Financing Commercial Real Estate Purchases – Two Important Ratios

June 21, 2017 by

This is the next in a series of posts directed to non-institutional buyers of commercial real estate. By “non-institutional” I mean individuals, families, partnerships, limited liability companies and corporations that own or are seeking to buy small to medium-sized commercial real property.

Buyers of commercial real property fall into two broad categories: users or investors. A “user” buyer intends to use the commercial property purchased to conduct its business. This could be office, retail, or warehouse/industrial in nature. “Investor” buyers purchase the commercial property purely for the rental income the property will generate and for the appreciation on resale thus providing a return on the investor’s investment in the property.

Whether an investor or user loan, commercial real estate lenders are “cash flow” lenders. The value of the real estate is a secondary source of repayment—foreclosure is a last resort. On an investor loan, cash flow from the operation of the asset (net income above expenses) is the key factor in the lender’s evaluation of risk. This is usually expressed as a ratio known as “debt service coverage”. Typically, lenders will want to see a minimum debt service coverage ratio of 1.2 to 1.4 to provide sufficient confidence to make the loan.

Although there is no income on a user loan, a similar analysis of income v. expenses on the part of the borrower will be made. Personal financial statements, personal and business tax returns, and business income and balance sheets will provide the lender the information it needs to make this evaluation.

Loan to value is another important ratio in the decision to lend or not to lend. Loan to value is a simple ratio or percentage expressed by the amount of the loan divided by the value (appraised value) of the property. Note it is the appraised value, not the sales price. This percentage is not dissimilar to residential loan to value analysis. However, in the residential world, loan to value can be as high as 97-100% under government programs provided by FHA and the VA. Not so for a commercial real estate loan. Lenders typically will look for a loan to value of 65-75%. Borrowers with good credit and/or substantial balance sheets will do better, but as a general rule, the lender will be looking for a greater down payment than in the residential arena. One exception is the SBA 504 loan program that can provide up to 90% financing provided the purchaser will use at least 51% of the property for its own business.

In poor economic conditions, banks are less willing to provide pure investor real estate loans resulting in lower loan to value ratios. Banks are a little more flexible on user loans as the owner is directly involved with the asset on a day to day basis.

The commercial real estate purchaser should be prepared to address these issues with the lender when loan application is made.

Rick Lane is a top realtor with Weichert Realtors in the Washington, DC Metropolitan market. He has 20 years’ experience in real estate brokerage and real estate law and construction. He is a winner of a Weichert National Sales Award (top 5% nationwide). He is a former partner in the law firm of Thompson and Waldron and a former Vice President with the Trammell Crow Company in Washington, DC. Rick is a graduate of the University of Virginia and William and Mary Law School. He may be reached at:

Richard F. Lane, Esquire
Weichert RealtorsCommercial
Elkins Lane Realty Advisors
121 N. Pitt Street, First Floor
Alexandria, VA 22314
Direct: 703.888.5106
Cell: 703.626.6691
Office: 703.549.8700
Email: ricklane@elkins-lane.com
www.elkins-lane.com






This is the next in a series of posts directed to non-institutional buyers of commercial real estate. By “non-institutional” I mean individuals, families, partnerships, limited liability companies and corporations that own or are seeking to buy small to medium-sized commercial real property.


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Evaluating the Purchaser’s Capacity to Close

March 14, 2017 by

WHAT YOU SHOULD KNOW WHEN SELLING COMMERCIAL REAL ESTATE PART 2 (AND IT’S COMMERCIAL REAL ESTATE—NOT COMERCIAL REAL ESTATE):

EVALUATING THE PURCHASER’S CAPACITY TO CLOSE

IT’S COMMERCIAL REAL ESTATE—NOT COMERCIAL REAL ESTATE

This is the second in a series of posts on issues important for a Seller to know when selling commercial real property. This post is directed to “non-institutional owners”-- individuals,families, partnerships, limited liability companies, and corporations that own small to medium-sized commercial real property as opposed to “institutional owners”—equity funds, REITS, life insurance companies, etc.—who own large portfolios of commercial real estate. 

