probably, is that the lender is going to look at the value of those loans primarily, and unless they're trying to put in place a joint NAV subline where they also have recourse their capital commitments, they will just be focused on the value of the loans. But they're, under most circumstances, going to cap the advance rate of something closer to 50%. And is that par value of the loans? Is there kind of like a we're going to mark these loans to market because, you know, you on your books, are holding them at a haircut, or how do they look at the actual value of the loans? So that's a highly negotiated point. The NAV loans don't have a lot of protections, and the protection is really, in some ways, the determination of the NAV and the loan-to-value ratio of the structure. So that's a huge focus area. Sure At the very least, you would expect that the NAV lender would value the loans at the same price that the fund is holding them on their books. Right? And that creates an alignment, I guess, between the fund itself, because it's got to report that to its investors, so there's a bit of trust there. So you said 50% advance rate pricing. Repo can be something like benchmark plus 225, what do you think a middle of the road NAV pricing might be? I would expect kind of mid threes, but depends on the fund and the assets, obviously. There's a lot more variance, I think. It's not as big a market. And I don't think it's as easy to say, "This is the pricing. This is what we're always seeing." Do you see price differentiation in NAVs between different kind of commercial real estate? So, for example, is hotel looked at differently than office is looked at differently than, you know, retail or, you know, industrial? So, yes and no. I mean, for sure they are looked at differently. You know, nobody wants to be holding a portfolio of office loans, right? And they are looked at differently. I think what I've seen more is concentration limits, but still an overall blended price. That's interesting. And then the last one I was curious about is recourse. So in a repo, there's usually about a 25% payment guarantee on the repurchase price, and then a bad act guarantee on top. How does that work in a NAV context? So in the NAV context, the recourse question is sort of not applicable, because the NAV loan is usually made to the fund or to, in the case of an individual asset, it would be to the top, like, kind of the corporate entity. So in some sense, 100% recourse is the way to think about it. At the very least, it's the same as a full recourse unsecured Right, because they're going to have a security interest against the fund itself. They're going to have first, kind of, secured claim against these amounts, and so whatever the fund has is going to be there. So full recourse is kind of the way to think about it if the fund is the entity on the hook. loan to the fund, right, right? Plus you have your security interest in the assets. That makes total sense to me. Well, Avi, you've done a great job sort of summarizing NAV facilities and selling them, right? Which I think is... you're good at your job, right? They've got speed. You can get extra leverage, certainty of costs when you're doing these public to privates. But if I'm a real estate fund, what things should we be thinking about with a NAV facility? You know, potential pitfalls or blind spots, some issues we should be looking out for if we're considering taking advantage of one of these products? I think one of the big ones is just that the NAV loan space, especially when it comes to real estate debt assets, is still pretty new and immature. I know there are a lot of banks that are looking to get into the space. One large bank told me they wanted to quintuple their NAV book over the next five years. So, that's great, but they haven't done it yet, right? And so I think one thing we see when we're actually representing players in this space, they say,"We would love to make this loan, but we're tapped out. This is the amount of capital we're allowed to spend on this this year. Talk to us at the quarter end." So I think that's one thing to be careful of. I think it's important to reach out to a lot of lenders, make sure you're kind of really hitting the full universe of players. That's not just American banks. I think a lot of the European banks are looking to move into the space. A lot of Asian banks. You have to make sure you really leave no stone unturned, I think, in a way that for repo, which is a very mature market, it's a little easier to go to your your best friend and say, "I'm sure they'll give me competitive pricing, because it's a competitive market. It can depend. And so I think that's one tricky thing. The other thing that's hard is that, especially when it comes to these public to privates, we are seeing people do this more and more. But a lot of the users of that are very large sponsors who can leverage the fact that they have deep institutional relationships with large banks and can maybe push loan terms that ordinary players might have a tougher time pushing. They're also often done in very large high-profile deals where banks are very keen to be involved in whatever capacity. It might be dangerous to generalize from the success of some of these high profile deals, to assume that the NAV gap-filling facilities are always gonna be available on all deals. And I think part of that is also because they're not so common. It's incumbent on the sponsors of borrowers to really educate the lenders as well to say, "Look, here the deals. This has been done, here the terms, here's why you're protected." Because I think it's very easy for banks, especially real