Think Like Your Lender!
In my capacity as a lender, a mortgage broker, and a commercial real estate owner, I have had the pleasure of meeting many real estate investors. All have required some amount of real estate financing. Many of these investors, struggled to present their investment opportunities, in a manner that would maximize their opportunity for success.
Build Your Knowledge
Were they ill-informed or unintelligent? No, on the contrary, most were successful investors and astute business people. What they lacked was knowledge. The knowledge to present their investment opportunities in a way that would ensure a quick response, and the most advantageous loan terms and conditions. Armed with additional knowledge, they would have been better placed to save considerable time, money, and possible disappointment.
Many investors are hesitant when approaching their Bank, or other Lender. They lack knowledge of the inside workings of Banks and how they make their real estate lending decisions.
Banks Want to Lend Money!
The reality is that Banks want to lend money. It’s their core business. Making a “spread” on the rate of interest charged on the money they lend, over the rate of interest paid on deposits they hold, is their fundamental business model. All you need to do is provide them with the information they require to enable them to say yes!
The key to your success in your dealings with your Bank is building a positive relationship. One of the most effective ways is to provide a compelling written loan presentation package. The old adage goes “you only get one chance to make a first impression”. Understand how your Banker thinks. Better yet, learn to speak their language!
Supporting Information is Critical
Despite what you may have heard, Bankers are real people! Your lender is human, and busy. They likely have numerous loan requests to review, and have limited time and resources. Providing your financing request in the form of not only a standard Application, but also an attached package of supporting information, persuasively presented, moves your loan application to the center of the desk, and the top of the pile. How can a lender not take your application seriously when you’ve gone through the effort to educate yourself on typical lender requirements and have addressed many loan underwriting concerns in advance?
Commercial real estate lending has changed. Lender requirements have increased significantly. Pre-funding conditions, anti-money laundering requirements, environmental audits, asbestos abatement programs, building life cycle studies, lender holdbacks of funds at closing, are but a few examples of ever more complex lender requirements.
Lenders are Focused on Risk
Increased Lender oversight has resulted from increased regulatory oversight. More proactive Boards of publically traded lending institutions taking are also taking a more assertive oversight position on risk generally. The result has been predictable. Lenders are more focused on the assessment and measurement of real estate risk within their credit portfolios.
Aside from an individual borrower’s ability to repay a loan, lenders need to be aware of, and review trends in both local and regional real estate markets. They need to monitor their exposure to certain sectors within those markets. They also need to monitor projections for economic growth and employment creation, demographic and population changes, as well as interest rate movements. All of these factors, and many more as well, have a bearing on the relative degree of risk that a lender faces. Understanding your lender’s needs puts you in an advantageous position. More on this in a future post.