Let’s assume the Seller’s marketing team has done its job resulting in an offer. On the surface,the offer is attractive to the Seller. Many factors may enter into the final decision to accept or reject the offer. Price is usually paramount. However, the Purchaser’s capability to successfully close is a close second. Accurately assessing that capability is a key component to any successful sale.

The first question to ask is where is the Purchaser getting the money to pay for the property? Is it “all cash” or does the offer include a financing contingency??

If all cash. If all cash is offered, the Seller should require “proof of funds”. This could include copies of bank statements, investment accounts, or financial statements which show sufficient cash to close on the property to include the purchase price and closing costs. If the sale is part of an IRS Section 1031 exchange or if a significant part of the cash required is coming from the sale of other real property, a copy of the closing statement or a copy of the contract of sale for that property with contingencies removed should be provided by the Purchaser.

If a financing contingency is a part of the offer. “All cash” offers are more the exception than the rule. Most contracts to sell commercial real estate include provisions that the Purchaser’s duty to close is contingent on obtaining a loan for at least a portion of the purchase price.Financing contingencies typically allow a period of time for the Purchaser to obtain financing from a lending institution sufficient to close. If the Purchaser is not successful, it can notify the Seller and receive a refund of the earnest money deposit. The first question here is the same as that for an all cash offer. Where is the Purchaser getting the money for the down payment? The Seller should require the same evidence as that for an all cash offer outlined above.

Next the Seller should carefully consider the length of the financing contingency period.Remember, unless the Seller can get a right to “kick out” the offer if a better one comes along,the property will be off the market and subject to the Purchaser’s success or failure in obtaining a loan. On most small to medium sized properties, there is typically a two-step loan process. The Purchaser should be able to get a written loan commitment within thirty-forty- five days of final sales contract ratification. However, this commitment is usually subject to an appraisal of the property. On average the appraisal will take another thirty days. Larger more complicated properties or loans from life insurance companies or commercial mortgage backed securities lenders will take even more time—sixty to ninety days. If the Purchaser is requiring more time,the Seller needs to know why.

How can the Seller eliminate some of the risk in taking the property off the market for the length of the contingency? It is important to take a close look at the amount the Purchaser intends to borrow. Commercial loans for purchasers that intend to use the property for their business typically require 25-35% down and even more for investor loans. Higher loan to value loans are usually only available from special government programs like the SBA 504 loan program. The contract should specify the amount or percentage of the purchase price the Purchaser intends to borrow and a credible interest rate or interest rate range. Receipt of a financial statement and aright to run a credit report on the Purchaser prior to the Seller ratifying the contract will also help the Seller to make an informed judgment about the Purchaser’s likelihood for success.The Seller should also require some milestones in the contract for the loan application process.

For example, the Seller should require the Purchaser to make written loan application within a relatively short time period—five working days is not unreasonable. The Seller should also require written confirmation that the application has been made by the Purchaser. Obtaining a written loan commitment (which may be subject to appraisal) should be the second milestone.

Depending on the type of property and loan, requiring it within thirty to sixty days is not unreasonable. Again, the Seller should require written receipt of a copy of the loan commitment.The final milestone is completion of the appraisal and a final loan approval. All these milestones should be included in the time is of the essence provision of the contract which will put the Purchaser’s deposit at risk if it does not meet the milestones.

Following these steps will minimize the risk to the Seller presented by the financing contingency and help to ensure a successful closing.






This is the second in a series of posts on issues important for a Seller to know when selling
commercial real property. This post is directed to “non-institutional owners”– individuals,
families, partnerships, limited liability companies, and corporations that own small to medium-
sized commercial real property as opposed to “institutional owners”—equity funds, REITS, life
insurance companies, etc.—who own large portfolios of commercial real estate.


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December 27, 2016 by
Alexandria Salon Business

Alexandria Salon Business

DESCRIPTION & DETAILS

SALON FOR SALE! Sale of Business Only ..Located in highly desirable booming North Old Town Alexandria! $125,000 CASH (Includes all furniture, fixtures and equipment) Assume low rents on existing lease...Great opportunity for savvy investor !

