On Tuesday of this week I was lucky enough to be able to attend a foreclosure auction on the courthouse steps. Actually, I had enough time to maker two auctions: Cherokee and Dekalb.
For those of you who don’t know, every state has different foreclosure proceedings and the state of Georgia has its foreclosure auction on the first Tuesday of every month. They are located on the steps of the county courthouse in the county where the mortgaged property is located.
So, I was there on Tuesday participating in these auctions. Here is what I noticed:
There are good attorneys and . . . less good attorneys.
Most of the people reading out the legal descriptions and conducting the auctions are attorneys employed by the lender. Some of them are patient, articulate, and conducive to a great auction. Others mumble, are impatient, and just want to leave. The good ones tend to get higher prices. The bad ones just annoy everyone.
Most of the buyers that have success are institutional.
You can tell after about 2 minutes that most of the major bidders are large equity funds from out of state. They put down their cell phone numbers when they win a bid, and you see mostly LA and NYC area codes. That would be discouraging to me if I were a small town, local bidder.
Most of the work happens before the auction.
All you get from the attorney is the legal description of the property, its address, a description of the mortgage, and some legal jargon about the nature of the auction. You have to know a ton about the property before you ever step foot on the courthouse steps. Otherwise you will have no idea what you are bidding on or what is a fair price. You may have thought this auction was a single day of work. No sir. It’s weeks of homework and research.
There is a price-ceiling for most buyers.
I didn’t hear much action above a certain level. That price “ceiling” is different for every county, but once you go above it there are zero bidders. For example, let’s say the ceiling is $300,000 in Forsyth County. If the lender has an opening bid of $350,000 on the property, I would anticipate ZERO competing bids. Maybe the ceiling is $350k or $200k in Fulton. I don’t know. What I do know is that there is a ceiling in every county and it would be interesting to analyze what those numbers are . . .
Many of the bidders have rules.
After the first bid, you will figure out that many of the institutional bidders have limits and thresholds to what they are permitted to do. Some are only allowed to increase the bid $100 at a time and ALL of them have specified max bids that they aren’t allowed exceed. It’s actually kinda annoying, but if you can figure out who they are and what rules they have to follow, you can probably run circles around them.
Quite an interesting process. It’s incredibly inefficient and confusing, especially compared to Florida (who uses an online auction like eBay), but it is certainly interesting.
If you ever go, drop me an email at Duke(at)AtlantaPropertyJournal.com and I will give you a few tips that I can’t share with the world right now. I am always happy to help (as long as you aren’t bidding against me!).
So your community bank failed. Bummer.
And then the FDIC took over your commercial mortgage. Double bummer.
Now, you get a letter that says some LLC has purchased your mortgage. What next?
Well, I work for that LLC. My company is the controlling member of that LLC and my job is to work something out with you, Jim Borrower, that everyone can live with.
Ok, for the purposes of this article, I will assume that your mortgage has been purchased through a structured sale with the FDIC or has been transferred/sold to a loss-share bank. We can get into the difference between the two types of new owners elsewhere, but your position really doesn’t change much either way and I think the steps you should take are the same.
So here’s what you do:
Step 1 – Find the Buyer
The first step you should take is figure out who just bought your mortgage. Assuming your loan matures before 2030, you are going to have to deal with these jokers ( . . . me . . . ) sooner or later. So you need to know who you are dealing with. The fastest way to do that is to follow the headlines.
These sales with the FDIC are all public record, so eventually the FDIC will have it on their website, but it will take a while for them to update that. So you need to follow the headlines in a Google Alert like “FDIC Commercial Loan Sale” or “Commercial Mortgage Sale by FDIC.” The point is, you want to see the article that names the equity firm or bank that now owns your loan. Otherwise you will have to wait a couple months for it to enter public record.
If you don’t see it and get a notice that says that “Jim Bob’s LLC has purchased your commercial mortgage,” you should immediately hunt down that LLC through the secretary of state’s website. We will get into the details of the Sec of State searches later, but for now let’s just assume you know your way around that database and find out ACME Inc bought your mortgage. Great! Moving on . . . .
