Getting Your Commercial Real Estate Loan Approved
Essential items that you should submit in your Loan Package
Getting Your Commercial Real Estate Loan Approved
These are the 13 essential items that you should submit in your Loan Package to getting your commercial real estate loan approved:
1. Executive summary 2. Appraisal 3. Financial statement 4. Credit report 5. Sponsor financial statement (the person or persons signing Loan Documents) 6. Property financials 7. Borrower resume 8. Purchase and sale agreement 9. Legal description of the property 10. Pictures of the property 11. Map of property location (your broker will get this from the Title Office) 12. Environmental information 13. Property management documents
Here is the break down of each essential item:
1. Executive summary
1. Executive summary
The Executive Summary should have all critical dates of the project spelled out, such as effective date, due diligence expiration date, and the closing date. If you are doing a Section 1031-like exchange, add any dates that are critical for that to go smoothly.
2. Appraisal
If you have an old appraisal on the property, add it to your commercial real estate loan package anyway. Even though the lender will order their own appraisal, it will be appreciated, such as any comparable properties that previous appraiser used at the time to determine the property value.
3. Financial statement
If your own Financial Statement is weak, you may consider getting a strong partner for the deal. This person is sometimes called a "sponsor". You then get to add your sponsor's financials to the commercial real estate loan commercial real estate loan package.
4. Credit report
Your Broker will provide you with this report after you sign his or her release of information sheet and a Good Faith Estimate. Lenders generally want to see a TRI-MERGE report one that contains all three major credit bureaus. This report is specifically designed to evaluate the real estate buyer. (Remember, your credit report is a risk management tool for the lender. There are certain elements in this report that tells the lender about you.)
5. Sponsor financial statement
If you were using someone other than yourself to qualify because they have a stronger financial statement than this is where it will include their information, like, bank accounts, retirement accounts, cash equivalent accounts, real estate owned, etc. Brief anything that will guarantee or shows the lender that in case of an unforeseen problem, this investor be able to use their own funds to fix the problem. This ensures the lender that the investor will be able to ride the waves of any bad times, for example, if all of sudden the occupancy rate drops below the point where the income will longer service the debt (pay the mortgage) on the property. I know what you are thinking, "Didn't you say the property qualifies, not the individual?" That still true but the lender still has to make sure that they are dealing with a solid investor, after all, they are in the business of lending and making money not losing it.
6. Property financials
Here you will include the Financial Statement for the property (the seller should provide you with the most recent ones). You will also need the last three years profit-and-loss statement, banks accounts, reserve accounts, tax returns (3 years), articles of organization for an LLC or articles of incorporation for a corporation, debt schedule, all leases, and the original title policy. (A well organized Seller usually will have this neatly prepared in a binder for you.)
Your binder should include all the property financials, nicely organized.
7. Borrower resume
Another key point is to make sure you add in your resume. This is your opportunity to sell yourself. If you've done any real estate deals in the past, talk about them here. If you have not experience in real estate, then it's appropriate to describe what training or other relevant activities you've been involved in. Remember that everyone started out at some point, so any lack resume items is not only temporary on your part, but it's natural. You're not the focus here, the property -THE DEAL - is the focus.
The stronger the DEAL, the better.
Do you know people who will say good things about you? Ask them to write up a 'character letter' for you. It could even be something unrelated to real estate, such as from a minister or scoutmaster where you have volunteered in the past. Do anything you can think of to help sell yourself to the underwriter. This is not the time to be shy.
8. Purchase and sale agreement
Add a signed copy of the purchase and the sale agreement along with a legal description of the property.
9. Legal description of the property
This is a report that should be provided by your broker or Title Company that you have built a relationship with. It can cost as much as $150 in some cases. Your broker can get this free of charge.
10. Pictures of the property
Put photos of the property in the package, if they help sell 'the sizzle'. Get the best angles during the best light of the day. Do not put in pictures of the repairs that must be done to the property. That's the job of the lender's inspector, who will inform the underwriter of any necessary repairs.
11. Map of property location
Get a map in the commercial real estate loan package showing where the property is located. The bank will be interested to see what type of street the property is on. Is it a main street with substantial traffic? Is it conveniently located just a short distance from a main artery that would be too busy for easy left-turn access? Try to identify the positive aspects of the location. After all, you should have taken this into consideration during your due diligence phase.
12. Environmental information
If you have copies of the old Phase I and Phase II Environmental reports, include them as well. They will not be current, but could nonetheless help the lender in knowing when the property was last judged to be free from hazards.
13. Property management documents
Finally, include the Property Management documents. This is one of the most important parts of the package. The lender will definitely want to know who will be managing the property and their experience level of the property management.
If this happens to be your first deal, this is your opportunity to make it clear that you won't be the manger!
The management company will and should provide you with a professionally written resume that tells the lender about their experience and why they are qualified to look after the deal. They must also give you a marketing plan to explain their process for filling and maintaining the property. They'll also include one-year and five-year projections for this particular property. This is great stuff to have in your binder.
Even though I am suggesting pro-forma numbers here or projection numbers, let me warn you here, NEVER BUY OR BASE YOUR DECISION TO BUY ON THESE NUMBERS. You definitely should have developed some kind projections of your own, with the help of the management company. It is simply good business to do so and to manage your investing goals.
In summary, the whole idea here to ensure you get your investment apartment loan approved is to SELL yourself and the deal. The underwriting package you create is actually a marketing package that shows your professionalism. The better you anticipate and answer any objections ahead of time that might be in the lender's mind, the better your chances of getting the deal funded. And trust me, your professional package will be a rare treat to the lenders and underwriters.
The principle here is to be easy to do business with!
Marcus Mavakala is the CEO of The Greenhill Group, LLC. (http://www.GreenhillFunding.com). He has years of extensive experience in the real estate industry as an investment and finance counselor. Marcus is dedicated to helping individual investors who are looking to increase their net worth to build wealth with real estate acquisitions. The Greenhill Group is exclusively focused in the California real estate market and also serves the needs of real estate investors nationwide. The Greenhill Group goals are to build strong, everlasting relationship with investors for lifetime and create continuing customer satisfaction. For more information, contact Marcus at (877) 679-4455, or by visiting the website.
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