Property Type: Other
0.04 Acres1955
2

ALEXANDRIA

Public

Public Sewer

FOR SALE – 320 Montgomery St, Alexandria, VA 22314
Old Town Salon Business for Sale
(Business and Equipment only)

$125,000 (cash)
2 year old build out
Assume low rent on existing lease (3 years + 5- year option)
5 % Commission

https://elkins-lane.com/wphome/blog-post/550/

What You Should Know when Selling Commercial Real Estate

November 28, 2016 by

This is the first in a series of posts that will examine issues important to an owner of commercial real estate when contemplating selling that commercial real estate asset or portfolio. This information is geared for individuals, families, partnerships, limited liability companies and corporations that own a small to medium sized commercial real estate property or portfolio that they may want to sell. Hereinafter, I will refer to these types of owners and landlords as “Owners”. These Owners usually do not own commercial real estate as their primary business.

Please note this is not intended for large institutional owners—equity funds, real estate investment trusts, life insurance companies, and the like. These types of commercial real estate owners have batteries of experts to assist in the analysis and disposition of large individual assets or portfolios that may be located all over the U.S. or the world.

The first issue is to ask what exactly are you selling?

This question is meant in an even broader sense than to ask is it retail, office, land, warehouse, residential, or industrial property? No matter which type of property, there are two major markets available for the property with limited overlap between the two markets. They are:

  1.  the “user” property market, and
  2. the “investment property” market.

What is the difference between user and investment commercial real estate?

The answer is pretty simple. User property is commercial real estate that is used by the Owner to operate its business. Examples include a professional firm (law firm, CPA, medical) that owns the office building that houses its firm or practice, a retailer that owns not just the business but the real estate where the store sells, a warehouse that is owned by the manufacturer, or a restaurant that also owns the restaurant building. User properties are usually delivered vacant at closing with a new Owner looking to move in to operate its own business. So, if the property will be delivered vacant at closing, unless your property represents a development or redevelopment opportunity, users are your best market. The good news is that users typically will pay more for a given building than an investor. The intrinsic value of operating its business in the building may justify a higher price to a user.

Investment commercial real estate is usually delivered subject to a lease(s). While it is true both users and investors value future appreciation, an investor is primarily concerned with the income and return on investment that the building will generate over the period of time the investor holds the building. Investor buyers prefer to minimize or eliminate “lease up” risk by purchasing buildings that are already fully leased, or nearly so, with good credit tenants. If the investor buyer needs to lease up the building or the tenants represent poor credit risks, it will lower the price the investor is willing to pay.

Why it is important—timing and pricing. Factors associated with the Owner/user’s business are more likely to spark the decision to sell the building. These may include growth, contraction, retirement of key Ownership personnel, turmoil in the Ownership entity, and the like. The market for the particular commercial property may be good or bad when the business event occurs that will drive the sale. To the extent possible, Owner/users need to forecast these events to allow for a reasonable period of time to capture the best price available in the then current market. They also need to price the asset correctly. As user property, the asset may command a higher price for the reasons above, but prices and price per square foot attained by comparable properties (“comps”) are the key components in determining the best price.

Investor properties are driven much more by interest rates and the leases on the property. An investor Owner may choose to sell in anticipation of key tenant leases expiring, tenants defaulting, or simply to cash in to take advantage of an opportunity available in the market. Prospective investor purchasers will be most interested in the length of the tenant leases and the strength or credit risk posed by the tenants. In addition, if interest rates are low, the investor purchaser may be able to leverage the rate on its loan compared to the return on the building to increase its overall return on investment—example—borrow at five percent but make a return of more than five per cent. Investment properties may frequently command a price per square foot that would make no sense to a user buyer. Comparable returns on similar properties and for alternative investments, along with the risks associated with the leases, will be the most important factors in determining the best price.

Recognizing where your asset is positioned and forecasting to the best of your ability will maximize the chances for a successful transaction.

Rick Lane is a two-time Weichert Realtors Commercial Real Estate Agent of the year in the Washington, DC Metropolitan market. He has 20 years’ experience in real estate brokerage and real estate law and construction. He is a winner of a Weichert National Sales Award (top 5% nationwide). He is a former partner in the law firm of Thompson and Waldron and a former Vice President with the Trammell Crow Company in Washington, DC. Rick is a graduate of the University of Virginia and William and Mary Law School.