Step 2 – Weigh Your Options
As I see it, there are only six options available to you:
- Discounted Payoff
- Full Payoff
- Guaranty Suit
- File for Bankruptcy
I will describe each of these in detail in the next article, but I want you to start thinking about your options from both sides. We are an investor looking to maximize our returns and you are looking to have as little pain as possible in owning and maintaining this property. Where those two desires meet is where we will make a deal. Otherwise, you’re just wasting my time or I’m wasting yours. So this step is important. Know your options and have an idea of what will be suitable for both parties.
Step 3 – Call the New Owner
Assuming you want to make a deal (instead of being non-cooperative or just continuing to pay your loan into oblivion), now is the time to reach out. You know who we are, you know your options, you have all your paperwork organized, and now you need to reach out to the deal maker.
This may take some additional research.
You need to use company websites, LinkedIn, and your professional network to find someone at ACME Inc. Find someone and they can point you to the decision-maker on your loan. In our case, we have thousands of loans and dozens of asset managers. So there isn’t one guy to call for your loan. It could be any one of two dozen people that work loans every day.
Get to someone and let them guide you to the right person within ACME.
Step 4 – Keep your Head and Strike a Deal
We get paid to resolve loans and find solutions. We don’t get paid to hurt you. Calm the heck down and let’s make a deal happen. Yelling at me or trying to intimidate me just pisses me off and makes me call my attorney. Trust me when I tell you that you would prefer to deal with me than my attorney. In fact, you are legally liable for any legal fees I incur trying to chase down the money that you owe us.
So approach this person as an ally helping you wade though a tough situation. In my experience, people have watched too many crime dramas where they think the only way to negotiate with someone is to shine a light in their eye, yell loudly, and imply physical pain. Doesn’t work and it’s a waste of time. Save us both some time and let’s be grown-ups and work out a deal. I have 100 other deals that need my attention and I don’t have the patience to deal with screaming idiots.
You already have all your ducks in a row and a strategy in hand, so send in your paperwork, propose a resolution (including a timeline), and let the person think it over. If you do that, you’ve done most of the hard work for the gal anyway and she will want to work it out with you. The easier you make her job the better deal you will get.
Step 5 – Follow Up and Close
You can promise and talk all you want, but if you don’t deliver then you’ll get the wrath of the new mortgage-holder who has the right to pursue you (usually). So, once you’ve worked out a deal with her, check in every couple weeks to update on status and timing and close that bad boy.
Do everything within your power to close and, if all else fails, communicate more. I totally understand when someone is refinancing one of my loans and their refinancing lender needs another 15 days to close. That’s fine. Earth is probably NOT going to explode in 15 days. Just keep me in the loop and get it done. If you drag it out for 6 months, then I’ll just call my attorney. But I am reasonably patient when borrowers keep me in the loop with legitimate hold-ups. Again, I have 100 other borrowers to attend to and don’t want to spend too much time watching every move you make. I just want to know what’s happening.
Step 5 – Move On
Closed? Great! Wipe your brow, take a deep breath, and get back into the business of making money and out of the business of spending money. In fact, make some money off of me!
I just told you that I have 100 deals I am looking to move. Why don’t I move a few in your direction? There is always a deal to be had if you want to hold the property longer than we do or are more willing to invest in improvements or whatever. Your timeline and risk-profile are different than ours, so take a look at a couple deals and let’s see if we can get a few deals done!
That’s it. Be prepared, make my life easy, and keep your cool and we can all be friends. Remember, we are here to make deals and move loans, not hurt people. The only people who get hurt are the ones who scream, lie, and try to trick us. They get what is coming to them. You don’t want to be that guy. Be easy to work with and my first phone call on a great deal I need to move may be to you . . .
This article may come a little late to the game as Georgia has seen 100 banks (see: hyperbole) fail over the past few years and their borrowers have been left flapping in the breeze. But I wanted to put together a little to-do list for everyone who finds themselves in a situation where your bank has failed and you find your mortgage in the hands of someone else.
This will be a two part series. Part I will be how to deal with the FDIC. Part II will be about how to deal with the firm that buys your mortgage from the FDIC.
