All Forum Posts by: Chris Mason

This is on a commercial property. Takes me like 5 seconds to pull. Your mortgage person can do it, too. The "mail address" is where the property tax bill goes.

Add to that LOI "CC: Owners of the ABC Trust" or "CC: Owners of 123 Property LLC," and date it when you send the email. So you've notified the listing broker you will be sending that document to the owners/sellers, they've now got no grounds to complain, you were totally transparent. Then go ahead and place that document (LOI and PoF) in an envelope and mail it to the PO Box in Pennsylvania, again dated the current date. 9 times in 10, this is where all their other bills go, so it's a mailing address they actually check.

If the listing broker is doing their job, then there's no harm and no foul. If they aren't, then they will have to answer to their seller as to why they had to get this LOI and PoF via snail mail across the country 3 days later, and why they are holding onto offers and keeping it a secret, etc?

 They do double end it, heh. 

Just like residential, if you don't want the real estate agents getting paid out on "your" deal, then it needs to be YOUR deal. As in, you sourced the seller directly, without the involvement of any real estate agents. 

A super basic step one would be to set up a "newly listed within the last week" custom search on Crexi, Loopnet, whatever. You're going to be scouring the "stale" listings anyways, but what you should be focused on are things that have not already been passed on by everyone else. To the extent that a price reduction may make a "stale" listing appealing, worry not, you will get those notification emails on auto pilot anyways.

Start doing the compare and contrast, maybe make a spreadsheet to evaluate opportunities, play a game of "spot the patterns." One thing to look at in detail is the advertised cap rate and advertised NOI. A lot of times they will prominently display an appealing cap rate, and then you look at the offer memorandum and it's clear that they are advertising a "projected" cap rate based on "projected" rents. What you generally care about, however, is the actual & current revenue.

Once you start to focus in on a property that looks like it might be a good fit, the next conversation is with a commercial mortgage broker (I would be one example, among many) to go over what the financing of that property might look like. Everything is property specific in commercial, so you need at least one example property identified to have the conversation. 

If you see a retail shopping center with one or more vacancies, hop on google/yelp/etc to find out what business used to be there (old yelp reviews, for example). In cases of environmental contamination, that can limit what could be there in the future, for example a former car repair shop (that you found the stale yelp reviews for) is likely sufficiently contaminated that it can only ever be something like that, you won't be able to put a daycare center or restaurant in there. 

When commercial lenders are evaluating a first-time CRE investor, they like when the sponsor is within driving distance of their first investment, so pat-on-the-back for staying local on deal one, it makes it a more prudent transaction for all involved.

The only real difference between a 4-unit and a 5-unit is the financing. And you specified 5-unit, so I assume that you are interested in what changes exactly at that cutoff. 

As a 5-unit, or even an 8-unit, you can find residential lenders offering residential DSCR loans. These have horrible rates and fees compared to a true commercial loan, but they close faster, and are more flexible on that DSCR. Some DSCR loans even feature "no specific DSCR required!" for example, and others will ignore current actual rents in favor of "projected" rents. If the goal is to "just get it done," and there are residential realtors involved that think closing in 21 days matters (in the SFR world, it does), then this honestly may be the best route.

A true commercial loan will have an interest rate on-par with a 30YF primary residence SFR rate, but rather than being a 30YF, it'll be fixed for 5-7 years, and then you have to pay the mortgage off entirely, most commonly by refinancing. 30 year amortization may still be in play. Permanent debt commercial mortgages also generally will not play with an in-place DSCR below 1.25% (possible exception for very strong/experienced borrower, but such a person wouldn't be making a thread like this one, no offense. :).

An interesting result of the 1.25% DSCR being more firm on the commercial side is that rent-to-price ratios and cashflows are better. Just like, in 2005-2007, a bunch of 'stated income' loans drove home values to stupid levels, for the last few years we've seen these residential "no DSCR required!" DSCR loans (why even call it that, at that point?) drive 2-4 unit real estate up to stupid levels, relative to rents (the FHA "house hackers" with 3.5% down, even though it's spoken about a lot, haven't really moved the needle IMO b/c they are so rarely actually done). But that hasn't played out with apartment buildings. If you are in that 5-10 unit space where lots of residential lenders will touch it with their promiscuous easy money "DSCR loans," there's a little bit of it, but once you are in the 20 unit or 30 unit world, there's none of that stupidity, and cashflows are much stronger. Someone will point out that the 2-4 unit have a better track record of appreciation these past few years, but as mentioned I suspect that's largely being driven by the residential DSCR loans, the same way that being able to get a $200k student loan for an associates degree in basket weaving will drive up the cost of basket weaving education to $200k (and if the loans for the $200k basket weaving degrees went away, the price of a basket weaving degree would instantly drop, true or false?).