estate desks at banks, to look at these facilities naively and say, "Well, where are my mortgages? What is this?" So I don't mean to be like a naive bank here, but where are the mortgages like? How do NAV facility lenders do their diligence, what exactly is the security that they're getting for the facility? So it's a good question, and this is a conversation I have with a lot of banks where I say,"Trust me, you're fine." That's always great coming from a lawyer. But one of the key things that makes these NAVs feel like reasonable products is the fact that they are very over-collateralized or over-secured just when you think about the amount of the loan relative to the total amount of NAV available. So it would be pretty typical if you imagine that a fund has a billion dollars of net asset value. This is after deducting the underlying mortgage debt that might be at its assets for the NAV to be sized as something like 200 or 250 million tops. So you have this protection that the value of the overall fund needs to decline by over $700 million before you're in the red zone on your loan, and you are not covered by the value of the equity. So that's kind of piece number one, and that's true independent of the actual security interests. And can I just interject here? How do they actually ascertain how much the loan to value is? Are they taking the sponsor's word for it? Are they doing an appraisal on the properties? Like, how do they know what the equity interest is in the properties? That is a great question. And like one of the hard fought issues in these NAV facilities. For a large sponsor and an established fund, they would typically take the sponsor's word for it. Typically, the sponsor will give them diligence info, which may include appraisals that have already been done. For, in the context of a public to private, if there's underlying real estate debt, there will be appraisals done at that time, typically. And so the NAV lenders have the benefit of seeing those appraisals, but would not usually have the right to call for new appraisals or other otherwise revalue the assets down the line. So to some extent, the NAV lender is putting a lot of trust in the sponsor and putting a lot of faith in the fact that the sponsor is going to give accurate reporting to its LPs, and the NAV lender gets comfortable with that. But this is secured, and they file UCCs and their enforceable security interests. And even if enforcement on these is relatively rare, it can happen, and it's all provided for, right? Yeah, I mean, I think the question is, what are you secured in, right? Because you're not secured in the physical real estate. Someone else has a mortgage on that. What you typically would get are equity pledges of holding companies. So if there's a breach, you would have the right to exercise your voting proxy, and then you could manage the business from then on until you recovered. The second thing you would typically have is typically these NAVs have some sort of collection account that traps cash, and cash can't be distributed upstream to LPs unless certain financial tests are met. So in a downside scenario, even before you get to the stage of enforcement, you would get to the stage of blocking distributions. So what you should have is cash piling up at a bank account if the underlying property is generating cash, and you'd have recourse to that as well. To dig in a little deeper you were talking about, maybe appraisals can exist and, you know, they can do some upfront diligence. I've sometimes heard of "fund-of-one" NAV facilities. And so can you talk about what that is, and maybe how diligence on that kind of exercise would be different from other sorts of more generalized NAV facilities? Ani makes us do all the work, and then they just piggyback it Sure. So the "fund of one" is a term that I've heard used. It kind of is the same thing as the public to privates that Sam and I were talking about earlier. The idea being that you structure the NAV facility like it's a NAV facility to a real estate fund, but really it's just a NAV facility to the single asset that's being acquired. The diligence would definitely be more extensive there. And part of what makes that diligence more extensive is usually these would be done in the context of a committed financing and certain funds process. So you would typically have the kind of corporate style certain funds diligence that a lender would do in a sort of traditional way, LBO, where, you know, they'll have management calls and they'll have due diligence reports from counsel and from a from a McKinsey or something like that. Also, they would have any real estate appraisals or other real estate diligence to the extent that's conducted. But the reality is, in a lot of these public to private processes, even the sponsor doesn't have a ton of diligence, and so the lenders are basically piggybacking on what the sponsor has and has available to make their purchase decision. One other note on that, though, is a lot of these deals, the NAV facility is provided by the same or at least a subset of the same lenders that also provide the underlying real estate debt. And in those cases, the diligence that's done for purposes of the NAV can be pretty minimal, because the same bank say, "Well, we have all this info because we're providing mortgages." off in a NAV facility. That's why they're so quick. Yeah, see? Exactly. I'm curious, do any banks ever use a NAV facility as part of a kind of seller financing package that you've seen? So in other words, like, I'm buying this loan for you, and instead of, like, a repo or another thing, like, they'll use the NAV to kind of