So let’s talk about the steps you should take when your bank fails and its assets are seized by the FDIC.
(By the way, I will be assuming for this series that you are an ethical and honest borrower who wants to pay back her debts. If that is not you, call your attorney. You are about the be sued.)
Step 1 – Perform
The old adage about the squeaky wheel getting the oil is true in your favor here. Pay your mortgage payments every month and no one will bother you. Chances are the FDIC is dealing with hundreds or even thousands of commercial mortgages from this failed bank along with all the other non-CRE assets it seized. Many of them have huge problems and loud borrowers. Let the FDIC deal with them and stay out of their way. You don’t want to tangle with the US government (for several reasons). Keep paying your debt and then follow these steps . . .
Step 2 – Organize
Sooner or later you’re going to have to come to a resolution on this loan. You need to have your paperwork in order. Start gathering your info now and get organized so that you’re ready when the times comes. At the very least, you should get:
- Personal Financial Statements for all guarantors (This shows your net worth and liquidity to satisfy the personal guaranty you signed)
- 3 Years of tax returns for all guarantors (More info for the personal guarantees)
- Property Rent Roll (How is the property performing?)
- Copies of all leases (When do your tenants roll?)
- Appraisal, Phase I Environmental report, or something showing info on the property (this is a good way to have basic photos and general info on the property even if it’s outdated)
Keep all of these documents stored electronically where you can access them quickly. That way when anyone asks for this info you can quickly email them everything they need.
Step 3 – Know Your Servicer
When the FDIC takes your mortgage, they will not have the capacity to handle all of the servicing responsibilities associated with it. Someone has to handle and process all payments. Someone has to handle all the monthly notices and paperwork associated with keeping your loan current. Someone has to track the performance of your loan. The FDIC can’t do any of that. They outsource it.
As far as I can tell, they use Situs, Midland, and KeyBank. All 3 are huge servicing platforms and all three have their pros and cons (I have worked with all of them). They will be your main point of contact on your loan moving forward so don’t go poking around the FDIC website looking for someone to call. Trust me . . . you wouldn’t want to talk to them anyway.
Step 4 – Crouching Tiger
Now that you are organized and know who you are dealing with you have one of two options. If your loan is maturing this year, be proactive. If not, just chill and keep paying. In Part II I will explain why you want to be proactive no matter when you maturity occurs after your loan is purchased by a third party from the FDIC. As long as your loan stays with the FDIC, I only suggest being proactive if you borrowed money that matures this year. You are about to become a non-performing loan and therefore a “squeaky wheel.” Your non-performance is your inability to refinance your loan upon the loan’s maturity. It’s known as “maturity default” and it is a technical default. You can be sued over it and your creditor will probably win in GA (FL is another matter for another day).
So, if you’re staring a maturity default in the face, do this:
- Get a Broker Opinion of Value (BOV) – Have a broker tell you what she thinks the property would sell for on the market
- Get a term sheet from a refinancing bank – Have a lender give you, in writing, the terms of a proposed loan to refinance the loan
- Call friends and family – Find out who has some cash to lend if you’re in a pinch
If you do all three of those, you have three good data points for possible resolutions of your maturing loan. You know what you’d get in a short sale from your BOV. You know what discount you’d need in order to refinance. And you know how much you could pay to a deficiency or to structure a deal with your money from friends and family.
I will get more into your possible solutions for a defaulted mortgage in Part II. For now, let me review the steps:
Step 1 – Perform. Pay your debt and fly under the radar.
Step 2 – Organize. Have all your paperwork in order for when push comes to shove.
Step 3 – Know Your Servicer. You can’t be a winner in this game unless you know all the players.
Step 4 – Crouching Tiger. Wait and be ready for your maturity.
Do all of that and you will have very few problems with the transition from your community bank to the FDIC. I can’t promise it will be pain free because you’re dealing with the same people who run the DMV and Post Office, but those steps will make it a smooth as possible.
Good luck and check back for Part II!