This is the first in a series of posts that
will examine issues important to an owner of commercial real
estate when contemplating selling that commercial real estate
asset or portfolio. This information is geared for individuals,
families, partnerships, limited liability companies and
corporations that own a small to medium sized commercial real
estate property or portfolio that they may want to sell.
Hereinafter, I will refer to these types of owners and landlords
as “Owners”. These Owners usually do not own commercial real
estate as their primary business.

Tenant Representation

November 14, 2016 by

Tenant Representation: What it is and how to use it.

or, How to lease commercial office space.

Tenant Representation

When a business person needs to lease space, whether office, retail, or industrial, they too often start by

  • 1) driving around town and calling the telephone numbers on “For Lease” signs they see on buildings, or
  • 2) Googling “space for lease”. In both instances, that business person will almost always end up talking to the landlord’s broker.

The landlord broker’s job is to lease the empty space in the building advertised at the highest possible return to the landlord.

So, on the landlord or ownership side of the leasing process, the business person faces not just the building’s owner, but also a professional, licensed real estate broker and company who usually leases many different buildings and who monitors the market on a daily basis-- not just through the internet, but through telephone calls, market research and personal relationships. On the tenant side of the leasing process, the business person has whatever person he or she has assigned to the task and whatever information they can glean from the internet. The tenant must become an instant expert at leasing—something that is not a part of the tenant’s core business, and concerning a decision the tenant faces only once every time their lease term ends. In the case of a start-up business, it may be the first time the decision makers have ever faced commercial real estate business decisions.

Facing such an information deficit, most CEO’s and decision makers for companies large and small now hire their own real estate professional. That professional is called a “tenant representative”, or in the case of sales, a “buyer’s agent”. The tenant representative most often, but not always, is paid by the landlord but is recognized up front as the agent of the tenant.

Effective use of tenant representation.

The first element is obvious: hire a tenant representative that has market knowledge of the type of space and the relevant market and sub-markets of interest to your company or organization. You should also expect your tenant representative to learn about your business, customers, and employees as all three are important factors on what space is best for your business.

Technical and legal knowledge are also important factors. The tenant representative often interfaces with an architect on design and basic requirements needed in the space, and with attorneys on the legal terms that can often make or break a good deal for the tenant.

The tenant representative should create a market for your tenancy. This is imperative even when a tenant may end up targeting only one space or building—perhaps that building meets all of the company’s requirements in terms of location, size, price, and image. IT DOES NOT MATTER. The tenant representative will develop alternatives that the tenant representative can use to leverage the targeted building. We like to have at least three viable contending buildings for the client’s tenancy which we then use to maximize concessions from the landlord—lower rent, free rent, increased build out contributions, and lower escalations.

In today’s competitive environment, use of tenant representation will save the decision maker of any company or organization both time and money if used effectively.

We can also help reduce your ? commercial lease rates - see our blog about this


When a business person needs to lease space,
whether office, retail, or industrial, they too often start by 1)
driving around town and calling the telephone numbers on “For
Lease” signs they see on buildings, or 2) Googling  “space
for lease”.  In both instances, that business person will
almost always end up talking to the landlord’s broker.  The
landlord broker’s job is to lease the empty space in the building
advertised at the highest possible return to the landlord. 

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Understanding the Business Enterprise in Tenant Representation

November 8, 2016 by

A guide to winning the business!

Too many tenant representatives frequently ink new clients even though they are absolutely clueless about the business of their clients. If the tenant representative is successful with this approach, it is probably more a function of blind luck.

Before the tenant representative even walks in the door to meet the client for the first time, he or she should already be prepared to converse effectively with the client about their business. This will enable the tenant representative to understand the client’s “needs” and to provide the “solution” needed.

Consider the age-old adage of “Sell yourself before you sell the product”.

