All Forum Posts by: Andrew Beauchemin

Hi @Jennifer McElliott,

It sounds like you're on the right track.  Here's a very basic explanation of how to value a commercial property.

You need to figure out two things: Market CAP Rate, and NOI. You will get the Market CAP by looking at sold comps (a broker should help you with this), and NOI is easily calculated as "Annual Income minus Annual Expense."

Once you have these two numbers, divide the NOI by your CAP rate to get your value: i.e. 100k NOI at 8% CAP gives a valuation of $1.25MM.

You can increase your value two ways: lower your CAP, or increase NOI. Since CAP is largely market-driven, you don't have much control here. You can increase NOI by increasing rents (which it sounds like you're planning to do!) and/or reducing expenses.

Hope that helps, and wasn't too broad.

Andrew

@Bryan Satter 

I'm a commercial mortgage broker based out of Philly.  For reasons unknown to me, local Philly commercial BBS lenders have not been able to compete with regional or national lenders recently.  I would continue to explore different sources of debt, whether that's the agency route, other BBS options, or credit unions as @Chris Purcell mentioned.

Mind sharing some more detail about your property?  9% interest and 25 year term seems odd (did you mean 25 yr amort?).  10 year terms (or a 7 + 5) are the longest terms I've seen, and even on those terms you shouldn't see a rate higher than ~5% unless the property is a significant risk. 

@Derrick Ward, what is your exit strategy for your investment? Freddie SBL may be ideal for the long-term holder, but if you're looking to do a flip / want to sell sooner than 7/10 years, it may not be the best option for you. These loans can come with great interest rates and LTV, but costly pre-payment penalties.

Any more detail about your deal would help us give more specific advice!

@Bob Cirino, for reasons unknown to me, local Philadelphia banks consistently under-perform compared to regional or out-of-market lenders.  What kind of lenders have you tried so far?

If the property performs as well as you say it does, and you have a solid record of income and/or liquid assets, even if it's not W-2 you should still be okay.  

Hi Carol,

Though Freddie SBL can sometimes produce very favorable terms, one of their downfalls is that they sometimes move at a snail's pace.  I doubt it's the broker's fault, since their paycheck relies on closing they're probably pushing as hard as they can.

In commercial, I can't say I've ever seen a broker request a pre-approval letter from the buyer.  Commercial is largely focused on the property financials, vs. residential which is focused on the buyer's financials. It wouldn't make sense to require a pre-approval in the commercial realm when the financials change for each property.

You should revisit your other lender options (hopefully your mortgage broker supplied more than just one!), and weigh the time-value of closing vs. the rates that Freddie SBL gave you.  Sometimes half a percent isn't worth the extra 90 days of lost income due to long closing times.

(Full disclosure: I'm a commercial mortgage broker)

David,

Are you the sole owner of the LLC? There will need to be an entity able to withstand recourse liability, and if the LLC doesn't have another guarantor and/or collateral, then they're going to base your terms on your personal financials.

I would shop some local bank balance sheet lenders as well as credit unions. Institutional / CMBS is probably not the way to go here.

Hi @Donceletta Bellamy, would you be able to share more information on your deal?  

Usually on a large multifamily, such as an apartment complex, lenders will be more interested in the financials of the property itself, so if it is a stabilized, cash flowing asset without much capital needed, then credit score of the borrower won't be as important.   You should be prepared to put 20-25% down, and show a good track record with your personal financial history. 

The best way to find the best lender is to shop around; reach out to a few local banks, regional banks, credit unions, etc. and test the waters. You can do this yourself, or hire a commercial mortgage broker. Terms will be different for every deal.

Hope that helps,

Andrew

@Tim Milazzo gets an upvote, he's spot on.  I'm a commercial mortgage broker, who would fall into his #2 category.  Capital Advisor, Debt/Equity Placement, Originator, etc. are usually the terms you'll see other than broker.  

@Michael W., what kind of lenders have you reached out to so far?  In your situation, a smaller local lender may be a better choice vs. a regional bank (M&T, Capital One, etc.).  I would also suggest taking a look at a credit union, a lot of times they are more flexible in terms, especially if you're able to offer recourse on the other properties.  A commercial loan may have less desirable terms than a residential loan, but it is certainly an option if the property has strong financials.  

I'm a commercial mortgage broker in Philadelphia, if you don't mind sharing more details about the property, I can forward you on to some of my lending contacts.

@Amad Osman, it's a possibility, it certainly would have given you more leverage to negotiate with.  No two loans are the same, which is why I would always suggest shopping around lenders, or get yourself a broker.  (full disclosure, i'm a commercial mortgage broker and am obviously bias here!)

I'm a fan of always keeping leverage on multi's, have you explored refinancing options, rather than completely paying off the debt?