"funding source to help us re-purchase, rehab & expand our former men's resort property in rural Crawford, TX"

Couple questions for you.

"Re-purchase" - The "re" in there implies that you owned it before, somehow lost it, and are looking to buy it again. So there will 100% be questions about what caused you to lose it, and what's different this time. If ABC business at XYZ location already failed once, that's going to raise the question of "what's different this time?"

I obviously wasn't involved in your previous inquiries, but in this case it's possible that "our type of business" is being viewed as "a business that already failed once." Again, I have no idea, I can only go off of what you wrote. I recently had a client buy a restaurant building, the seller had purchased the building, spent a good chunk of change fixing it up, and then promptly went out of business b/c the food they were looking to 'supply' wasn't in 'demand' in that market (a restaurant's 'market' is the local area, a destination resort's market is obviously "the country" or "the world," so I think part of it is automatically solved in your case). So the buyer had to demonstrate all the differences between his restaurant business, which was established and had several successful other locations already, and the previous new startup restaurant that had failed, to get over the "his type of business" = "a business of that same sort, at that same location, in fact in that exact same building, that had already failed, WTF makes you any different?" hurdle.

He was not primed from past experiences to think lenders hate restaurants and restaurant owners, so he didn't go the route of thinking it was "anti-restaurant discrimination," but behind the scenes, truth be told, several of our partner lenders did in fact deny the loan outright based on "we are not looking for new restaurant opportunities at this time." Par for the course. Equal housing laws are for housing, not commercial real estate, so there would have been no point in him trying to sue anyone by assuming the "anti-restaurant" bias was actually "anti-his-nationality-food-type" bias (also, at least in his case, it wasn't...).

"Rehab" - These are tough in the current market. Plan on 65% LTC, at least one sponsor/borrower that has done a similar project in the past in terms of scope and dollar amount (inclusive of if you add a new partner willing to share in the risk/reward), 10% post-close liquidity (can't use loan proceeds to check this box), net worth equal to or greater than the requested loan amount not including subject property in net worth calculation (adding the other sponsor/borrower can fix this, too). I can't comment on if there was discrimination or not in your case as I wasn't involved, but the above requirements would be in place if Jeff Bezos called me for a loan to develop a new Amazon Warehouse and was willing to personally guarantee it and pledge his personal mansion and pay triple the normal mortgage broker fee. Credit markets are tough right now.

That rehab paragraph was a VERY tall order, which I think is why most folks are doing rehab loans with the hard money loan guys charging 13%+ and 3 points... 3 points and 13% is painful, but LESS painful than trying to check all those boxes laid out in the previous paragraph. 

Good luck, if you think you can check those boxes (inclusive of adding a sponsor/co-borrower if needed) please feel free to reach out.

 I sent you a message per your request.

It's not 2021 any more, at this point most things you can make up out of thin air, some lender will do.

The question is if you want to pay the corresponding rates and fees....

The high risk high reward play here, for those with the deep pockets and appetite for risk.

- Try to figure out where McDs likes to build. This is probably the easiest part.

- Look for stale listings of cheap vacant lots that tend to fit that criteria. 

- Buy a bunch of them. 

- Lose out on most (now you're stuck with that vacant lot that, if you go sell it, will be a stale listing with little/no interest), win on a few, and hopefully the wins offset those losses. 

 Scroll about halfway down, it updates weekly with best case scenario average commercial mortgage rates (the only thing not "best case" is that it's not making a net worth >$100m assumption). For commercial loans, we do business nationwide. :)

https://www.eastbaysmortgagebroker.com/commercial-real-estat...

People are VASTLY less likely to lie on the commercial side, and they don't do the "waive all contingencies" stuff, so it's a lot safer to take the listing broker's numbers at face value. They might sneak in some weasel words, like advertise it at a 7% cap rate and then in the OM mention that that's proforma, and actual is 6.25%, for example. But they will generally not simply outright lie.

What you can also do is go through the process of inquiring about placing an offer. And if they start to go down the route of "but what about X, do you know about X?" you can say "I'm glad you mentioned it, I didn't, and I don't want to waste your time, will you please send me the documentation you have on X?"

As opposed to what most people do, that often gets ignored: "Hi listing broker I wanted more information on 123 Main St, can you send it please?" -- they get a lot of time-wasting tire-kicking requests. 

It's the same request, but one is higher intent (or at least appears so... a verbal statement that "I want to buy 123 Main St" does not obligate you to anything), and one makes the request for more information THEIR idea. You're ready to go and put in an offer now, THEY are the ones slowing YOU down, the dynamic is different.