finance the purchase for the fund that's buying it from the bank. I haven't seen that yet, but I think as NAV becomes more common, I could imagine that becoming part of a seller or staple-type product. So why isn't it more common yet? Like, why don't we see tons and tons of commercial real estate NAV facilities. Has something changed in recent years? NAV facilities have been around for a long time and have been relegated to the domain of fund finance, where they often are paired with subscription lines, and they're often viewed as just a way to kind of eke a little more money out of a out of a fund that's towards its tail end of its investment period. And they haven't really crossed over that much into mainstream corporate finances much, I think. And as we see more NAV-type products in non real estate spaces, for instance, the rise of private credit and the increasing leverage of private credit results in facilities on those funds that look a lot like the NAV facilities that we're talking about. And so I think we're seeing banks realize that their loan book to private credit is a very lucrative source of assets for them, and they want to diversify that into real estate. It's sort of an issue of the fact that NAV doesn't neatly sit within a particular desk or product line so just by happenstance, it's sort of falling through the cracks as a financing option. I guess repo one day crossed over from being really only about securities and into, like, mortgage loans. So like, seeing these evolutions over time makes sense as, like, we kind of all interact more and see what each other do and, like, solve problems for people. I just think it's pretty cool. Yeah. I mean, look at CRE CLO coming from CLO Fair. Before it does cross over in a mainstream finance I mean, we're gonna have to decide on exactly what we're calling it. It sounds like you've sort of settled on Nav facility. I did hear you sneak in a net AV earlier in the podcast. So ... you gotta edit that out. I'm Nav, all the way. Nav all the way. You're Team Nav. Okay, well, I'm Team Nav too then. In some subsequent episode, will we hash out whether it's Cree CLO or CRE CLO as well? Because I feel like the industry needs a I'm Team CRE all the way. Right? consensus there. Yeah. Do we have to wait for the future? I don't know. Oh, no. But thank you, Ani. This has been so informative and really, really interesting. I think all of us have learned a lot, and I'm sure our clients and our listeners will be very interested to speak to you or someone at Dechert about net asset value facilities. You're very welcome. No, I had a great time talking to you all, and look forward to working with all your clients on Nav facilities, NAV facilities, Net AV, I kind of like Net AV. Quite educational and always good to hang out with you. Ani, I hope you had fun with us. Before we get into our 4 Real High Fives. A brief word from THE CRED. The private credit industry is always on the move, and it can be difficult keeping pace as you navigate its most complex challenges and opportunities. That's why Dechert created THE CRED , our new platform dedicated solely to providing legal and business insights on the private credit landscape. From the latest news to in-depth analysis from the top minds in the space, THE CRED has private credit covered. To learn more and to sign up for THE CRED newsletter, visit Dechert.com. All right, so does anyone have anybody that they'd like to give a 4 Real High Five to this month? I absolutely do. I would like to give a 4 Real High Five to one of our producers, Stewart McQueen, who's going to be a panelist for the final panel of the CREFC Capital Markets Conference in New York on September 18. Stewart's panel is called "The New Issue Roundtable: State of the Securitized Market." We hope to see our listeners at the conference, and we look forward to talking to our client listeners who we hope to see at Dechert's cocktail and networking event following the conference. Yeah, I'm looking forward to that. I'd also like to give a High Five to our sister podcast, Committed Capital, which was recognized by Law.com International as one of the 16 most forward-thinking podcasts in Big Law, and Dechert 4 Real also received a nice little shout out in the article. So, thank you to Law.com and congrats to Committed Capital. Thank you for all of that. I definitely expanded my financing knowledge by chatting with Ani about NAV or Nav facilities. We also wanted to thank our colleague Hrishi on national security reviews of foreign ownership and real estate. Thank you all for joining us on this, another episode of the Dechert 4 Real podcast. If you have any thoughts, please share them with us at realpodcast@dechert.com Also, if you like what you heard, or if you had strong opinions on the CRE versus Cree debate, give us a five star rating on whatever platform that you found this on, and leave your thoughts for us to read. This episode was hosted by Sam Gilbert, Ella Smith and me, Jon Gaynor. Stewart, McQueen, Matt Armstrong and Kate Mylod produced it. Production support is by Kara Ray, Mallory Gorham, Peggy Heffner, James Wortman, Dom Owens, Amanda Belanger and Jacob Kimmel. Our editor is Andy Robbins of AudioFile Solutions. Thanks for listening, and we'll see you next time on the Dechert 4 Real podcast. Ella, I think it's time for the dad joke. Oh, you know it. So I have to give credit here to Kate Mylod, one of our producers, who sent me this amazing Labor Day-themed dad joke. So why was the baker so happy on Labor Day? Why? Because he got to loaf around. I was almost afraid to ask, but that was a good one. There's a knee slapper. That's a good one. Yuk yuk.