Investor · Rochester, NY · Member since 2016 · 477 posts · 426 votes
One of the things I keep hearing regarding commercial loans is that lenders typically want your (the borrower) to have a net worth that exceeds the amount of the loan. Is this something that investors are getting a pass on for their first larger MF property? Or are they working around it in other ways?
If I were to "partner" with a higher net worth individual, who's only contribution would be bringing their net worth and signature to a deal, does that fly? If I'm not borrowing from them, or relying on them for anything else, what would be fair compensation?
Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
9y
Jason V. It also depends on size of the deal and lender. On smaller projects with a local community bank or credit union you can get away with less as long as you can show reserves after down payment of 6-9 months of debt service.
Investor · Melville, NY · Member since 2017 · 29 posts · 9 votes
9y
Yes, this concept works fine. I've closed my first commercial loan this way. You can bring the experience & your investor can bring balance sheet but lender will underwrite them as a owner.
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
9y
@Jason V., as you stated, most lenders will require a net worth equal to or exceeding the loan balance, in addition - 10% liquidity post close and multifamily experience.
Assuming you have the experience, lenders are fine with you bringing in a loan sponsor who has the necessary financial means to complement you as the operator of the deal. You should know that both you and the loan sponsor will be underwritten by the lender so you should prepare your loan sponsor that many document requests could be made by the lender.
Compensation ranges and it is what you can negotiate. The sponsor is taking on risk so don't try to nickle and dime the sponsor. You need the sponsor more than sponsor needs you, so create an opportunity with the sponsor where it is win-win.
Rental Property Investor · Austin, TX · Member since 2017 · 254 posts · 265 votes
9y
No pass regardless of size. For my last purchase, ~18mm, I had to show 13mm+ in networth and over 1.35mm in post closing liquidity.
The larger you get the lenders don't suddenly throw risk mitigation for themselves out the window.
These requirements are met by the Key Principals or Signers collectively so you would need to find a "signer" or two to clear the hurdle. Even if they are only providing balance sheet and nothing else you will likely still need to compensate them for there signature. Their compensation is a negotiation. How well do they know and trust you and your track record and how high is the perceived risk in the transaction? I will usually ask 2-3% equity for just balance sheet and closer to 5% if you also need my experience to help you qualify.
Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
9y
Jason V. It also depends on size of the deal and lender. On smaller projects with a local community bank or credit union you can get away with less as long as you can show reserves after down payment of 6-9 months of debt service.
Houston, TX · Member since 2016 · 92 posts · 21 votes
9y
Jason: The net worth requirements is true for some lenders. There are other lenders that offer similar financing, but don't have the net worth requirement. However, liquidity and experience issues can be overcome relatively easy. For post liquidity some lenders want 10% of the loan amount; however, there are lenders that would only require a least 12 months of DS to suffice. In regards to experience, if you don't have it nor does your partner, then you can compensate by hiring an experienced third party management company. Get with a good broker and they can walk you through this process. If you don't know of any, my firm would be glad to assist. Send me a PM to discuss.