BP Nation Hello!
I currently own a portfolio of 20 apartments(4 unit and 16 unit) with an appraised value of $910k. These are located in the Upper Peninsula of Michigan. I moved south to Indiana and am looking at buying into the Indianapolis market. There is a particular deal that is in my wheel house for what I am looking for but the broker isn't providing the information needed to perform a basic analysis on the property which is listed at $920k.
She required a confidentiality agreement which is common so I had no problems with that. Now she is asking for a pre approval letter and proof of funds before seeing any information.
First, banks don't give pre approval letters for commercial loans. Loans are given based primarily on the financial soundness of the deal(of which I don't know without basic financial information), the investors ability to manage(largely historical information used), and finally a consideration for the investors personal financial statement(by no means is this ever black and white in the commercial world). Needless to say I cannot provide the broker this request, no investor can.
Second, I have never been asked for proof of funds when analyzing multi family deals. All I need is a deal packet that shows some basic performance numbers on the property and a 10 min conversation to clear up any questions I have. I have analyzed 100+ deals and this is the first time I have gotten push back to review the basic financials. I can understand pushback if I wanted to view units in the property right away but that is not what I am asking.
I have a letter of recommendation from my bank that I provided that says they highly recommend me as a borrower but that hasn't made her happy...
What recommendations do you all have to get through this road block?
Thank you in advance!
Originally posted by @Joel Florek :
BP Nation Hello!
- Now she is asking for a pre approval letter and proof of funds before seeing any information. First, banks don't give pre approval letters for commercial loans. Loans are given based primarily on the financial soundness of the deal(of which I don't know without basic financial information), the investors ability to manage(largely historical information used), and finally a consideration for the investors personal financial statement(by no means is this ever black and white in the commercial world). Needless to say I cannot provide the broker this request, no investor can.
- Second, I have never been asked for proof of funds when analyzing multi family deals. All I need is a deal packet that shows some basic performance numbers on the property and a 10 min conversation to clear up any questions I have. I have analyzed 100+ deals and this is the first time I have gotten push back to review the basic financials. I can understand pushback if I wanted to view units in the property right away but that is not what I am asking.
Sorry, but your assertions are not correct. (1) when I bought my 6-plex I was asked for the Pre-Approval Letter. When I sold it 19yrs later, I would not even SHOW the property without one. (2) The POF letter was required to be submitted with the Offer to Purchase. It's a great tool to winnow out lookie-loos.
Get the performance numbers and decide if you're interested. If so, it's time to put up or walk if you're offended.
Are you not being represented by an agent?
Contact her broker/boss to get the basic numbers.
@Nick Walts I am not. I tried working through one to get the info on this a few weeks back but ultimately he didn't get anything for me and was radio silence. So I figured out who the listing broker was and went straight through her to try and get the info. Typically that always works well but in this case it is turning into a nightmare.
@Account Closed When I search for her company she is the only contact listed and she is listed as a broker... So I don't know if she has a boss other then seller.
What info has she given you?
@Jeff B. In talking with multiple bank presidents of the commercial loan departments they do not provide pre approval letters in the way a residential loan would. They can write letters saying they are willing to work with an investor up to a threshold on certain types of deals but the letter means nothing until they see the numbers on a deal. I don't want to waste a banks time until I have the basics to understand if a deal is worth pursuing. A pro-forma and a 10 min conversation is all I am looking to review.
I also understand POF when looking to submit an offer. Totally get that, but I don't even know what the rent roll is on the property or who is responsible for the utilities. The broker won't give that info until she sees gets a copy of my bank statement...
And offended, no, just think she is making this a lot more difficult then needed. Both of us have spent more time in back and forth then it would have taken for me to review the pro forma and ask her the basic questions I was looking for.
@Account Closed She hasn't given me any information, all I know is what I have gotten from research in the market and the info on the MLS listing that I got from another realtor.
What info do you have from any source?
Originally posted by @Joel Florek :
@Jeff Beard In talking with multiple bank presidents of the commercial loan departments they do not provide pre approval letters in the way a residential loan would.
Perhaps in your neck of the woods, but my 6-plex was a Commercial Loan; when purchased and when sold so there's a disconnect with what you are reporting and at least two investors experiences. I think you need to seek other lenders.
@Joel Florek Call the property/property manager and ask questions like you are a prospective renter. That should at least give you enough information to start whether you want an actual pre-approval.
I could be way off base, but I would bet that the "broker" is a wholesaler. Deals like yours on the high end, will be given to other wholesalers. Sometimes many of them! So what happens is the first wholesaler might require POF for the package, because he wants to be certain that the other wholesaler(s), has a buyer with the funds. I see that all the time! I currently have a package of 70 homes in the south suburbs of Illinois and the "broker" handling it, did NOT require my buyers to provide POF. Only an NDA, to receive the Pro Forma.