Over the last few months I have been working for a private equity firm that acquires commercial mortgages from the FDIC. Through a structured sale, we purchase these notes and then share profit on the notes with the FDIC.
You could call me a “Successor Creditor.” Note that I don’t go by “Lender.” Lenders want long-term relationships. I want resolutions.
I have found that most of my borrowers are confused as to who we are and what we do. Once they get that, borrowers tend to be mystified as to how to deal with someone like me and my company.
So I put together a list of things you should know about me and successor creditors and how we conduct our business.
1. I Have A Soul. I don’t enjoy making people unhappy. I’m not here to take your kids out of private school and send you to the soup kitchen. Every evening, I go home and tell my wife about my day at work and I have good and bad days like everyone else. So, speaking solely for myself, please understand that I am a real person who really wants to make a deal with you.
2. I Get Paid For Resolutions. As I just mentioned, my role is about making deals. I don’t get paid to hurt you. I get paid as loans sell, properties sell, and discounted payoffs are funded. It is not in the best interest of my employer to torture you for 18 months. Let’s make a deal and move on with our lives.
3. I’m Not Afraid Of Bankruptcy. Having said #2, I am not afraid to take my time and work through bankruptcy with financially crushed (or uncooperative) borrowers. I work through cases of Chapter 13, Chapter 11, and Chapter 7 bankruptcies on a daily basis and I talk to bankruptcy trustees regularly. So don’t think that threatening to go BK will scare me or make me go away. As a secured creditor, I am in a great position to emerge well from your bankruptcy and you won’t be able to borrow money from anybody for at least 7 years (more likely 10). So, go ahead and file BK if you want. I’d rather work something out with you, but if that is your preference. . . knock yourself out.
4. I Don’t Have The Final Say. Everything I do is subject to approval by credit committee. I can give you preliminary approval for a deal and I know what credit committee wants. I have never had to re-trade a deal before, but you should know going in that I don’t have final approval authority and it is possible that I will say “yes” and credit committee will say “no.” You can get mad at me all you want, but I am at their mercy just as much as you are champ.
5. You Will Be Held Accountable For That Personal Guaranty You Signed. When you borrowed these funds originally, you were so certain that you would repay this loan that you signed a document that said that you personally guarantee the repayment of these funds. You were so certain you would perform that you put all of your personal financial assets up for grabs if you didn’t. Then you didn’t pay. Now I have a legitimate legal claim to ALL of your financial assets (if your guaranty was unlimited and most of them were). Don’t try to walk away from that because it will just piss me off. Give me a deal that will satisfy the guaranty and THEN you can walk away. I assess the value of the mortgaged property and the value of the personal guaranty. If Donald Trump had a loan with us that was $200,000 underwater, I wouldn’t care because I would just ask him to write us a check for the shortfall. The property isn’t worth the loan amount, but Mr. Trump’s personal guaranty is certainly worth $200,000. So keep that in mind when you are negotiating with me. The personal guaranty needs to be satisfied before you can walk away from any loan.
6. Honesty Is The Best Policy. I do this all day every day and I have gotten very good at spotting liars. If you are upfront with me and show all of your cards, you will enjoy working with me. As I said in #2, I’m not here to hurt anybody. If you try to hide things, transfer assets to your wife, or simply refuse to cooperate with me, you will not enjoy working with my attorney. Tell me the truth and we can be allies in finding the best solution. Lie to me and my attorney will crush you financially.
7. Effort Counts. Remember that I am selling your resolution to credit committee. I want to tell them that “Mr. Borrower has done everything he can; begged money from relatives, sold his collection of baseball cards, and moved into an apartment to help us resolve this loan. We need to approve this deal.” I’m not telling you to move into an apartment, but work hard trying to find creative ways to come up with cash and financing options! There are hundreds of private lenders and wealthy family members out there willing to help if you go look for them. Turn over every stone and we WILL get a deal done. If I get the impression you are sand-bagging or not even attempting to find a resolution, then my attorney will give you a little kick in the rear to get you going. One way or another, you are going to have to do some work to get this deal done. I’d rather not do it in court. Just put in a little effort and find a way to get a deal done and let’s move on.
