Commercial Loans and Fun Blog

Commercial Lines of Credit from Hard Money Brokers

Posted by George Blackburne on Wed, Mar 24, 2010

Loans Used to Buy Foreclosed Homes in Bulk

An enterprising hard money broker in Southern California is issuing lines of credit to homebuilders, investors and speculators to buy foreclosed homes in bulk. As the lender described it:

"We have private money available to provide homebuilders/investors with collateralized lines of credit to purchase, renovate, and sell SFR’s purchased out of foreclosure. These homebuilders and investors are typically are well capitalized (very wealthy) and are looking for 1st TD debt at an advance rate of +/- 60% of cost in order to increase their volume and overall returns as a less expensive alternative to finding equity partners. Credit line applications in process range from $1 MM to $12 MM. Structures include: acceptance of replacement collateral at unit reconveyance, or short term loans which are re-written with new collateral at payoff. We are currently doing this business in both California and Arizona."

"How this works is that we have customers in the business of acquiring entry level single family homes at trustee sales throughout California. Following acquisition of these wholesale, in-fill purchases, the homes are renovated and listed for sale. In-house brokers within our borrower’s company than list those homes on the MLS and work with buyer brokers to sell them. Typical cash-on-cash returns in this operation are currently +/- 20%."

"Depending on deal structure, we lend between 60% - 80% of the purchase price of the homes purchased, and the borrower puts in all the renovation costs in cash. Total annualized cost for the credit line is between 15% - 22% all-in. The loans are usually, non-recourse depending on the advance rate.  The lines typically run in 6 month segments to one year. Origination points are paid when the line is used and houses are purchased. The line collateral is a 1st TD on all homes purchased within the line.

"The leverage is substantially accretive. Levered returns can increase to well above 100% as long as the product is turned (purchased/renovated/sold) within a 90-120 period and the money can go back to work purchasing new homes. Sale of the homes pay down the line 105% of the wholesale purchase price."

"There is a lot of action in this business currently. Particularly, in those states that have been hard hit and have tremendous foreclosure volume like CA, AZ, NV, FL. I have one borrower who has purchased over 350 homes in the last 9 months and moved over $85 MM of product. The profit in this borrower’s realm of operation, Southern California, is approximately +/- $40,000 per unit."

If you are a homebuilder or an investor and would like an introduction to this lender, please call me, George Blackburne III, at 574-360-2486 or email me at george@blackburne.com. I get bombarded with emails (but I love to hear from borrowers and brokers), so its easy for me to miss an email. I recommend that you use the title of this article, Commercial Lines of Credit from Hard Money Brokers, in your subject line.

Topics: commercial line of credit, foreclosed homes, line of credit, renovation line of credit, REO loan

Fabulous Article About How to Present a Bridge Loan

Posted by George Blackburne on Wed, Mar 3, 2010

Even Old Veterans Will Learn From This Brilliant Article

I didn't write this wonderful article. Instead, it was sent to a group of mortgage brokers to solicit business. I begged Brian O'Shaughnessey for permission to publish it. I want my sons - and their kids someday - to read and study it.

How to Properly Pitch and Submit a Loan Request to a Bridge Lender/Fund Manager

As you know banks are barely lending in these uncertain economic times. So the Bridge Lenders/Fund Managers that are still lending are seeing an increase in submissions that are overwhelming them. You must be aware that most Bridge Lenders/Fund Managers are usually a 1 to 5 man operation and are not used to receiving 100 calls a day and 3 to 6 hundred emails a day with scenarios.

Though Athas is larger than most Fund managers we still suffer from the same problem. When a Fund Manager gets overwhelmed he usually defaults to saying "No" to any deal that is poorly presented; and let me tell you 50% to 70% of deals presented to our firm are presented poorly. So from a Fund Managers perspective let me guide you to presenting your file in a professional and attractive way thus enhancing the possibility of getting interest in your loan request.