Every deal is different, so I can't say for certain my analysis is correct. I would contact the management company and see if this broker is affiliated with the sale. Good luck!
@Account Closed Asking is $920k, unit mix is 8 one bed, 8 ranch 2 bed, and 15 two bed townhouses although information on the different parts of the MLS listing conflicts this information so I need to confirm. Rents are $450, $550, and $650 respectively per MLS. Market vacancy rates for the large neighboring complexes in the area are 5% to 7%(pulled from listings on a few nearby large complexes listed on loopnet for sale). Rent increases in the sub market where this is located are 1.5% to 2% annually over the past 3 years. Comparable rents show these units are $50 to $100 under market value but there are no pictures of the units so I have nothing to compare quality.
Gross potential rent would be just north of $213k with the numbers pulled off of the MLS. Typically you see NOI range between 40% and 60% of GPR so I could guess NOI would range from $85k to $127k.
However, its easy to say units rent for "x" and "y" but if I don't see a historical trailing twelve month income statement or past 3 years which is standard to provide for a 31 unit complex I can't identify what the major issues are.
@Joel Florek - As a finance broker I wont spend the time getting POF letters for my clients unless I'm pretty sure the deal can get done. She should at least let you know basic stuff such as NOI, annual expenses, and if you have or need management in-place. In my opinion those things are not to much to ask. Bottom line the property has to debt service and we need to know enough information to figure that out.
My commercial lender won't issue a pre-approval. But I think you should show the POF
As an agent I have had seller's request POF before releasing any information, they don't want to waste their time. And if you are serious, why would it be a big deal?
Have you asked her to represent you? This usually makes agents much more cooperative ;)
Just remind the agent/seller that an investor needs the numbers to evaluate if there should be an offer. Asking for the GSI and NOI will give you a good estimate if further time+effort is warranted. If they refuse or can't, then you've saved tons of effort - - move on. A walk thru is useless unless the numbers look good.
If the seller is instructing the broker to screen buyers, show POF, and sign a confidentiality before releasing info that is the sellers right.
I get contacted to work with commercial buyers all the time for retail properties. First thing I do is send out a PFS excel statement for them to fill out and return to me. If they start with they shouldn't have to do this and that etc. then I do not give them another second.
There is a process to be followed and if they do not want to follow it they do not get access to the off market properties end of comment.
With POF you could simply show a bank statement valid within the last 30 days and black out your personal account numbers and info etc. The listing broker is trying to determine the buyers capability with proof of funds, track record, etc. to assess if time and energy is put into this potential purchaser will it likely lead to a sale??
My clients are ultra wealthy and they do not want to be bothered with anything. They want me to be the gatekeeper screening the crud out to find the diamond quality buyers.
The property you are talking about is Honey Creek Apartments, 3510 N. High School Rd in Indianapolis, right?
Numbers or no numbers, are you familiar with the area/neighborhood and/or have you driven by the property yet to see whether it is even worthy of any consideration whatsoever? I would suggest that is your first/next step.
I get lender letters all the time for commercial loans. It's quite common. Showing proof of funds is standard for almost any real estate transaction in my market whether residential or commercial.
@Joel Florek I inquired about this property when it first came on the market. The listing broker had the same response. It was such a push pull situation to get any kind of info I didn't bother to pursue. Makes me wonder why list the property if the listing agent or seller is not willing to provide even the basic info.
@Joel Florek welcome to BP.
A couple of things:
1) asking for a POF is not the same as asking got "pre-approval letter" for residential properties. Usually in the commercial space they ask to see you have the liquidity for the down payment. If you are not a syndicator you should have that cash on hand and can get her this prof (normally a simple screenshot from your online bank account will do)
2) you are new to the market, find a well known LOCAL commercial mortgage broker and get them to see your financial strength and they will vouch for you. That agent will not doubt the local market player and will feel more comfortable that you are not a tire kicker.
YOu need to find out the current occupancy % and the NOI. Without that you're flying blind.
If the buyer will not follow the process the seller wants to initiate a transaction with how they feel comfortable selling then that can be a precursor for things going south if it goes under contract.
So if a buyer is argumentative about a simple request they either do not have the money or feel like they should not have to do that to get information on the property.
Now generally speaking most multifamily brokerages of larger properties have a flyer or OM with the basics in it without showing POF. A CA is all that is needed usually to get an OM. These smaller type properties tend to have a mom and pop seller and their books often can be a mess versus a larger property with professional management.
So with smaller properties it's par for the course to have demands on showing capability upfront and records being a mess with a lot more work to dig out the actual value of the property.
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