Proper research and education will provide an edge before going in for the sales pitch. Yes, it’s elementary, but many commercial real estate prospectors fly-in blind. Breaking the ice with knowledge about the prospect makes a great case for yourself as their representative. Foremost, check-out the individual(s) with whom you are meeting, perhaps a LinkedIn profile. “I noticed you went to Stanford; my brother went there”, or “I see you’re a Cap’s fan”. You get it!

Suggested procedure: At a minimum Google the business as well as the players. If the company is listed on an exchange, take a look at the company’s performance. Look at the chairman/CEO’s forward in their annual report. Checkout their product lines.

Continuing Education to Increase Your Acumen!

  • A course in Accounting 101 (even if you took it in college). This will enable the tenant representative to thoroughly understand the components of an income & expense statement and balance sheet along with the significance of cash flow vs profits.
  • A Course in Business Law 101
  • A Course in Financing the Business Enterprise

Why is increasing your business acumen relevant? You are doing your client’s bidding in terms of articulating the business and the significance of their financial statements. If there are obvious negatives, these may be of concern to the landlord’s representative, the asset manager, and the decision maker. Understanding the negatives will help the tenant representative to put them in perspective and perhaps even take them out of the conversation.

It is all about PREPARATION, the most important word for a salesperson! It is not intended to be a guide for the entire sales process.

Scott Elkins

Scott Elkins has been a CRE practitioner for 27 years in the Washington DC Region. Previously he spent more than 2 decades as a senior lending officer, most recently as Senior Vice President for Corporate Banking for Sovran Bank NA in the Washington Market.

Clients included, Mars, Inc, Kay Corporation, Gannett, Marriott, and Equitable Life. Included locally, Jack Kent Cooke and the Redskins, Clyde's Restaurant Group, and the Brown Automotive Group. However, his experience included many small and middle-market borrowers as well.

Too many tenant representatives frequently ink
new clients even though they are absolutely clueless about the
business of their clients. If the tenant representative is successful with this approach, it
is probably more a function of blind luck. Before the tenant
representative even walks in the door to meet the client for the
first time, he or she should already be prepared to converse
effectively with the client about their business.

This will enable the tenant representative to understand the
client’s “needs” and to provide the “solution” needed.

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Reduce Commercial Property Lease Rates by Relocating

October 27, 2016 by
Relocate to reduce cost

Reduce Property rates

Competition is a fact of business life and never more so than in today’s environment. Top executives and business owners are forced to do more with less if they want to survive and prosper. One important way to do so is to reduce the commercial rent a firm pays to its landlord.

Since the cost of housing a business is usually the second biggest expense for most firms, reducing rent will quickly add significantly to the bottom line. If a business rents space and is nearing the end of a lease term, the decision maker has two primary avenues to pursue to reduce its commercial rent expense—renew the firm’s existing lease or relocate to another building. 

Whether a lease is renewed or the business is relocated, the good news is we expect 2017 to continue to be an excellent market for tenants to meet their cost cutting goals. An earlier post took a look at renewing an office lease. Let’s now take a look at relocating to reduce occupancy costs.

When should you start?

An approaching lease expiration is often the catalyst to review how much space is needed. An “approaching lease expiration” really means no less than 12 months from the end of the lease term. Starting early will allow the tenant to maintain its options and to create a market for its tenancy among competing landlords. Allowing sufficient time is a key component of a successful relocation.

The time needed to improve the targeted office space is one of the biggest variables as to how long it takes to relocate. The time needed for improvements and reconstruction runs from two weeks to 30 days for new paint and carpet to four to six months for a build out from shell condition. Keep in mind these improvements will not begin until a lease is signed, the security deposit is made, and the first month’s rent is submitted to the landlord.

Analyze your needs.

The ratio of square feet per employee has declined over recent years and will most likely continue to do so. Reasons for this decline include the competitive environment already mentioned, increased use of modular furniture, telecommuting, and “hoteling” (use of work stations that are not reserved to any one person but can be used by anyone when they are in the office as opposed to in the field, travelling or in customer or client’s offices).

A good architect and broker will help with the analysis of the space needed.