8. The Law Is On Our Side And We Have More Money Than You. Some of my more, um, confident borrowers get it in their head that they can exploit legal loopholes in the loan documents or that they can just wear us down in court. These borrowers are the ones who lose the most money to us (which is great for us, by the way!). Even though we are buying mortgages from failed lenders, the legal documents are pretty much all boilerplate with your personal data injected. They all have the same covenants, restrictions, and clauses and the legal system has upheld all of these documents when borrowers have attempted to exploit any weaknesses. Think about it: If all these documents pretty much say the same stuff the same way, what judge wants to make a ruling that says these documents are not legally binding? It would crush the lending system if a court ruled their documents were not legally enforceable. It ain’t happening, so don’t waste your time or your (our) money. For those who want to wear us down and sue/counter-sue us, feel free. We do this all day every day and I have never heard of anyone beating us in court except for blatant fraud or illegal transactions. We are a multi-billion dollar company with some of the best attorneys in the country. You are more than welcome to try to manipulate the US legal system to protect you, but I wouldn’t recommend it and I won’t feel sorry for you when you come back to me $200,000 poorer and in the same place you were before all that jazz.
9. What Is Equity? Unless you borrowed at 50% LTV in 2005 (and we both know you didn’t), your property is underwater. Get used to that idea and don’t try to throw appraisals from 2005 and BOVs from 2006 at me. Those are worth about as much as toilet paper. You have no equity in your property. Get over it, move on, and let’s free you up to find some deals where you CAN have some equity.
10. We Can Be A Great Ally. We have thousands of loans all over the country and we are looking to move ALL of them in one way or another. Work with us and you will have access to some good deals that we need to move. Someone could make a great deal of money by purchasing deals we are selling. So don’t burn bridges with us. If you want to be a long-term player in CRE, you will want to have a good relationship with us. I’ve sent several deals to former borrowers who I liked working with. That’s how this business works. I deal with people I like and trust. Earn my respect and my trust through a contentious relationship and I will go out of my way to help you in future deals. Good borrowers make my life easier and I want to return the favor.
So, there they are. Those are my ten insights into the world of successor creditors. Has your experience been different? Do you have any insights to add?
I have hit a wall this afternoon and need to unload.
You get to reap the benefits.
It’s random time!
1. I think ABC, Fox, NBC, et al, need to stop creating CGI-heavy show concepts. Any time I see a dinosaur or magical creature in one of those shows that is VASTLY inferior to Spielberg’s creations in Jurassic Park from 18 years ago, I lose a little, er, a lot, of respect for network execs.
2. Now I feel old. Jurassic Park blew my mind back in the day and it is 18 years old. Jurassic Park is old enough to buy cigarettes.
3. While we are on the topic of Spielberg movies, JAWS is the scariest movie of all time. Period. If you have seen that movie, it is in the back of your mind every time you put a foot in the ocean. You may have the occasional bad dream about bleeding walls or demon-possessed children, but the threat of a graphic shark attack is always there when you are in the ocean.
4. I don’t think I could ever live in VA Highlands. Since I’m not a single guy looking to walk to bars, it has little appeal. I love the older houses, but the roads are tiny, the parking is the worst in the city, everywhere is crowded, and it just smells like hormones. No thank you.
5. Similarly, what happened to Decatur? That place is awesome. When I was growing up, Decatur was the putrid swamp donkey of Atlanta neighborhoods. You only went there if you had a relative who made you. Now, there is a solid collection of unique restaurants (Iberian Pig!) and cool spots to hang out. It might be one of Atlanta’s most walkable neighborhoods. What the flip?
6. I like the idea of Jamestown’s pop-up park near John Marshall. Maybe I’m old fashioned, but it’s nice to see a huge CRE investment firm creating public green space. Seems very Mayberry, or something.
7. Speaking of Jamestown, I saw that they got the redevelopment deal of the year in the Business Chronicle for Ponce City Market. How can you get an award for a deal that isn’t finished? You get awards for good ideas? If so, I better get some medals for those winners I am cooking up for 2025!
