Limited Partnership Financing Guarantors
Hi BP-
I am the general partner as well as a minority limited partner in company I created to buy an asset. We bought 18 units in Lubbock, TX in 2018. The property is doing great and we are looking to pull some equity out through a refinance. For the original acquisition, I was able to solely guarantee the loan and keep my LPs off title and the note (as it should be). However, I have been shopping around my normal lending partners and they are all stating that due to the market conditions that they require any LP with 20%+ equity in the company to guarantee the loan. I have only increased my net worth and income since 2018, so this has nothing to do with my ability to guarantee. This is the exact opposite of what I was told and in-turn told my investors. They want no liability besides their original investment.
My question is: Are other REIs experiencing this same shift in underwriting? Does anyone know a lender that still underwrites the same way as when I acquired the asset? Any feedback on experiences, workarounds or something that I'm missing is greatly appreciated. Stay safe and keep building those empires!
Most Popular Reply
It is very common for a lender to require anybody contributing more than 20%-25% in a deal to sign on the loan or at least go through the underwriting and background checks by the lender. I did a quick search and have found numerous posts going back at least to 2017 stating that. I wonder if your lender was at 25% when you closed on the deal in 2018 and is now at 20%. I always thought 20% was the standard which is why many syndicators put a contribution cap in their offering but I in my research I found that some lenders may go up to 25%.
With covid and the tightening of the debt market it's possible that your lender is getting more conservative with their underwriting.
Good luck!