New York City—Few observers in the real estate industry expect the trend of one-stop real estate finance shopping—typified last month with CB Richard Ellis' announcement that it had raised $300 million in financing through a private placement—to diminish. Indeed, many observers expect this trend to spread even further to other products.

For instance, there is a lot of “one-stop” business still to be had in corporate finance and note sales, says Dan E. Gorczycki, senior vice president of Granite Partners LLC, a real estate investment banking firm with offices in New York and Houston. “I think we will see other firms pick up on that,” says Gorczycki.

Note sales, in particular, help diversify a firm's product line as well as position it for a possible downturn in the market. “If the market fell sharply there would be more note sales,” Gorczycki explains.

But while the one-stop shop trend is clearly a winner for lenders—they get diversification, more business and greater exposure to a wider segment of the market—borrowers need to be aware of a few potential downsides.

For starters, says Gorczycki, personnel can be an issue. “Let's say a debt shop suddenly tries to do sales as well,” he says. “It won't be able to compete [in recruiting] with the top-line sales groups simply because it takes a while to build up a reputation. Ultimately a company is only as strong as its weakest link.” Support staff, as well, which may be spread too thinly in a newly expanded operation, could be a problem, he says. “Good analysts can be hard to find. But they are essential to turning a deal around quickly and freeing up senior people to close the transaction.”

Perhaps, though, the biggest drawback to using a one-stop shop is price—at least in some deals and to some borrowers. “Most borrowers see debt as a commodity, typically pricing and comparing an array of debt combinations before choosing their lender on a given transaction,” says Susan L. Stupin, co-founder and managing director of the Prescott Group LLC, a New York City-based real estate merchant banking firm. “Given the overall efficiency of the marketplace for both first mortgage debt and for mezzanine debt, therefore, it is difficult for lenders to build in a premium for one-stop shop financing.”

Granted, this may not be a deal-breaker for all borrowers. Steven A. Kohn, president of Sonnenblick-Goldman Co. in New York City, agrees that in theory a one-stop shop may not deliver the best price. “But in reality, pricing is very deal-specific; there are no rules of thumb to say one is better than the other.”

Sonnenblick-Goldman will often price the subordinate piece with pure B-piece buyers to see how they are pricing it, even if a deal looks as though it will go with a one-stop shop, just to make sure, he says.

However, says Kohn, appearances can be deceiving with seemingly single-source financing providers. “A lot of lenders, even if they look like a one-stop shop and they are selling the whole capital structure, are often selling a piece of the capital structure afterwards,” he says. Occasionally, if the single-source provider does not get the execution expected from selling off that particular piece, he says, the deal could change at the end.

Conversely, one-stop shops only have to deal with one set of documents and don't have inter-creditor agreements to hash out, which can lower costs. Such variants, Kohn says, “is why we test the deals first. We don't rely solely on single-source but also go out to pure mezzanine and B-piece providers.”

Still, other observers worry about conflicts of interest within one-stop shops. “If a one-stop shop is now offering mezzanine and equity in addition to loans, are they not competing with the same clients that their retail brokerage represents in buying properties?” asks Forrest W. Tippen, managing director of corporate real estate for Challenger Capital Group, a Dallas-based investment bank. “They are.”

Not that Tippen is completely dismissive of the one stop-shopping model: “They provide good resources to clients,” he says. “It is just that some clients need to be aware of potential conflicts.”

And that's what the people at these firms say themselves. “Ultimately the borrower picks the lender—if they hire L.J. Melody they will pick the five or six best lenders, but [L.J. Melody] will fully disclose their relationship to the new fund,” noted Keith Gollenberg, newly appointed chief executive officer and president of CBRE Realty Finance, CBRE's freshly launched one-stop finance shop, in the June 27 story in Debt & Equity Journal announcing the formation of the unit (the unit includes L.J. Melody).

Robin Odland, senior vice president for structured finance at GMAC Commercial Mortgage, agrees, pointing out that conflicts of interest are not an issue in a properly structured firm—and that the advantages of the model outweigh any disadvantages to borrowers.

“The buyer should ensure there is some level of independence,” says Odland, citing the need for appropriate firewalls. “To provide an efficient execution to enable you to tap pension fund money, for example, you have to have systems in place that these pension funds respect and recognize as enabling our company to maintain our fiduciary duty.”

Those companies with the broadest access to capital—the larger firms such as GMACCM—already have such firewalls in place, Odland says. “It is the only way to get capital from the myriad investors and to set up efficient funds.”

And one-stop shops have clear advantages in some cases. Their exposure to that myriad of investors is then leveraged for the borrower. For example, in a standard multifamily property transaction, a number of institutions are willing to provide the debt portion of capital structure. However, the equity for that particular transaction may be more difficult to place, as there are not as many providers in this piece of the stack. “For companies like ours that have access to equity financing, we have an easier time financing that piece of the capital structure,” Odland says.

Another benefit, Odland notes, is that the negotiation of inter-creditor issues is far easier, especially in complex deals with several layers of mezzanine and equity finance provided by multiple parties. “The interests of the mezzanine party are, depending on where they are in capital structure, not necessarily completely aligned,” he says. “We have seen that on a number of large transactions where there have been multiple tranches on debt and equity, we have been able to easily and quickly work out inter-creditor issues.”