8. Does any one else miss watching the X-files? I grew up watching Mulder and Scully, and I miss them a little.
9. My boss said “if you are a developer for long enough, you will eventually file for bankruptcy. ” Hmmm. Ok. Then I won’t be a developer. I will be a real estate investor who happens to develop from time to time. Take that!
10. The borrower really is slave to the lender. Trust me. I have first hand knowledge of what happens when creditors and debtors face off. Debtor = Bug. Creditor = Windshield. Careful what debt you get yourself into!
Have a killer weekend.
My name is Asset Manager and I work for the private equity company that has acquired your commercial mortgage. I know that you have worked in the past with your originating bank (First Bank of East Bumble), and have worked with the FDIC ever since that bank’s collapse.
I am sure it has been frustrating to work with the FDIC and you may have been contacted by one of the firms selected to service your loan. I apologize for any delay in contacting you and any frustration we may have caused as I am sure you are eager to resolve this outstanding debt.
This letter is to let you know that I will be handling the disposition of your loan henceforth. We are not planning to sell your note to another party at this time, so I should be your last point of contact for your creditors on this loan.
Please call or email me at your earliest convenience so we can discuss a strategy for resolving this loan. I’m sure you are as eager to resolve this as I am!
Before our discussion, I’d like to offer you some insight into our company.
We are not a bank. We are a private equity company. I mention that to point out that we are not looking to “fire-sale” any of our assets. We always look for fair market value on the commercial properties we encumber and we often infuriate “vulture investors” who are looking to buy assets for 5 cents on the dollar. We do not operate that way.
As a private equity company, we do not have any pressure from stockholders or investment bankers to liquidate any of our assets. Unlike most commercial banks, we do not need to clean up our balance sheet as quickly as possible. We can wait, own assets, and take multi-year strategies on resolving each loan.
I say all that to warn you that low-ball offers will not be accepted or even seriously discussed. Please strive to present us with fair-market offers on your deal. Otherwise, we will have to pursue more litigious options.
I would also like to point out the dual-asset nature of your outstanding debt. As a creditor on this instrument, we have two claims. Our first claim is on the property that is pledged as collateral for the loan. Our second, and more important claim, is on the personal guaranty you signed to guaranty this loan at origination. So, please understand that even if you were to bring us an offer on the property that represented fair market value, we would still need to satisfy the shortfall from the loan amount by collecting on your personal guaranty.
In your case, your outstanding balance (including late fees and default interest) is $10 Million. I would estimate that the property is currently worth $5 Million. So, even if we were to agree to a short sale of the collateral, we will still require you to cover the $5 Million shortfall to your outstanding balance.
So, please bear in mind the two claims we have on the loan.
If you do not wish to discuss resolving this loan, please indicate that wish and we will begin the non-judicial foreclosure process and will acquire title to the property. Afterwards we will begin pursuing the deficiency between the foreclosure price and the outstanding balance through a legal suit. Our attorneys at Smith, Smith, and Smith will be contacting you shortly, if that is the case.
If you do not reply to this letter within 2 weeks, I will consider you non-compliant and will begin the foreclosure process mentioned above.
As I mentioned before, I would like to come to an arrangement that satisfies all parties as quickly as possible. So, please feel free to reach out to me by phone or email as soon as possible and we can start working toward that end.
What a lender wants in your investment package.
So, you bought your building with cash and now you want to free up some capital to use elsewhere. Or you bought and financed a building 10 years ago and the loan is coming to maturity. Cool. No problem. Now all you have to do is convince the lender that your property is worth what YOU think it is worth and life will be wonderful.
In 2005, that was pretty easy. Credit was flowing freely to almost any project in almost any location. We discuss elsewhere the merits and causes of that phenomenon, but my point in mentioning it is to contrast that credit environment with today. In 2005, if you had a heartbeat and a clear title, you could get a loan. Now you need cash flow, iron-clad leases, continual stabilized occupancy, and it seems like there are dozens of hoops to jump through just to get the big, bad lender to even look at your loan package.
