I have a 58-unit building under contract @ $2.5M. The bank I was planning on working with was offering 5yr fixed @ 5.0%, 25yr am and 75% LTV. First two years are interest only as we move off of a HUD contract and into the local housing authority voucher program (the tenant base is low-income seniors). Everything was looking good, it's a recourse loan. Then they said I need to have 30% of the loan amount (nearly $600K) in liquidity that is not part of the deal from the guarantor(s). This is an LP, I'm the sole GP and the funds must be in my or someone who guarantees the loan accounts. Originally they said it could be in a retirement account if the person is at or above retirement age. I got my parents onboard and they filled out the financial statement and we sent it in. Their retirement is about $1M, so we thought this obstacle was gone. Now we come to find out that retirement accounts, no matter the person's age, can't be counted towards this liquidity requirement.
My question is to you all, have you run into this type of underwriting? The bank is rather conservative but we have worked with them before. I would have expected a liquidity requirement based on a couple (3-6) month's PI payments that could have been held in the LP funds. Any advice or stories for your experience in this predicament is much appreciate!
@Gordon Way you need to shop some more banks and commercial brokers for options. Some banks will allow retirement accounts some will not.
@Greg Dickerson Thanks for your reply. I'm in the process of doing that now. I wanted to blast my finding out to the BP world and make sure I'm not missing something here.
@Gordon Way , my understanding has always been that the IRS prohibits IRAs from being used to guarantee loans, but I am not a tax expert. A call to your CPA may be warranted.
Why going for a recourse loan at 75% LTV? There are places out there that will do 80% LTV non-recourse on a deal this size.
@Erik W. Thanks for the response. I have looked all over the San Antonio market for a lender that will do non-recourse and the only ones seem to be brokers for agency loans. We are moving from one contract (HUD Mod) to another (local housing authority voucher program) and the agencies won't look at it until it's stabilized under the new contract. If you know anyone that would do non-recourse out the gate, I would be much appreciated to get into contact with them!
30% is extremely high for liquidity requirements. Most banks might require a Cap Ex acct up front at closing of anywhere from $300-$500 per door. In addition, they usually like to see somewhere between 6 to 9 to 12 months of P&I payments in liquidity.
Have you tried getting a loan thru a DUS lender? Unless you're in a small market, this might be ideal for a Fannie or Freddie loan. Give my loan broker, John Romero, a call at (BP won't let me post his phone # so DM me if you want his number). See if he can help you.
Different lenders will have different terms. I think 6 months expenses is a more common expectation for reserves. As already said shop around.