Commercial Real Estate Financing Question

11 Replies

Sorry if this question has been asked or if it seem silly, but I read on the commercial real estate lending requirements and it seems lenders look at the investment return of the property itself to decide if they will lend or not. So if I have 750 credit score, will they lend me unlimited amount of money regardless of my income? Say, if somehow I found a multi family property with 300 units by the beach, they will lend me millions of dollars to buy it as long as the property itself generates satisfactory returns? 

We lend based on both

if it's your first commercial loan, you'll most likely have to personal guarantee it, so your score will matter.

There is more that U/W looks at than JUST solvency, though if you're properly collateralized and you have positive DCR then those are certainly the two biggest factors that will be considered. Also the bank is going to look at whether or not they think you can close and run the unit properly.

If you find a 300 unit multi by the beach, they will probably lend you 75% of it assuming your personal guarantee is good, and it will cash flow high enough to hit ~1-1.2 DSCR

Tina,

No, that's not the case.  I good credit score is good, but the lender is going to want to see, post close liquidity, experience, and equity down payment.  Experience can be over come with liquidity and 3rd party management or bring in an experienced operator as a member.  Most recourse lenders will lend even if you don't have experience, but you have the cash, credit, and job history.  We arrange financing for first timers as well as seasoned investors/owners, so everything is possible.  Hard money may lend without you putting money in the transaction, if the numbers make sense.

@Tina T. in addition to the property performance, post-close liquidity, experience, and down-payment mentioned above, they're also going to want you to have a net worth >= to the loan amount. So the short answer to your question is no you will not find a loan like that.

Having said that, there is no reason you can't involve yourself in a deal like that if you bring something of value to the transaction.

To keep it simple 

Liquid Cash (Down Payment + Reserves )

Credit Score / Credit history 

Depending on the size of the deal Net-worth comes into play 

Experience 

Background check 

I've found that in commercial loans that you are limited by your net worth.  Generally the loan amount cannot exceed your net worth.

Originally posted by @Jon Holdman :

I've found that in commercial loans that you are limited by your net worth.  Generally the loan amount cannot exceed your net worth.

 For people who have to ask this is true, but very quickly commercial loans are going to exceed even wealthy GPs...

@Ronald Rohde I don't understand what you're saying.  I've spoken with a couple of lenders for small commercial loans - $1-2 million - and the net worth requirement seems to be common.  Does this requirements lessen with larger loans?

Originally posted by @Jon Holdman :

@Ronald Rohde I don't understand what you're saying.  I've spoken with a couple of lenders for small commercial loans - $1-2 million - and the net worth requirement seems to be common.  Does this requirements lessen with larger loans?

Absolutely they lessen. Lenders certainly look for it, but many of my clients are getting $4-10 million loans, but net worth maybe only 1-2 million. Obviously the property is very solid and LTV is 75-80%, but as a rule, it does not hold forever...

Net worth equal to the loan amount is not a standard requirement regardless of the loan size.  This is only an issue depending on the lender.  For example, if you are doing an agency deal then net worth equal to loan amount or greater is a requirement.  If you are doing a conduit deal, then it isn't a requirement.  As far as local banks, it depends on the bank.  Get with a good commercial broker and they can guide you through the process.  A good broker is worth their fee.  

I knew it wouldn't be that simple and easy! Thanks so much everyone. I learned a lot! I am in Los Angeles and the price point is too high and my cash is limited. But one way or another I will figure this out. 

Hi Tina,

I have a couple of smaller properties (29 unit and 52 unit); about 8 million in real estate. The lenders in my market are looking for the buyer to be clear on their ability to manage the property (you or your team), the reassurance they will get their money back (you may have to personally guarantee the loan) and the typical numbers (CAP, DCR, age, condition, etc.). If you have your team (insurance, property manager, cpa, etc) in place you will inspire confidence in the lender. If you do not have experience your credit score will provide little (not none) impact in the lending process. Lastly, shop a few banks (your broker should be able to tell you which banks are the most competitive in your market) as they will each have different requirements, rates and fees (some will be non recourse others will want personal guarantees). Good Luck! Chris

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