How can you help clients navigate commercial real estate financing?

Before exploring financing options, it's essential to fully understand your client's goals, budget, timeline, and cash flow. Consider their short and long-term objectives, risk tolerance, and exit strategy to provide tailored guidance and streamline their choices effectively.

Navigating commercial real estate financing, from the viewpoint of the lender, should include, at least 10 areas of focus: - Measurement of borrower, net cash flow - Measurement of guarantor(s), net cash flow - Management depth - Length of time of existence of the borrower - Quality of financial and collateral information provided - Peer comparison and analysis - Industry strength of the borrower - Lender policy vs. loan requests - Economic conditions - These conditions should be input into a final, standardized "risk rate" calculation to determine acceptability.

As a commercial Realtor in Alberta, I can help clients navigate commercial real estate financing by leveraging my knowledge of local market trends and connections with lenders. I can assist in preparing loan applications, explaining financing options, and negotiating favorable terms. My expertise in Alberta's commercial real estate market can help clients secure the best financing for their needs.

The nature of commercial real estate financing has changed drastically over the past decade, as commercial banks have increasingly been replaced by alternative sources of funding, such as private equity entities. This process of disintermediation is likely to accelerate, as traditional lenders such as local and regional commercial banks are hamstrung by the developing commercial real estate debt crisis. Thus, going forward, it will be essential to provide clients with access to a broad spectrum of alternative sources of financing.

CRE financing - debt, equity, mezz, or hybrid - is NOT "one-size-fits-all." The delineation lines between capital providers have blurred, and banks are not the "one-stop-shops" they used to be. The CRE captial stack must match the investment goals and objectives of the borrower/sponsor. For example, if a sponsor is buying a 150-unit building to significantly renovate and enhance overall asset value and refinance after the value-add completion, the last thing that sponsor needs is a CMBS loan, as exit mechanisms are highly restrictive. Conversely, if the objective was to renovate the units and keep the asset held in a trust for the sponsor's grandchildren, then a CMBS execution might be acceptable. The capital must serve the plan.

A great way to service a borrower client here is to develop a series of Excel© worksheets that perform dynamic analyses based on a set of assumptions relative to the capital stack being arranged. Not only should a well-designed model include all of the debt variables, but should also accurately calculate the value of the asset (unlevered) based on the debt terms, as well as the returns to the equity (levered) to determine if the leverage achieves the sponsor's targeted investment returns to equity, and whether overall leverage is positive, negative, or neutral.

Most CRE investors are experienced and don't need to be educated. They do have specific questions on rates, max LTV, min DCR, etc. Clients work with deadlines and need answers and information quickly.

Understanding the cash flow properly and get maximum loan dollars you need to know the sub-market intimately. If you have access to analytics, dive down to as much detail as you can for similarly situated properties in the same area. Next you need to get deep in to the operating statements and rent roll. Knowing your lender’s underwriting requirements will really help you ensure your client has a smooth experience. When you get an LOI from your lender, ask to see how they spread the property. If the numbers don’t align, do your homework before you get in to underwriting and be prepared to have a reduced loan amount or substantiate why things are not right. And don’t, whatever you do, don’t rely solely on the offering memorandum.

This includes analyzing market trends, property values, and comparable sales to determine financing options tailored to their needs. Additionally, I can provide insights into lender requirements and help clients prepare necessary documentation to secure favorable financing terms.

As a former direct lender, I cannot stress highly enough the importance of a well-presented Financing Memorandum ("FO") to memorialize a capital request. Also known as a 'deck' or a 'package,' the FO should contain every aspect of the property, the sub-market, the sponsorship, the acquisition plan, the renovation/repositioning plan, and most importantly the disposition plan. Lenders want to give money on good deals - but it's just as important for them to know how - and when - they can expect to get their money back. There is no such thing as 'over-analyzing' here.

For long term conventional financing, comparables and cash flow are priority number one. There are good, free resources to do this like loopnet. For hard money and bridge loans, market data is important, but financing is contingent on a large down payment maybe 50%.

You should have several bankers in your rolodex. Doing some research before asking for a rate quote or LOI will help you be taken seriously. For example, a banker who does small balance loans (less than $5 million) won't like spending valuable time only to find out later you want to buy a property for $20 million. Likewise someone who specializes in multifamily won't like repeated inquiries on offices, retail, etc. You can find information on lender's website and LinkedIn. If you can't find this information easily, then the lender is doing something wrong. If you're working with a good broker, then they should be doing all of this already.

A term sheet, letter of intent, or commitment letter is NOT all about the guy that's 3 BPS cheaper and that can close the fastest. Advisors need to inform their clients about every aspect of the capital stack structure that helps - and hurts - them. For example, Broker John told his client to take Lender B's deal over Lender's A deal - solely because Lender B's interest rate spread was 5 BPS lower. What Broker John didn't realize was that Lender B was using a Treasury index that was 12 BPS higher than Lender A - which ended up adding an additional $4,500 per month to the client's debt service payment. Don't be like Broker John.

I can assist clients in navigating commercial real estate financing by providing information on various financing options such as traditional bank loans, SBA loans, commercial mortgage-backed securities (CMBS), and private equity funding. Additionally, I can offer insights on factors that influence financing decisions, such as creditworthiness, property valuation, loan terms, and market conditions. Moreover, I can help clients analyze and compare different financing options to make informed decisions tailored to their specific needs and circumstances.

There are a lot of cats to herd in the closing process. The best brokers - whether they are on the sales or the capital side - should be the Point Person on the deal, and should not only be making sure that everyone is doing what they are supposed to do, but should also be anticipating any issues that could derail the deal, while communicating that in advance to the client - while simultaneously doing everything he/she can to avoid, or fix, it. It's also a good idea to stay in it to win it until the end, so that you can make sure all of your fees are accounted for on the closing statement - every nickel of which should be a line item, along with confirming that the escrow agent has your wiring instructions on file.

A key thing here is to understand what you are licensed to do and where you can also over step by trying to be helpful. I run across many real estate agent getting to far into trying to quote rates, and vetting clients prior to sending them to a lender that could get them into trouble based on their state law.