How can you creatively negotiate with lenders for better commercial real estate loans?

From an apartment broker's perspective I get to see a lot of very successful investors and their loan terms and I get to see a lot of duds who never make it to a loan at all. Of the successful ones who consistently obtained the most favorable loan terms, long term relationships with their lenders was a common theme. They typically had 2-4 go-to lenders depending on the asset type and intentions and because those lenders knew and were confident in the borrowers, due to successful transaction history, their loan terms were the most aggressive because of the perceived reduced risk of a loan going bad with that borrower. .

Securing the necessary capital to complete the purchase is critical component. → Loan Application: Providing details about the property and your finances to the lender. → Underwriting: The lender evaluates the loan's risk, including property appraisal and borrower's creditworthiness. Providing detailed underwriting to lender will help on property business plan and proforma projections. → Loan Commitment: Receiving the lender's terms for the loan.

In addition to having clarity around the specific loan type and terms you're seeking, you will also need to have a clear and concise understanding of the key underwriting metrics of your proposed loan, and how they influence loan eligibility, approval, terms, lender type, and requirements. Without this knowledge, you are simply shooting in the dark and aren't likely to get far in identifying a suitable lender, much less negotiate from a position of strength. If you don't have established relationships within the segment of lenders that specialize in making the type of loan you're seeking, start with outreach, relationship development, and developing an understanding of the playing field and players.

Financing secured! Approach lenders with a winning strategy: Know your needs: Define the loan type, budget, and explore alternatives (hard money, private equity). Compare & Conquer: Research lenders, loan products, and interest rates to find the best fit. Target the right lenders: Seek specialists aligned with your property type, location, and industry. Plan B is Key: Have a backup option in case your primary lender isn't a match. Confidence and preparation are your weapons to secure favorable financing!

When dealing with large transaction, it won't make much sense to pay 2% fee to a broker. You can go direct to the source and build a relationship or navigate through the servicer of the loan sometimes. In current market conditions this could look like seller financing. Knowing your options can save you and your investing partners tens of thousands or more in fees. Be diligent and don't spend money just because you think you have to. Real Estate is THE place for creative finance, create the best deal possible.

A lenders key concern is risk. The rate they offer and the person/entity they approve is all based on risk. Building relationships allow them to understand and know you subjectively vs just objectively on paper. Your paper resume (PFS, experience, etc) has to be solid, but a relationship with the lender where they also get a good “feel” for you will be the difference in being able to get a few parts of the gray area of the loan process to swing in your favor. There is a comfortability in “negotiating” with someone you know and like. It is more of a conversation to find a happy compromise for both parties rather than a negotiation. That is how you want the conversation with your lender to be - friendly.

Negotiate like a pro! Trust is your secret weapon with lenders: Be transparent: Provide accurate, timely information and clear communication. Respectful rapport: Build a positive relationship through courtesy and professionalism. Follow through: Deliver on commitments, showcasing reliability. Connect personally: Meet in person (or virtually) to understand their perspective and concerns. Trust unlocks favorable loan terms. Be the borrower lenders want to work with!

One of the most important factors in negotiating with lenders is trust. You want to establish a rapport with your lender and show them that you are a reliable and professional borrower. You can do this by providing accurate and timely information, communicating clearly and respectfully, and following up on your commitments. You should also try to meet your lender in person or through video calls, and ask them about their goals, preferences, and concerns.

Establishing a strong rapport with your lender is crucial for demonstrating your reliability and professionalism as a borrower. Here's how you can do it: Maintain open and transparent communication with your lender from the beginning of the loan process. Respond promptly to their inquiries Approach interactions with your lender in a professional manner. Be courteous, respectful, and prepared for meetings or discussions. Foster trust with your lender by being honest and transparent about your financial situation, project goals, and any potential risks or challenges. By establishing a positive and collaborative relationship with your lender, you can show them that you are a reliable and professional borrower

The lender is your biggest investor in any deal! Make sure you are talking directly with those responsible, not just a 3rd party broker or else your relationship doesn't exist. Learn more about their goals and how your track record and experience aligns with them. Most of the time this will be refreshing for them rather than having to pitch you on why they fit your needs. Ask about their model, principal partners and what their ideal clients can expect from them as you grow. Start with why and your relationships will grow with you over time now that you both have communicated clearly upfront!

Loan negotiations? Be adaptable! While goals are important, be prepared to: Adjust terms: Loan amount, term, interest rate, or collateral might need tweaking based on market conditions. Explore structures: Consider bridge loans, mezzanine loans, or equity participation for added flexibility. Openness to compromise secures the best loan fit for your CRE venture!