The Preparation Before Presentation

75% of commercial and 25% of residential deals I am pitched are from a broker chain. Let’s face it. Brokers, in my opinion, are the life blood of our industry no matter what the banks are trying to do to them. But deals that are presented to me from a broker on the back side of a broker chain I don’t take very seriously nor do I spend much time on. So if you are in a broker chain…penetrate it professionally and speak directly to the borrower, with permission of all brokers of course.

You want to make sure of what the borrowers needs are and there is only one person that can express it to you and that is the borrower. Make sure the borrower is ready for a Bridge Loan. Be candid and upfront with the borrower about what typical bridge loans costs are and what the condition of the capital markets are. Let’s face it borrowers want to avoid getting a Bridge Loan at 9% to 13%, 2-5 points and terms from 1 to 5 years if they can avoid it…don’t blame them! So many brokers submit and procure LOI’s from us just to have a “back up”. Don’t do this for you are not making friends with the Bridge Lender/Fund Manager! Make sure the borrower is ready, if they are not don’t waste your time or the Fund Managers time.

Know Your File

There is nothing worse than a broker pitching a deal to a lender and the broker truly has no clue. This is a quick step in the direction that will not be fruitful for you and certainly is not a relationship building experience. As a fund manager I must tell you I will go higher LTV’s and farther outside my box for a broker that knows his way around his deal! If you add the fact that I have closed deals with that broker in the pass I am more willing to stretch for that proven relationship. So you as a broker always want to build that relationship and that usually starts with a proper presentation and intimate knowledge of your file.

Be Prepared to Answer a Myriad of Questions

The Bridge Lender/Fund Manager will have many. Once again I can’t stress enough, know your file. If your loan request is a commercial down, know the total of all income of the project. Also know the type of leases that this property has. Are they full service, modified gross ore triple net leases? If there is credit issues finds out if there are any believable excuses behind it. If the income on the rent roll is more than on their schedule E (rarely a deal killer) be prepared to answer why that is. If there is cash out know what they are going to use it for.

The Presentation

When getting on the phone with the lender he or she will want to ask the questions so they can make sense of the deal that best suits their needs. Don’t tell a story; just answer their questions in a quick and professional way. Don’t hide the negatives about the deal because the lender will look sideways at you and your future deals. So always express the negatives upfront and then follow it up with the positives and sell the positives without telling a 5-20 minute story. If the borrower has other collateral that has lendable equity in it express that to the lender quickly and don’t save it for the last second. If there are special needs of the borrower, like but not limited to, the borrower doesn’t want to sign a personal guarantee, express this to the lender before he makes his decision. If the lender doesn’t like your deal and turns it down don’t get upset or confrontational! If you want to learn why he turned it down don’t give him attitude just ask him why he turned it down so the next time you can learn what he or his fund likes and doesn’t like. If the lender likes your deal then great and be very prepared to email him the file quickly. This is not the time to collect conditions because that takes time and your lender will hear 100 deals after yours that could be better/safer or he will have forgotten your good deal because of all the bad deals he has to listen to. So submit your file immediately after the positive conversation!!!

Prepare to Submit Your Loan Request

OK you have a lender that is interested in your file, don’t blow it by submitting him a crazy discombobulated, and unprofessional file via email! A well submitted package is paramount to keeping you professional image alive and a lender interested in YOUR file over the others! A list of items most lenders will need to make a proper decision are as follows…

-Executive Summary - Yes I know you have already explained this all over the phone conversation but it is paramount that the lender can go back to the executive summary and get the story again.

-PFS (personal financial statement) or 1003 – It is paramount that your PFS or 1003 be professionally and fully filled out. Nothing is worse than a hand written and barely legible PFS or 1003!

-Credit Report – A recent Credit Report (not that FreeCreditReport.com stuff) or a detailed explanation of what the borrower’s credit is like (must come from the Borrower). That description should touch on FICO’s, mortgage lates, BK’s, Judgments, etc.

-Pictures of property –Believe it or not this is so important! A deal can go from hot to not or more importantly from NOT to HOT from quality pictures of the outside and inside of the property. So have them ready.

