As a private lender for commercial real estate, I receive requests everyday for loans and equity partnerships. On average, about 1 out of 100 is presentable to the lender and 1 out of 25 of those is fundable. If you are a broker or an investor looking for a loan for a commercial real estate purchase or refinance, you could save yourself some time and frustration by giving the lender what they need to evaluate your request.
Start by Selling the Borrower
The best loan request I ever got started out with a short paragraph telling about the borrowers. “Chris and Anthony Jones have made an offer that has been accepted on an apartment building in San Francisco, CA. The purchase price is $12M. The borrowers own 2 other buildings in the area that are free and clear. Their combined net worth is $80M. Their
credit is excellent. Their total debt is $3M on their home and they have sufficient reserves to cover their debt.”
Brokers – Do Your Job
I had a broker respond once with, “I will ask the borrower, but your question seems too banky.” If the broker is overselling the project, that usually means the borrower has no cash, poor liquidity, or has been denied by other lenders. Most lenders will give a reason for the rejection. Fix the problem before going to another lender. Private lenders are more attached to their money than banks are, so they want a good investment with low risk.
Answer the Basic Questions
Be concise and get to the point. What are you asking for and why should the lender consider your request? Every CRE loan request should include the type of request, LTV, the amount, value of the property, why you are investing, market comparison, rental survey, borrower financials, NOI, DSCR, proforma, photos, and the borrower’s cash investment.
Expect a Request for More Information
When a lender asks for more information, it usually indicates that they are interested in the borrower and the potential of the property. Expect the lender to ask for an MAI appraisal, signed and accepted CRE contract, rental survey for the area, management resumes, personal financial statements, and three years’ tax returns. If the project is a rehab, the lender will ask about the contractor’s license, experience, project plans, and how the project will increase revenues. For construction projects, they may ask for a copy of the construction contract, a copy of the plans and specs, a copy of the initial project cost analysis, the builder’s general contractor license, the builder’s workers comp & blanket insurance binder, and the builder’s resume.
Private Money is Available
Private lenders are easier to work with than banks and they can usually close faster. The best way to speed up the process is to be prepared for the obvious questions the lender will ask. If you are looking for an equity partner because you don’t have the cash to invest, be honest and upfront with the agent; we have the key to the vault.