When borrowers and brokers send us a request for commercial real estate funding, we always respond with questions. Every loan request that comes to us is in raw form and needs to be prepared for lender review. Many times these loans are prepared by a third party and when asking for additional information the client points to an extensive business plan, which may have been written for a different audience.
Commercial Loan Packaging
This is our job and we are pretty good at it. The most common questions are quite fundamental; what are the borrower’s credit score, the down payment, current loan balance, and net operating income? Recently I received a loan package from an investment company that prepared the package themselves. I must admit, I was quite impressed, because I only had 2 questions regarding the financing parameters.
In commercial lending, direct lenders don’t come back to you with a series of questions. They ask one question, “Please send the package.” It seems that most borrowers (and brokers) don’t even know what a commercial loan package consists of. Hopefully we can shed some light on this subject and help you to understand some of the details.
What to Include in Your Commercial Loan Package
Start with a photo of the property and the property address of the property. The title of the document should be your objective, such as Request for Purchase Financing, or Request for Multifamily Refinance, or Commercial Building Debt/Equity Request.
Table of Contents
This may seem obvious, but many borrowers feel the need to fill Executive Summaries and loan packages with stories. Finance people are numbers people. They don’t read romance novels and they don’t find any value in marketing plans. Make it easy to find stuff in your package.
Simply state your objective. Let the loan officer know if it is a business loan, CRE loan, purchase, refinance, construction, owner occupied, or investment. Let them know WHY you are making this request. Also, include the property address, the borrowers’ addresses and the Point of Contact if you are a broker.
This should be as detailed as possible and in a line item format. Include the building and lot size, occupancy, area occupancy rate, when it was built, and when it was renovated. Include the necessary details about the property without creating a story.
Provide clear photos of the outside from different angles, and the inside, without any personal items or decorations. Photos of nearby shopping centers or other significant landmarks could be helpful to the underwriter. An aerial view from Google Maps with an outline of the area may provide some insightful information regarding road access and proximity to the local business center or nearby cities.
Be brief when describing the local market, especially if your market data does not come from a reliable source. Use job data from government sources and housing prices or rental data from a reputable real estate broker. Many people see this as a place to insert your stories or subjective knowledge about the local economy. Unless you are an economist, I suggest you stay clear from making any declarations about the macro-economics in the area.
Provide some examples of large employers nearby and other significant business, such as large retailers, universities, public transportation, proximity to grocery stores, and other information which may affect property values in the area.
Rental Market Study
Provide a list of current rents in the area. Include pertinent information comparing apples to apples and if possible, provide an aerial map including the locations of those properties.
Provide a CMA from a real estate broker which includes a number of comparable properties to help assess the current value. If you have a Broker’s Price Opinion or recent appraisal, include a summary and refer to that separate document.
This is where the rubber hits the road. This should include a brief summary of the underwriting analysis. This table will no doubt be copied and pasted by people who review the document. For Example:
|Property Type||High-Rise Apartment Building|
|Loan Term||7-10 Year fixed|
|Loan Amortization||30 Years|
|Loan Type||Fixed Non Recourse|
|Requested Interest Rate||4.75%|
|Interest Rate Index||10 Yr US Treasury|
|Loan to Value||75% LTV|
|Avg. Lease Term||12 Months|
|Current Market Value||$1,500,000|
|Original Purchase Price||$750,000|
Include the rent rolls, P&L, budget, details of renovations, and how much you spent doing those renovations. Include information to validate the Net Operating Income.
This section should describe the business entity, and board of directors or other stakeholders. Provide a short history of the company its past transactions and a list of properties in the portfolio. You should also provide financial statements for the company in this section.
Company Financial Statements
Balance Sheet, Income Statement, Statement of Cash Flows. Summarize any changes from the previous 2 years.
This section includes the name, address, contact information, and percentage of ownership of each owner or guarantor. Make sure to include the borrowers’ recent credit score and be prepared to send a credit report for each guarantor with 20% or more ownership. Make sure you indicate if the borrower has or has not file bankruptcy in the past 7 years.
Include a Personal Financial Statement for each guarantor with 20% or more ownership. This should have liquidity in the form of income and expenses, and Net Worth, in terms of assets and liabilities. The lender will require a signed PFS for each guarantor.
Borrower Credit History
Be prepared to discuss any issues with borrower credit history if it is likely to affect the loan approval process. You will be asked to provide a credit report in most cases.
Keep this section brief and be accurate. Focus on information that relates to your ability to manage the asset and investment experience.
Include a list of available documents sent separately, such as 3 years personal and business tax returns, credit reports, and a recent appraisal or BPO.