Questions that need to be asked and answered include:

  • How will a new location affect the firm’s customers or clients?
  • What is the image the firm should project through its space?
  • How will relocating affect employee commuting times and employee retention and morale?
  • Can the business make use of an open plan that includes more work stations/modular furniture as opposed to individual offices?
  • How many employees need real privacy to be effective?
  • How many conference rooms or teaming rooms are needed?
  • How many people do the conference rooms and teaming rooms need to accommodate?

Execute.

Driving around looking for buildings with a “commercial office space for lease” sign and then calling the numbers on the signs is not an effective use of time for any busy executive--nor is Googling “find office space” or “commercial real estate for lease”. Hiring a competent commercial real estate agent to act on your behalf will go a long way towards ensuring your business saves both money and time. Relocating a business is disruptive and time consuming. Executives need to run their business.

Rather than waste time educating yourself on a market that is relevant to your business only once every several years or more, hire a professional to do it for you. It will save additional time if the decision maker can appoint a “point person” to work with your commercial agent to develop the short list of attractive alternative buildings and spaces. It is important to note that the agents listed on signs or in websites for available buildings and spaces work for the Landlord, not the tenant. Finally, using your own tenant representative will even the information gap vis-à-vis your landlord and its broker.

With the team assembled and your needs analyzed the search will begin in earnest. Your tenant representative will provide you with a survey(s) of available buildings and spaces. From these surveys, the goal is to come up with a short list of opportunities. Your tenant representative will obtain further information on the top choices including the “as built” condition of your selections. Although you may want a space to be built out from shell condition per your plan and specification, if you can find spaces that come close to what you need as currently built out, there will be more room to press the landlord for other concessions like free rent, reduced rental rates, and lower escalations.

Tours are then conducted of the top choices. Unless your current building has been eliminated for some reason, it is recommended that you include spaces in your current building on your tours. From those tours, the goal is to come up with several realistic alternative spaces. Your tenant representative will then exchange letters of intent with the top choices to compete the alternative spaces against each other thus making a market for your tenancy among the competing landlords. Upon receipt of best and final proposals, you will select the top choice and request that the landlord prepare a lease for review. There may be several rounds of negotiations on the lease language. Once finalized, the tenant will be expected to sign the lease and to submit the first month’s rent and the security deposit. Then and only then will any work on negotiated remodeling or improvements to the space begin. As stated above, these improvements can take anywhere from two weeks to six months to complete.

Once the work is substantially complete, the move in may be scheduled and completed. In a nutshell, this is the process to maximize the savings that a commercial tenant can achieve in today’s market which has never been better for commercial tenants.

Rick Lane is a top realtor with Weichert Realtors in the Washington, DC Metropolitan market.

He has 20 years’ experience in real estate brokerage and real estate law and construction. He is a winner of a Weichert National Sales Award (top 5% nationwide).

He is a former partner in the law firm of Thompson and Waldron and a former Vice President with the Trammell Crow Company in Washington, DC.

Rick is a graduate of the University of Virginia and William and Mary Law School. He may be reached at:..

Richard F. Lane, Esquire

Weichert Realtors
Elkins Lane Realty Advisors
121 N. Pitt Street, First Floor
Alexandria, VA 22314
Direct: 703.888.5106
Cell: 703.626.6691
Office: 703.549.8700
Email: ricklane@elkins-lane.com
www.elkins-lane.com


Competition is a fact of business life
and never more so than in today’s environment. Top executives
and business owners...

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A Borrower’s Guide to Managing the Lending Process

October 25, 2016 by

Most commercial real estate borrowers will deal with a commercial bank on transactions up to $10,000,000, although some small life companies may welcome deals close to $10,000,000. In addition, Commercial Mortgage Backed Securities lenders will sometimes make loans under $10,000,000 for quality income properties. Getting a bank loan is a process that takes time—sixty to ninety days is typical.

A CRE purchase contract often will involve a contract contingency for financing. The financing contingency must be satisfied within the contractual time period or the borrower could forfeit the contract’s earnest money deposit. So the clock is ticking for borrower, the lender selected, the real estate agent, title company, and any attorney involved in the transaction. Once the purchase contract is executed and loan application made, the deal is still a long way from being done. A hands-on approach for the borrower is imperative to get to closing. As a former lender, I am familiar with the many hiccups and derailments that can occur during the loan application and approval process.

