It Has Never Has It Been Harder to Close a Commercial Loan
A buddy of mine recently sent me an interesting email that says it all about placing commercial loans today.
George,
... The markets have been turned upside down. There is a real disconnect today with what the borrowers want and think they can get and what they can realistically can get from the lending community.
We just funded a $6.5 million loan for a self-storage project at a 6.95% rate for ten years. The borrower wanted a NON-recourse loan. While there were several hundred lenders in that market for that product 18 months ago, today there are none. The exception, the life companies, are at 55% LTV. Our deal was 61% LTV without 12 months of stabilized income. The life companies would not even take a hard look at the deal. The borrower was VERY well qualified, with lots of cash and a great financial statement.
We went to over 120 lenders who would make a loan on this property type in So Cal and found only ONE who would do the deal. The deal closed, and the lender has now eliminated self-storage as a product they will lend on.
Borrowers in most cases are still not realistic about what they will accept vs. the market. There is no 100% financing. The borrower must have 25% to 35% equity in the deals today. For refi's the borrower must have a DSCR of at least !.25:1, and even Fannie Mae wants 1.20:1 for apartments. And FNMA has a new requirement that they want you to own at least four multi-family projects, or have owned that total (in the past), if they are to consider you for a loan ...
R. H. Adams
This mortgage broker had to submit his commercial loan to 120 different commercial lenders before finding the one commercial lender who would do the deal. He didn't quit. To his credit, he pushed on and on until he found a home for the deal. You will probably have to do the same with your own commercial loans.
I have often said, "Sometimes placing a commercial loan is as difficult as finding a wife for your best friend. You can set him up with a lovely girl that is the right age, the right size, the right level of beauty, and the right religion ... and still there is just no chemistry or fireworks. All you can do is keep setting your friend up with new ladies. It becomes a numbers game."
So if you are trying to place a commercial loan with a bank or a life insurance company today, you may have to submit your commercial loan to 50 to 100 commercial lenders ... until you find just the right chemistry.