Keep in mind that lenders are busy just like you are. They have piles of loan packages and documents on their desk and have to prioritize their time. (Work becomes a game of triage for almost everyone after a certain point.) So, in order to simplify the process I am going to give you a quick guide to creating a loan package that will make your project get pushed through the pipeline. We will discuss the property and borrower fundamentals elsewhere. This is how to create the best loan package to represent your project to a busy lender . . .
(Please note: This guide is for a permanent/stabilized loan and NOT a construction loan. You remember those construction loan things, right?)
1. GATHER THE DATA. Get together every morsel of information you can possibly attain on the property, its operations, the borrowing entity, etc. Borrowers are often hesitant to give up information and I would say that of 100 projects that reached my desk when I was a lender, I probably had to call back 95 of those borrowers to request more information. That was annoying and not a good use of my time. If you want a quick turnaround on your loan, give me ALL of the information I need.
2. INCLUDE THIS:
1. Executive Summary – What am I looking at? Where is it? What does it look like? What is the occupancy? What kind of loan terms and proceeds are you looking for? (This is the 30,000 ft summary of your deal. Let me know what it is and what you want. If it is a good looking deal on the Executive Summary, I will dig deeper.)
2. Financial Statements – I need Income & Expense statements (also known as P&L or Cash Flow Statements) for the Trailing 12 months and the last 3 or 4 years. (This is always the 2nd item I look at after the executive summary no matter where it is in the loan package. Most everything else in this package is additional. This is essential. If your cash flows do not add up, I kill the loan right then and there. I need the T12 to look at monthly trends and 3-4 years of operating history to validate that the current cash flows are roughly the same as historical cash flows. Or even better, they may show a general trend upward in property performance. In that case, this project goes to the top of the pile.)
3. Rent Roll – Who is in the building and what do their leases look like? (If occupancy is below a certain threshold, we kill the deal. If this is an Office, Retail, or Industrial deal and all of your leases expire in 2 years, the deal is dead. Make sure you include expense reimbursement structure for EVERY TENANT. I want to see occupancy at or above 90%, depending on the market, and commercial leases with 10 years of term left. That will push a deal to the top of the pile.)
4. Borrower Information – How is the borrowing entity structured and who are the guarantors? What are their net worths and what kind of liquidity positions do they have? **Note: I am treating this hypothetical loan as non-recourse**. (This seems to be the one that I never got. I always had to bug people to get this. If you are asking for a $5 Million loan, and the guarantor behind the borrowing entity only has a net worth of $3 Million, it aint happening. Just go ahead and send all of it because we will ask for it sooner or later anyway. If the guarantors behind the borrowing entity have strong financial positions, the loan package goes to the top of the file.)
5. Other info – This will be anything property-specific that you did not include in your executive summary. (It may include construction materials, parking spaces, elevators, capital expenditures, etc. This is just the added “color” to the picture of your loan so I can fill out my model. You will find that different credit officers have different hot buttons and this is where they will be looking after the loan has passed the original sniff test. One CO was really big on parking spaces and parking ratios. Another wanted to know exactly what Cap Ex the property had gone through before he ever submitted a term sheet. As I said above, more information is generally better, with a couple exceptions . . . )
3. DO NOT INCLUDE THIS:
I. Your projections or your broker’s projections. (I’m not going to look at them. Ever. So don’t waste your time. Brokers have developed a reputation for “massaging” numbers and giving best case scenarios in the projections. All that will do is discredit them.)
II. 10,635 Photographs. (Five or Six is plenty. We can get a good enough idea of the condition of the property from those and Google Earth will help us establish location and nearby amenities. We will figure the rest out during due diligence after you have accepted our terms.)
III. An Old Appraisal. (What some appraiser said your property was worth in 2006 means about as much to me as your Grandmother saying you are the most handsome man in the world. If you have current photos of the property and decent property data, an out-dated appraisal adds no value. If, however, you don’t have photos or supplemental data on the property, an appraisal can help me fill in the blanks.
The above list is just what I was looking for when I was a lender. I am sure that other lenders will have certain items and data that they need to complete their analysis, but if you include the above items I would bet that you get fewer phone calls from your (frustrated) lender looking for additional information.