Loan negotiation powerhouse! Showcase your value as a borrower: Highlight strengths: Experience, track record, financials, credit score, property performance - all the good stuff! Emphasize property potential: Location, market demand, occupancy, tenant quality, income growth - paint a rosy picture with data to back it up. Be the borrower lenders fight over with a compelling case for your success!

Absolutely, highlighting your strengths as a borrower is essential when seeking financing showcase your strengths effectively: 1. Experience and Track Record: Highlighting your track record demonstrates your competence and ability to execute real estate ventures effectively. 2. Cash Flow: Provide evidence present financial statements, income projections, and rent rolls to illustrate the property's income-generating potential and your ability to meet loan obligations. 3. Equity: Highlight your significant equity stake signals your commitment to the project and reduces the lender's risk. 4. Credit Score: A good credit score reflects responsible financial management and increases your chances of securing favorable loan terms and rates.

Providing concrete evidence and data, such as historical financials, market analyses, and comparable property metrics, substantiates your claims and projections, bolstering lender trust and increasing the likelihood of securing favorable financing terms. If you have a strong grasp on a local market, tell them that is your secrete sauce! Lends love to know things like this because your team's experience is hyper focused in areas you know well. In today's market taxes and insurance are killing deals. If you have proven your ability to estimate these increase of costs with those who have done it, it will give them more confidence!

Negotiate like a champion! Secure cost-saving concessions: Target fees, grace periods, loan-to-value ratios, or interest-only payments. Be realistic and respectful in your requests. Offer something in return: Higher interest rate, shorter term, or a personal guarantee can show good faith. Strategic concessions = a loan that fuels your CRE success!

Know your bandwidth and negotiation room and use known flex areas well enough to get creative and make deals work. The crux of a contractual law is CONSIDERATION- an exchange of something of value between two parties in a contact creating mutual obligations to fulfill their promises. ARTICLE 1 Code § 47-50-107 (2021) The same is true in ALL relationships in this industry- Warren Buffet's 10th Rule of Success "Know What Success Really Means...That’s the ultimate test of how you’ve lived your life.” YOU'VE GOT TO GIVE TO GET groundwork laid by the Five Principles of Collaboration: by J. Ibeh Agbanyim ... all predicated on negotiating "in good faith" so all benefit- the crux of Buffet's "ultimate test."

Loan negotiation a hurdle? Consider professional backup: CRE brokers, loan consultants, or lawyers: Experts can help you find lenders, prep applications, and negotiate terms. Choose wisely: Prioritize reputation, qualifications, and fair fees to ensure they champion your success. Don't go it alone! The right professional can secure the financing that fuels your CRE dreams!

Professional help doesn't have to come from a broker. There are numerous people and groups in the industry who are closing on projects. Find them, reach out and ask for a referral to their lending partners. If they recently closed you know their lender is going to come though and will treat you better than most because an active client sent you to them. Real estate is a relationship based business. Why pay 2% broker fees when you have platforms like LinkedIn at your fingertips.

Create a very thorough debt memorandum that not only has all of the financial data for the asset your financing, but also the story of how you will improve the property in the future. Be sure to include all of the reasons why you are a low risk borrower.

When navigating the highly fragmented CRE lending market, relationships and knowledge are critical. Commercial mortgage brokers can serve as expert guides, assisting borrowers in evaluating the complexities of various loans, lenders, and requirements, selecting the optimal solution for their unique needs. With an extensive network and real-time market feedback, brokers can leverage competing lenders to secure optimal loan terms, competitive interest rates, and usually reduced origination fees, substantially minimizing overall loan cost and ensuring an acceptable outcome.

Present alternative assets or real estate properties as supplementary collateral, or provide personal guarantees from financially strong guarantors to reassure lenders and improve loan terms. Provide compelling reasons, such as strong creditworthiness, stable property performance, or long-term lease agreements, to justify lower interest rates and mitigate lender concerns. Explore options such as interest-only periods, balloon payments, or customizable amortization schedules that allow for manageable debt service payments during the loan term.

To me and the clients I serve, the art is in the deal. Traditional lenders are bound by regulations and need to seek approvals from a committee. I have had little success going this route. Alternative and private lenders can be more flexible but generally there’s a committee approval involved. The flexibility in creating a deal that works actually comes from the seller. The seller has the most to gain in selling. Understanding your situation, knowing the tools to structure a solid deal, and executing the funding creates a win, win, win for everyone.