COMMERCIAL LENDING - PANNING FOR GOLD! (by: coopercash)

Success in commercial lending can be boiled down to three essential components: 1) A viable client; 2) A viable project or collateral; 3)As a broker/lo you need to have "control" over your client. VIABLE CLIENT: In todays environment your clients personal credit history and asset strength are vitally important. While a sub 600 mid FICO is not necessarily a major problem a lack of cash liquidity and reserves is a deal killer. In most cases, commercial lenders will be limiting their exposure to somewhere between 70% and 80% of project cost (if new construction or a development)and up to 80% LTV if a purchase or a refi. Our investor group is focussed on projects and opportunities requiring $2-million up to $250-million and in all cases the starting point is our receipt of a well presented Executive Summary which describes the project, loan requirement, Exit Strategy if applicable, a resume and a Personal Financial Statement. I will be pleased to provide you with an example Executive Summary and a blank Financial Statement upon receipt of your email request. VIABLE PROJECT/COLLATERAL: In the present uncertain economy ALL new "ground-up" projects whether a residential subdivision/master planned community, mixed use, commercial, retail or hospitality will be subject to intensive due diligence and our investors will be looking for a very solid Exit Strategy that is based on REALITY. EXIT STRATEGY: This can be considered in one of three ways... 1)Sale of completed "units" (houses, offices, retail spaces etc)which will enable the client to fully pay-off the development/construction loan within an acceptable timeframe; 2) Leasing contracts or pre-lease L o Is for completed construction which will produce an income sufficient to meet all overhead costs and debt service plus an adequate margin; 3)Operating income in cases where the property will occupied by the client at completion as might be the case with a professional/medical center, or an automotive repair facility. Multi-family projects (new development, purchase or refi of existing property) are STRONG as are projects related to Active Senior Living and/or Assisted Living. ENERGY related projects that make sense are also of interest provided that the fundamentals are solid and not based on "wishful thinking". In addition, clients need to understand that projects requiring DEBT financing must be backed by at least 20-25% cash invested by client. If the client is seeking EQUITY funding up to 95% of project cost then while that may be available from one of our Hedge Funders it must be remembered that the client will be giving up a major chunk of ownership in the project. CONTROL OVER YOUR CLIENT: Without securing a commited relationship with your client your chances of achieving a successfully closed loan are dramatically reduced. YOU are the professional and you must be able to inspire and convince your client that YOU can secure their financing... assuming of course that the client and their project is viable. You need to secure a FEE AGREEMENT with your client BEFORE you start the search for funding. Your Fee needs to be reasonable because you will be seeking cooperation from the lender/investor in making your Fee Agreement a part of closing conditions. Believe me, if the lender is charging 1 - 3 Points you will NOT be able to charge your client 3, 4, or 5+ Pts and expect the lender to go along with that arrangement. On a loan for $10-million or more be thinking in terms of 0.25% - 0.50% of loan amount! Lenders do NOT like dealing with broker "daisy chains"! They will only communicate with their authorized "gatekeeper" who is the person assigned to handle, review and present the initial intake information. If your most appropriate source of financing is a Hedge Funder or a Hard Money Lender you will need to EDUCATE your client with regard to the need for them to pay DUE DILIGENCE fees to the investor. Normal course of events is that if the investor expresses interest in the opportunity a conference call with the client will go in depth on the project. The investor may well be prepared to issue a provisional Term Sheet and a conditional L o I following that conference call. The L o I is 48-hours time-sensitive and requires that the client sign and return along with wiring their Due Diligence Fee. Those Due Diligence fees cover the investors costs for appraisal (or appraisal review), environmental and geologic reports, Title research, and in most cases travel costs because the investor will want to physically "kick the tires" and meet the client. Those Due Diligence fees are NOT refundable to client if the investor declines the loan as a result of negative discoveries. In some cases the deal may be "saved" if the client agrees to changed loan terms. Deals can also be considered in Mexico, Costa Rica, Panama, Belize, USVI, Dominican Republic and the Western Caribbean. HARD MONEY APPRAISED VALUES: While HMLs will advertise lending "Up to 70% LTV" it is absolutely essential that you explain to your client that does NOT mean actual appraised fair market value! The appraisal will be "adjusted" by the HML underwriter to a price that the lender believes a buyer could be found within 90-120 days if the loan goes into foreclosure. The HML will then base their loan on a percentage of that REDUCED value. Example: Property appraises at $1-million. "90-120 day" sales price 20% LESS = $800,000. 65% LTV = loan amount of $520,000. I am available to review your deals and I will give you some insights as to which of our investors would have interest. If the client and the deal make sense, well get it done! My contact information provided below. - Last Post by: coopercash on 03/08/2008 @ 05:22 AM