Jul 9, 2017
Michael discusses what lenders are looking for when applying for
financing on an apartment transaction.
With apartment lending- the quality, condition and location of the
asset are the most important factors in underwriting. A
PRE-APPROVAL is not going to be available because 2/3rds of an
apartment lending decision is based on subject property. The lender
needs to have a complete picture on a number of critical
underwriting variables. Examples: Where is property located and
age? What are historical cash flows for the last 2 years and year
to date? How much deferred maintenance does the property currently
have and what is rehab budget necessary to cure? Who is going to
manage the property? What does your monthly proforma show; what is
your future expected operating expenses and total income?
1/3 of an apartment lending decision is based on you. What is your
liquidity? What is your net worth? What is your past apartment
experience and level of ownership or management? Do you receive
consistent personal income outside this transaction? Are you going
to have additional guarantors, with a sufficient balance sheet that
will stand with you?
Bottom line, the lender can give you an indication on how much you
can qualify for, but because the age, condition and location of the
asset is so important in an underwriting approval, a WRITTEN
PRE-APPROVAL, before the asset is selected is NOT WORTH VERY MUCH.
Speak with your commercial mortgage broker on how to structure the
transaction for approval. They will give you a verbal insight on
how much you can qualify for based on the total picture.
Checklist of Items You’ll Need to Provide Your Commercial Loan
Broker:
✓ Updated signed personal financial statement
✓ Liquidity verification (bank and/or brokerage statements)
✓ Last 2 years of personal/corporate tax returns
✓ Real estate resume- detail your real estate experience. “I bought
a home, fixed it up, and sold it.” Tell the story of your successes
in real estate. It’s like you’re applying for the job of running
the property.
✓ Schedule of Real Estate owned (what do you currently own; loan
balance, value, contingent liability or non-recourse; annual NOI,
annual debt service, etc.)
✓ Broker’s Offering Memorandum on the property you are looking to
purchase
✓ Property’s historical monthly operating statements (last two
years and YTD)
✓ Current rent roll
✓ Five digital pictures of the interior/ exterior of the
property
✓ Your analysis of transaction; share your monthly PROFORMA for the
next 12 months. How are you going to operate property?