-2 years Personal and Corporate (if applicable) Tax Returns – “But I want to go stated” Is a usually response to this request. The Stated days are for the most part over. Every Fund Manager wants to see the Returns. Maybe just for the reason that he wants to make sure they are filing them. A lot of Fund Managers don’t use them and they wind up in the trash can but the fact that you showed them makes us Neanderthal fund managers feel comfortable. Remember Bridge loans can get creative with borrowers that don’t show all their income or show too many expenses………It’s OK to show us the returns!!

-Rent Roll – A clear and concise rent roll that shows tenant’s full name, unit number, monthly rent amount, beginning and end dates of lease is the best!

-Last years or Year to Date Income and Expense Statement- A quick P+L on the property is usually good. Yes we can add back in the mtg expense, depreciation and sometimes a lot of expenses we know the borrower is just writing off to write off.

Submitting Your Loan Request

There are some rules you should follow to submit your loan request. These rules will make your submission stand out from the rest…which in this market is paramount!

-The subject line of the email – Many times you have to email a file broken up into many emails because all the attachments are too big to fit on one email. So the subject line will keep the continuity of your submission. The subject line should have the borrower’s last name or name of the project then the word “Part” then the number of the email. For example Smith – Part #1 next email would be Smith – Part #2 so on and so forth.

-The attachment names – Name each attachment properly so that the lender knows what is in that attachment. Nothing is worse than getting 20 attachments and all of them have crazy names like *0473#-C or something like that. No one wants to go thru 20 attachments to figure out what they are. Once again separate yourself from all the other brokers……….for your better than the rest!

-The attachment size – Be cognizant of the size of the attachment for no email you send out should have more than 5 megabytes of attachments. Just because you can send it doesn’t mean your lender can receive it. Now some lenders can receive very large attachment groupings but just because they can receive it doesn’t mean you can send it. Most email systems have a limitation of 5 to 10 megabytes. Remember some Bridge lenders/fund managers are just small shops and don’t have a large emphasis on technology and might be using a restrictive email carrier that can bounce files just for attachments that are too big and no one is notified.

-Follow up – Call the lender within 1 hour of submitting your file to see if he or she has received all your emails. This serves two purposes, #1 you make sure he received all your emails, #2 the lender knows you proactive and if you don’t get an answer within 24 hours you’re going to follow up again. He or she will defiantly work on your file first!

Tips for Those Who Are New to Bridge Lending

-Stick to “The Good Deals” - What is a good deal? The current answer is a deal that closes! In this marketplace there are so many deals out there that just are never going to get funded or will take a monumental effort just to get a maybe. Examples of these deals are out of country request, land loans, development deals, theme parks, golf courses, retreats, coal mines or precious metal mines, quarries, electrical plants, hospitals, casinos, marinas, ski resorts, biodiesel plants, parking garages or white elephants. These deals you might get a person to say yes to but I would be willing to bet there will be a $25,000 to $250,000 upfront due diligence fee that you will never get back!

Good Deals look like the following. Plain vanilla Residential properties, multifamily, mixed use, student housing, fractures condos, office buildings, retail shopping centers, light industrial, warehouse and rehab or finish construction deals of the above properties. Some hard to fund asset classes that are still getting attention are gas stations or any auto related project, small hotels or motels, assisted living facility, daycare centers and restaurants. Try to stick to the “Good Deals” because in this marketplace those are the deals that are actually closing.

