Q&A: Going Beyond Subscription Lending with JPMorgan Chase’s Julie Thick
As lender competition continues to grow, so too does the popularity of subscription lines, which are loans taken out by private equity funds that are backed by investors’ uncalled capital commitments.
Julie Thick is the director of JPMorgan Chase’s national subscription lending platform, which focuses on providing subscription debt solutions to real estate funds. She works closely with fund sponsors and institutional investors on strategically investing in commercial real estate.
We caught up with Thick to discuss trends in subscription lines (sub lines) in 2021 and beyond.
Q. How can real estate fund sponsors use sub lines to maximize cash flow?
A. Subscription lines are an extremely beneficial tool for helping fund sponsors manage their capital flows in several ways:
AVOID THE TRUE UP – At the start of the fund, sub lines help the general partner (GP) manage multiple investor closings. By using the sub line for their capital needs until the final closing, the GP can avoid a complicated true-up payment amongst investors.
QUICK CLOSE ON ASSETS – When the GP is making acquisitions, the line provides a competitive advantage through expedited closings. The GP doesn’t need to arrange asset financing prior to close but can immediately draw on the sub line after the due diligence period ends. This allows the GP to borrow under the line in one business day rather than wait the typical 10 to 14 days for a capital call from investors.
ELIMINATE FREQUENT CAPITAL CALLS –When multiple acquisitions occur in a short timeframe, using this line eases the administrative burden on both the GP and the investors.
ESTIMATE CAPITAL NEEDS EFFICIENTLY -The sub line also lets the GP make more accurate calculations of capital requirements by using the line initially, rather than overestimating funds required and then returning the capital.
LIQUIDITY MANAGEMENT FOR INVESTORS -We have also found that investors really appreciate the ability to manage their liquidity through the GP’s use of the sub line, particularly during strenuous times like COVID-19.
Q. What’s the benefit of getting your sub line at your primary lending institution?
A. You want someone who knows your business inside and out. You need a banking relationship that can provide a true value add to every aspect of your business, not just a subscription line. That relationship should have the depth and breadth of products and services that will help with every aspect of the fund —including treasury services, secured asset or unsecured entity-level finance, as well as hedging and foreign exchange strategies.
Q. How should real estate fund sponsors think about subscription lending as part of their overall banking relationship?
A. Subscription lines have grown in popularity. As sponsors focus on pricing and borrowing base availability, they should continue to think about the overall relationship and platform of the firm. Examples of this include asset financing and treasury services. They should also focus on execution of these services and products. Working with one institution usually eases the administrative processes such as Know Your Customer.
Q. How does JPMorgan Chase help clients start their sub lines and navigate the landscape?
A. We have a fantastic team that walks alongside the financial sponsor throughout the fundraising period, giving them guidance in real time from our broad database and direct connectivity with investors. We also try to help our clients see the future and the evolution of their debt capitalization strategies throughout the lifecycle of the fund. At JPMorgan Chase, we provide strong market intelligence on fundraising activity and marketplace trends, as well as investor sentiment highlights to help guide our clients during this critical period.
Q. What are the advantages to working with JPMorgan Chase?
A. We have a dedicated team of sub line experts. We have subscription finance specialists on our team, but real estate specialists as well. We want to know our clients’ business as well as they do and leverage that knowledge to bring them well-rounded solutions. We take a consultative approach and try to provide flexible and customized solutions. We are willing to take a different look at investor risk. That includes providing single investor sub lines on separate accounts and not imposing concentration limits on investors in most situations. At JPMorgan Chase, we do not impose mandatory paydowns of the sub line, unless the investors require it.
Q. How has the subscription industry changed in recent years?
A. The competition has evolved. We saw some large lenders sit on the sidelines during COVID-19, but we never stepped out. We continued to be there for our clients executing on large scale syndications even during the early stages of the pandemic. JPMorgan Chase had one of our largest production years in 2020; it was important to us to support our clients when they needed it most.
Recently, lenders have been very focused on the relationship aspect of providing sub lines. Previously, there were certain banks that would churn out subscription lines without building an ancillary relationship with the client. That is much less prevalent in today’s market. Lenders are also focused on efficient utilization levels of sub lines, typically over 50%, to ensure a prudent use of their capital. Fund sponsors are aligned with this thinking. Instead of taking as big a line as possible, they are focused on rightsizing their lines, which provides upfront and unused fee savings for the fund. In addition, we see many sponsors now utilizing the line after their investment period as an “aftercare” facility. Limited partnership agreements have evolved to include provisions which lenders can rely on to call capital from the investors post-investment period.
David Cohen is Southeast Editorial Director at Connect Commercial Real Estate. David is a media veteran with more than 10 years of experience in journalism, copywriting and communications across a variety of roles. He is responsible for covering commercial real estate news and trends in the Southeast, Florida, Washington D.C. and Boston at Connect CRE as well as specializing in the Student Housing sector.
Prior to joining Connect, David was the editor of Northeast Real Estate Business magazine and Student Housing Business magazine at France Media as well as spending time freelancing for ESPN and the Associated Press in the fast-paced field of live sports event production. He is also an owner and investor in multifamily real estate in Atlanta, GA.
David currently resides in Atlanta and graduated from the College of Communication & Information at the University of Tennessee Knoxville.