Thirty years ago, loan officers had substantial lending authority. When I left banking my authority was $5,000,000. Today, most loan officers have been schooled and equipped with only the most rudimentary tools, and are not qualified to assess risk. The actual loan authority now usually rests with a “ loan committee” which includes an analyst and other bank lending officials. Remarkably, the frontline person the borrower is dealing with is marginalized. Moreover, the borrower may not have a qualified person advocating for the loan.

When I refer to managing the lending process I am suggesting that the borrower and the borrower’s real estate agent, closely monitor and oversee the requirements of the lender, compliance with the purchase and sale contract (PSA), and the time limits for each step along the way. As a caveat, if this is not done, surprises are common that can either delaying or jeopardize the entire deal.

The following bullet-points (no order) will go a long way towards nurturing your deal to the finish line:

  • KNOW YOUR OWN FINANCIAL CAPABILITY! Check your credit before loan application, prepare a personal financial statement, and assemble the last three years of tax returns. You will be doing everyone a favor and troubleshooting the process. The lender will require this information in any event.
  • If the purchase is an investment, I strongly recommend preparation of a preliminary cash flow analysis. Generally, lenders will require a benchmark 1.2 to 1.5 loan to debt service coverage to make the grade. The National Association of Realtors, via their RPR (www.narrpr.com) subsidiary offers easy to use software that can turn around an analysis in 20 minutes. Again, this is a preliminary run. The bank analyst will do a more sophisticated ARGUS analysis as well.
  • Assist, Prior to loan application, shop the lenders for expressions of lender interest, interest rates, and terms. Lenders are competitive but some will show more appetite than others.
  • Establish and fully understand the approval procedure of the lender (individual or committee).
  • Understand whether the loan is non-recourse, recourse, and the extent of any guarantees.
  • While I do not recommend applying to multiple lenders, identify a backup lender.
  • Be proactive and troubleshoot the process.
  • Assist with due diligence and track contract and loan application compliance.
  • Assess any environmental or appraisal issues at the onset.
  • Be certain as to the timeline for receiving a final approval letter from the lender, and note any contingencies in that letter.
  • Anticipate and complete any purchase contract and financing contingencies.
  • If the deal is a 1031 tax deferred exchange for either party, compliance with the IRS Code time limits is crucial.
  • Make sure the designated settlement firm gets a preliminary title report to unearth any issues early on in the loan process.

The foregoing are just a few suggestions to put on your “checklist”.

Next: Please look for discussions involving life companies, CMBS (Commercial Mortgage Backed Securities), and alternative financing, “How do I Select a Commercial Real Estate Agent?”, “Managing the IRS Section 1031 process, “and “How to Look for Office Space?”?

Most CRE borrowers will deal with a commercial bank on transactions up to $10 million, although some small life companies may welcome deals around $10 million, and CMBS lenders on smaller net-leased transactions. Getting a bank loan, of course, is a process.

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We did it again –

October 19, 2016 by
Sunstar

Weichert Commercial Elkins Lane Realty Advisors is proud to announce that it has completed its tenant representation of Sunstar Strategic—an Alexandria, Virginia based media relations and marketing communications firm. Acting as Sunstar’s exclusive tenant representative, Elkins Lane Realty Advisors (“ELRA”) scoured the targeted Alexandria, Virginia office market for attractive alternatives to renewing Sunstar’s lease in its existing office building.

After competing these options against Sunstar’s existing landlord, Sunstar elected to relocate to new quarters.

Through a combination of a more efficient use of space and a lower rental rate, ELRA was able to attain a 56% savings for Sunstar in the cost of housing its business--all without sacrificing Sunstar’s image or business. It is a tenant’s market. The time to save on your commercial office lease is now.

Weichert Commercial Elkins Lane Realty Advisors is proud to announce that it has completed its tenant representation of Sunstar Strategic

Queen Street Property Detail Report

October 13, 2016 by

We have put together a detail Property Report – look it over and give us call if you have any questions at Work: (703) 519-0782 | Fax: (703) 725-8901

1101queendetailandanalysis

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