Upfront fees – Now my company does not charge upfront lender fees but sometimes I wish I did. If you get a LOI that is requesting upfront fees make sure the company producing the LOI is legitimate! In this marketplace there are a lot of “upfront fee scammers”. It’s not the end of the world just proceed with caution

-Make sure the LOI is coming from a legitimate source – There are many ways to get a comfort level with your LOI and the company that produced it. Letter of Testimonials are one way. Make sure the person writing the testimonial is a real company and call them. If a lender wants to earn your business they should have testimonials upon their website that shows the broker or borrowers name and number. This way you can verify them. Funding lists are also something you should be able to ask for and more importantly be provided with. Any real lender should be able to provide addresses of properties they have lent on so that you can run a property profile on and see the Trust Deed or mortgage in the name of the lender. Deal plaques, if the “lenders” website does not show deal plaques then they are making no effort at showing you what they funded in the past. Why would a real lender not want this up on their website? Just be careful for unfortunately there are a lot of scammers out there and it is your duty to your borrower to get them involved with a real lender.

Sincerely,

Brian O'Shaughnessy
CEO/President

PRESIDENT

26901 Agoura Road. Suite 250
Calabasas Hills, CA. 91301
P: 877.877.1477 x555
F: 818.647.0175
Brian@AthasCapital.com
Recently Closed Loans - Click Here
Customer Testimonials - Click Here
www.athascapital.com
www.ramacapital.com

Topics: bridge loan, hard money commercial loan, hard money loan

Commercial Financing Frozen Solid

Posted by George Blackburne on Wed, Mar 3, 2010

Neither Banks Nor Borrowers Want Commercial Loans

I have been in the commercial mortgage business for 30 years now, and these are the worst of times.

I used to think that 1982 was bad. In 1981 Fed Chairman Paul Volcker, determined to break the back of inflation, raised the prime rate to 21.5%. Surprisingly, borrowers still sought commercial loans. Real estate was still appreciating, and cash-hungry borrowers were still willing to accept a commercial loan at 16% to 23%. At the same time, the banks and thrifts (savings and loan associations) would still consider a commercial loan, if the commercial loan made sense.  Nevertheless, business was horrible.

But as bad as things were in 1981, the commercial loan market simply disappeared in 1982. By then the Fed had broken the back of inflation. The inflation rate tumbled from 16% to less than 6%. At the same time, the Fed started to quickly ease. The prime rate began to fall at the rate of 1/2% to a full 1% per month.

I hate it when interest rates fall! No one wants to borrow. Why borrower at 15% today when the rate will be 14% or maybe even 13% in six more months. So borrowers procrastinated. Our commercial loan office became a tomb. I called my old buddy, Bill Owens of Owens Financial Group, and begged him to tell me what I should do. "George," Bill commented with his wry humor, "sometimes all you can do is go fishing." For the rest of the year commercial lending activity was almost non-existent.

But at least in 1982 the problem was just on one side.  Borrowers were procrastinating.

What about today? "It's deja vu all over again."  Except this time, neither lenders nor borrowers want commercial loans.

The banks don't want any more commercial real estate loans for obvious reasons. They've lost tens of billions of dollars as thousands of commercial loans nationwide have gone bad. In addition, commercial real estate has already fallen 35% to 40% in many areas. Many experts expect the declines to get worse.

Borrowers don't want commercial loans because they are not investing. Why buy commercial real estate today when prices will only be cheaper tomorrow? Business owners aren't pulling cash out of their buildings because they are already cutting back on their existing manufacturing capacity. Why invest more in plant and equipment?

"But George, what about the hundreds of billions of dollars in ballooning commercial loans that we keep reading about?" The banks and conduit loan servicing agents are simply extending these loans for a few years.  Why foreclose on an otherwise performing loan? Commercial lenders don't need any more commercial properties to manage.

So where does this leave us? The commercial loan market is now frozen to a standstill. Very few new commercial permanent loans are being written, and commercial construction lending is essentially non-existent.

If you do happen to need a commercial loan:

1. If it's a bankable deal, you can submit your deal in just four minutes to hundreds of commercial lenders by using C-Loans.com.

2. If you need a commercial permanent loan of less than $1.5 million, please call me, George Blackburne III, on my cell at 574-360-2486 or email me a package at george@blackburne.com

Topics: commercial real estate loan, commercial loan, commercial mortgage rates, commercial lender, commercial loan rates, commercial financing, commercial mortgage