It’s been a “feeding frenzy” in commercial real estate.  But even with an incredible loan to value, is it wise to pick up a bunch of deeply discounted commercial space right now? As retail goes online and offices go virtual to save costs, will there be a glut of commercial property on the market in the next 5 years?

Retail will never completely die, as people still need to go and try on wedding dresses and wander aimlessly around shopping malls. However, I do think that the big days of retail are officially over. As consumers become more savvy online, there will be more tire kickers.  And this trend will just grow and grow.

And, it’s easier than ever before for a company to take its office virtual. A friend of mine works for a small company with 50 employees. Several weeks ago, the company mandated that all employees work from home and meet twice a week for a whiteboard session.  With all of the technology and “freeware” in abundant supply and easy to use, this is certainly the future of office.

Granted, office space will remain a necessity for some businesses, but others will be forced by the recession to grow up faster and use low or no cost technology.  Perhaps multi-use, commercial real estate ventures like Noah’s will be the commercial real estate of the future.

The future of industrial commercial seems to be a little more bright. I imagine that it will enjoy fairly consistent growth after the recession blows over. Although small business is temporarily unable to access working capital, once credit returns, businesses that occupy industrial space will rebound.

Please share your insights into the future of commercial real estate. Do you agree or disagree with my assumptions? Please share!

Posted by Corey Curwick on September 27, 2009

I found a few good items that I wanted to add to this checklist.  In an older article out of the Scotsman Guide, written by John Kutac of Western Capital, some other things jumped out at me that I wanted to add to this list.

John discusses the importance of the “initial presentation.”  With so much competition for the eyes of the lenders, you have to know how to present your deal in just the right way.  This is where an experienced broker can truly be of value because, as John wrote, quality presentation at the outset can give your deal the “best opportunity for funding.”

Another thing that jumped out at me from the article was the need to present both the strengths and weaknesses of the deal in a clear, concise fashion. Your broker should understand the points that make your deal a good deal, as well as any issues with the deal.

And finally, the last thing I wanted to add to the checklist for fast closings from John Kutac’s article is related to what we call the ‘timeline’ of the property or project. Understanding the story or the history of a project is key for moving the underwriting process along quickly. Questions about the timeline include: “When was the property acquired and for how much?” and “How much cash does the borrower have into the deal up to now?”

Posted by Corey Curwick on March 15, 2009

–Other Notes coming due

–An unexpected interruption in funding

–A quick takedown of real property being offered at a deep discount

Or, the worst, a Note being called due by the bank without advance notice.  Whatever the reason, private or hard money loans usually need to fund quickly.

One of our “preferred” lenders tells us that a loan will fund as soon as it takes them to feel “comfortable” with the deal as a whole.  For our lenders to feel “comfortable” with a deal, we must provide specific pieces of information to them which help them get to the comfort zone very quickly.

Getting your lenders to this comfort zone requires a specific checklist that both borrowers AND brokers need to keep in their back pockets.  One of the first items on this list is to identify the collateral being used for the loan. This is one of the single most important items that can stand between you and a speedy closing on the loan.

• What is the collateral or how is it classified?
• What is the value of the collateral being used?
• What is the value based on? (local comps, broker’s opinion, appraisal, etc.)
• Where is the collateral located? (Can it be readily accessed for inspection?)
• What encumbrances or liens are currently on the collateral?
• Who has Title to it?

Other important items on the checklist for speedy private or hard money closings include:

• 1. Who is the borrowing entity or individual? If borrower is an L.L.C. or corporation, who are the members? What is the contact info. for all borrowers?
• 2. Use of Funds: Lenders will need a brief but descriptive explanation for the use of the loan proceeds. If there is any cash out requested, borrowers will need to substantiate every dollar of the cash out.  This is usually shown best with a basic spreadsheet.
• 3. Basic loan application: Primary borrower will need to provide a full loan application which includes social security number, date of birth, list of assets, etc.

If you are concerned about getting your loan funded quickly, use an experienced broker that will know what other crucial items are on this checklist.  Often, borrowers will attempt to go to the lender directly, expecting a speedier route to closing.  In my experience, not only is NO time actually saved by circumventing the qualified private money broker, but all too often, unnecessary fees are paid to the lender and both money and time are lost.

