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Posts from April, 2011

The Key to the Private Lending Vault

Wednesday, April 27

5189As a private lender for commercial real estate, I receive requests everyday for loans and equity partnerships. On average, about 1 out of 100 is presentable to the lender and 1 out of 25 of those is fundable. If you are a broker or an investor looking for a loan for a commercial real estate purchase or refinance, you could save yourself some time and frustration by giving the lender what they need to evaluate your request.

Start by Selling the Borrower

The best loan request I ever got started out with a short paragraph telling about the borrowers. “Chris and Anthony Jones have made an offer that has been accepted on an apartment building in San Francisco, CA. The purchase price is $12M. The borrowers own 2 other buildings in the area that are free and clear. Their combined net worth is $80M. Their
credit is excellent. Their total debt is $3M on their home and they have sufficient reserves to cover their debt.”

Brokers – Do Your Job

I had a broker respond once with, “I will ask the borrower, but your question seems too banky.” If the broker is overselling the project, that usually means the borrower has no cash, poor liquidity, or has been denied by other lenders. Most lenders will give a reason for the rejection. Fix the problem before going to another lender. Private lenders are more attached to their money than banks are, so they want a good investment with low risk.

Answer the Basic Questions

Be concise and get to the point. What are you asking for and why should the lender consider your request? Every CRE loan request should include the type of request, LTV, the amount, value of the property, why you are investing, market comparison, rental survey, borrower financials, NOI, DSCR, proforma, photos, and the borrower’s cash investment.

Expect a Request for More Information

When a lender asks for more information, it usually indicates that they are interested in the borrower and the potential of the property. Expect the lender to ask for an MAI appraisal, signed and accepted CRE contract, rental survey for the area, management resumes, personal financial statements, and three years’ tax returns. If the project is a rehab, the lender will ask about the contractor’s license, experience, project plans, and how the project will increase revenues. For construction projects, they may ask for a copy of the construction contract, a copy of the plans and specs, a copy of the initial project cost analysis, the builder’s general contractor license, the builder’s workers comp & blanket insurance binder, and the builder’s resume.

Private Money is Available

Private lenders are easier to work with than banks and they can usually close faster. The best way to speed up the process is to be prepared for the obvious questions the lender will ask. If you are looking for an equity partner because you don’t have the cash to invest, be honest and upfront with the agent; we have the key to the vault.

Andy Sabo is the President of TOP 10 Funding, LLC.

TOP 10 Funding represents private lenders with access to $400 Billion to lend for commercial real estate projects, such as multifamily, assisted living, and office building purchases and refinance, business financing, new developments and construction in most cities in the US.

We have great relationships with DIRECT lenders for Commercial Real Estate.

There are no up-front fees and the application process is simple and fast. An executive summary and a two-page application will get you an answer in a few days.

Phone:             (808) 375-4845       Email: [email protected] Website: top10funding.com Andy’s Blog: http://top10funding.com/blog LinkedIn: linkedin.com/in/andrewsabo Facebook: facebook.com/andy.sabo

Twitter: @andysabo808 


The Art of Writing an Executive Summary for Private Lending

Wednesday, April 13

I usually start my blogs out with something amusing to get the readers’ attention.

This time I thought the picture makes a great point. Every business plan is good for something – then there’s that whole perceived value thing.Private lending

This article will give some tips to creating an executive summary targeted to private lenders for commercial real estate.

Personalize Each Submission

Investors looking for funding or joint ventures should tailor their documents to match the recipient’s interest if they wish to be taken seriously. Because of competition in the industry, private lenders don’t publish their criteria, rates, or preferred deals. Each deal is evaluated on its own merit and a decision to work with a borrower or JV partner is based on a small window of opportunity via the executive summary.

Integrity of the Borrower

One of the biggest challenges in the private lending business is extracting information from executive summaries and gathering information to present to our lending groups. Loan requests and business proposals should be prepared with the intent to answer all of the lender or investor’s questions. Trust and integrity is a big part of the presentation. A lack of financial information or a reluctance to give information about the borrower raises a red flag to the lender.

Document Format

PowerPoint presentations are great when you are in a meeting setting, but should not be used as a request to do business. Your ES should be limited to two pages of text in a Word document or PDF.  Use a file name that indicates the project name and the amount of the loan. For example, Venus and Mars Apartment Purchase – 4MM.pdf. If you feel the need to send a complete business plan or photos of the property, include those as separate documents.

Your Objective

Tell the lender what you are after. If you want a loan, be specific. If you want an investor or joint venture, give the investor an idea of what this is going to cost him. The objective answers the first question for the lender. Give the loan amount, LTV, and terms you are asking for.

The Property

The lender wants to know how the loan will be secured and what his risk is. What is the property worth? You should always have an appraisal before asking for a loan. The type of property and class should be indicated. What are you paying for it? Do you have a purchase contract? Are there deadlines?  Why are you buying this property? Lenders are specific about which cities they will invest in and need to evaluate the property based on current financials.

The Management

Many investment proposals indicate that the buyer will make improvements and change management to improve occupancy rates and cash flows. Indicate the experience of the management team, developer, or contractor and their track record. Indicate why you think you will manage the property better than the current owner. The lender may also ask for resumes.

Financial Summary

Your financial summary should include the acquisition costs, income, expense, cash flow, and financial indicators.  The borrower’s down payment or equity should be clear. Indicate current and stabilized NOI, occupancy rates, and optimal IRR, debt coverage ratio, and capitalization rate.

Personal Financial Statement

Strength of the borrower is one of the main deciding factors in every deal. Some investors believe they can hide behind the corporate veil or use an LLC as the purchasing entity. Most CRE loans are recourse loans and the lender will ask for a PFS for anyone with 20% or more ownership. A majority ownership in this business is defined by 81% ownership. Along with the PFS the lender will ask for three years’ tax returns. This does not need to be included in the ES, but should be mentioned in the cover letter.

The Market

Understanding economics is necessary when determining the market demand and why the market is stable or improving. This information can be obtained by commercial real estate firms in the area. Secondary market research from a credible source goes a long way. Include rents and occupancy rates in the surrounding area for similar property types and class.

Exit Strategy

Multiple exit strategies are a good thing. Your plan should briefly describe what improvements are needed and their cost, how much money you expect to make and the timeframe.  You should also indicate your contingency plan if things go wrong and how to access the profits or future financing plans.


The executive summary is a summary of the essential elements of your business plan. Many summaries come across as propaganda or include information that does not pertain to the property itself; instead, they contain mission statements, and photos of non-related properties. Customizing the ES for a lender or investor, along with a well written cover letter will result in consideration and respect as a professional investor.
 

Andy Sabo is the President of TOP 10 Funding, LLC.

TOP 10 Funding represents private lenders with access to $400 Billion to lend for commercial real estate projects, such as multifamily, assisted living, and office building purchases and refinance, business financing, new developments and construction in most cities in the US.

We have great relationships with DIRECT lenders for Commercial Real Estate.

There are no up-front fees and the application process is simple and fast. An executive summary and a two-page application will get you an answer in a few days.

Phone:             (808) 375-4845       Email: [email protected] Website: top10funding.com Andy’s Blog: http://top10funding.com/blog LinkedIn: linkedin.com/in/andrewsabo Facebook: facebook.com/andy.sabo Twitter: @andysabo808