As a commercial hard money lender I have to be good listener. The reason is that everyone has a story to tell about their need for money. Some stories are better than others.
What should you include in your story?
Introduction
A good literary story introduces you to the characters, the setting, and any history relevant to understand the narrative going forward. A good lending story will include some of the same attributes. Most of this information should be included in a easy to read executive summary.
- Who are the main characters? This includes the loan sponsors, and any borrowing entity that may be involved.
- What is the setting? The setting would include the property location and property type. Details are important in this section and should include: unit mix, income details, and tenant information. This would also include the loan amount and the current property value.
- What is the property’s history? This should include the property’s acquisition date, acquisition cost, repairs or construction, current liens, and any other items that set the stage going forward.
Body
The “body” of a commercial loan story should contain all the details that support the loan amount and property value. Not all hard money lenders will lend on the “appraised” value alone. Unfortunately, an appraisal is an opinion of value and not necessarily the price that the market will bear. Hard money lenders desire to protect their investment capital and want to be assured that the property can sell for more than their loan amount.
Property information and borrower information is very important in this section. The lender may ask for tax returns, income statements, balance sheets, rent rolls, leases, appraisals, operating statements, and other relevant facts to justify the loan. It is best to have these times beforehand from the borrower and be ready to provide them to the lender when they ask for it. Hard money lenders require different documents depending on their underwriting criteria.
Conclusion
When I review a deal, I want to have all the facts that are relevant to the deal. Market surveys, comps, and demographics are helpful to understand the project. The conclusion of your story should be the reason that they are searching for hard money. Is time a problem? Is the credit poor? Do they have unseasoned funds? Are there vacancy issues that will be corrected? Are they short on capital?
How to tell your story?
First, if you are a commercial broker don’t pass on a loan file that you received from someone else without reviewing it. This is the epitome of laziness and a lack of professionalism. It is frustrating to call a broker with questions, after reviewing a loan file, only to find out that the broker has no idea what the deal is because they just glanced at the package and passed it along.
Second, organize the data. Sorting through pages of data is frustrating and may mean that the borrower is trying to hide something. It is like an episode of “Law & Order” where the defendant sends over 15 boxes of documents in order to hide the document containing incriminating evidence.
Third, be as brief as possible. You may be very eloquent, but time is money. Also, a pig in a dress is still a pig. An ugly property with pretty words is still an ugly property. The executive summary should be a summary, not a life history.
Fundamentals are Still Fundamental
What do I mean? The value of a property is largely going to be based on income and cap rate. A lender is going to base their loan on the value of the property. The value may be today’s value or it may be a future value, but it will be based on a reasonable expectation of the property’s value. Property doesn’t generally appreciate at 400% or even 100% per year so take this into mind when you “estimate” your property’s value.
Comments(0)