Posted by Blake Reese on March 9, 2009

With a halfway completed commercial office building, his private banker of over ten years, just told him that the bank would be pulling his line of credit effective now.  His banker told him there was nothing they could do. Despite the fact that the development is in a prime location, despite the fact that he already had contracts which would have the building 100% occupied after its completion in six months, the bank simply said they could not fund the project further.

For my developer friend, commercial bridge financing is his saving grace.  Many banks are calling the Notes on many projects that are still under construction.  For a developer with a great project even during tough economic times, this is a death knell.

Because halfway completed construction projects are nearly impossible to find traditional funding for, a developer in my friend’s situation has to be able to depend on private money.  Obviously the goal then is to get permanent financing in place while the bridge loan provides some breathing room.

Private money lenders do not want your property, so the loans are for short-term.  However, in special cases that require longer terms, there are investors that are stepping up to provide financing for up to 3 years.

The availability of private money for unexpected financing nightmares like this is just one example of how the wheels of our delicate economy keep on turning!  Thus a good ending to an awful story!

Posted by Blake Reese on Wednesday, February 04, 2009

Blake Reese -told me this quote and now it is one of my favorites.  With so much fear in the market, placed in every nook and cranny by the media, its easy to forget that now is the time to invest in real estate and to rack up an impressive investment. portfolio.

Leveraging debt in the correct way is something that all of us, even the best real estate investors, could get better at.  But as a tool, debt is invaluable right now. It just needs to be leveraged properly.

Posted by Admin on January 21, 2009

But, I have been scrambling a little to find refinancing options for them while they sweat about paying back these Notes. Some of them, thinking they would have a chance to finish their projects and not have to worry about money, are now scrambling themselves to secure long term financing.

These are excellent examples too of when you may have to leverage your access to private money for the short-term.  Choosing the right partners who will secure the long-term financing is crucial in this type of situation as well.  You have to find out where your weaknesses are and correct them.

I would love to hear about any other examples where Notes have been called due and what the borrower did about securing alternative financing.  Success stories always preferred! In the meantime, I’ll keep you posted on some of our stories where I’m working on trying to create a happy ending.

I encountered an interesting post by Donald Todrin on the topic of Banks calling Notes Due.  However, instead of commercial or construction loans, Todrin addressed this threat to business owners on their business lines or other business loans.  Many of his suggestions also apply to real estate investors, developers, and other investors.

In his post, Donald Todrin warns business owners:

“Please understand, the bank would prefer to put you out of business and liquidate your assets and experience significant loss, rather then working with you to assist your turnaround and emergence and get paid more in the long run, so the loan can be successfully serviced.”

Ouch!!  Business owners and investors alike should heed his advice….

Posted by Blake Reese on December 5, 2008

Blog post source: http://dtod.wordpress.com/2008/08/27/the-signs-are-clear-the-banks-are-calling-notes-and-foreclosing-rather-then-working-with-you-are-you-ready/

For example, a banker friend of mine recently told me she is one of the major advocates at her bank for keeping a stated income loan program.  Why? Because only one loan in her entire portfolio of stated income loans is currently delinquent.  This automatically tells me that it’s the banks which have caused the problems with stated income loans and not the borrowers.  Yes, I agree, there are many exceptions to this but let’s talk about the kinds of borrowers who actually need a stated income loan.

Take a recent example of a man who came to our company recently looking for a stated income loan product.  This man has 10 free and clear rental properties, all but one of these are cash flowing.  He recently sold his business for millions and is coaching a local baseball team and enjoying some time off. He also has 4 million cash in the bank.

So he goes to his local bank where he’s done private banking for years and has built a relationship with his private banker.  He asks his banker to refinance his home. Life is good right? Well, not so good because he can’t qualify for a conventional loan through his bank and they no longer have a stated income product.

There are a lot of hard-working people out there that are building businesses and doing great things to move money in our economy that can’t get credit.  Most entrepreneurs, the self-employed, self-made investors, and other business owners tend to fall in the stated income borrower category for a variety of reason.  Stated income borrowers are sometimes fairly large players.

If you belong in this category, no longer can you rely on your private banker to help you meet your financial goals.  The days when you could tell your banker your true financial situation and goals are now in the past.  Your banker’s hands are tied.  An experienced broker, who has multiple money sources and understands how to creatively structure a deal, is a key factor in the financial success of the new movers and shakers in the economy.

Posted by Corey Curwick on December 3, 2008