25 Specific Questions to Ask Your Commercial Real Estate Lender
One of my responsibilities as StackSource’s Director of Capital Markets is to consistently interface with our lending community. The goals are to both introduce our company to new relationships and understand how current lending relationships are changing to this new Covid-19 environment.
While each conversation is unique, there tends to be a similar pace and rhythm where I try my best to understand the answers to each question below.
This is my personal playbook on important questions I want to know about our lenders.
Hopefully you find these helpful as well.
- Do some research on the lender and the contact before you call.
- Are you dealing with a lender contact who has clout within their firm?
- Conversations are dynamic so consider this list of 25 questions as purely a guide.
For the purposes of this blog, let’s assume that this is a brand new relationship and I was referred to this lender contact from a friend.
Before the Call
If you know the contact’s name and what company they work for, you have enough to find all you need online. By researching the company name, you should be able to determine what type of lender they are.
- Credit Union
- Life Company
- Debt Fund
- Private Capital
Each lender type has a different personality, expectation, and source of capital so understanding this ahead of time will be key to having a smooth and successful relationship-building call. (I‘ll detail each lender type’s typical personality in a later blog.)
Once you get a good idea of what type of the lender they are, many times you can find a website section that provides their official lending parameters overview.
I italicize “official” because, for me, I am much more interested in the types of deals that we should be showing them, the types of deals that their credit committees want to see, rather than what is the total umbrella of their capabilities.
Picking up the phone and giving them a call provides invaluable information to this regard and establishes the “human touch” that we pride ourselves on coupling with our platform’s technology.
Lastly, do NOT underestimate the power of clout in commercial real estate. Are you dealing with a lender contact that just started there OR are you dealing with a senior executive that also sits on credit committee?
There is a BIG difference and your experience will dictate such.
If you’re dealing with any of our Capital Advisors at StackSource to help get your deal financed, then you can rest assured that we have and continue to develop relationships with lender contacts who have clout within their firms.
On the Call
Outside of establishing rapport, here are the 25 questions I try to understand.
- What product types do you lend on? (i.e. multifamily, office, retail, industrial, hotel, land, etc.)
- Do you lend on any specialty products such as cannabis, data centers, gas stations, etc.?
- Does the property need to cash flow?
- Do you lend on acquisition, construction, value-add, and stabilized perm projects?
- What are your typical loan terms?
- Do you lend only in the senior position or can you provide mezz / pref financing also?
- Are you able to provide equity? LP and/or Co-GP equity?
- What’s the minimum and maximum loan amount that you’ve seen get approved and funded at your firm?
- Do you participate out your loans over a certain threshold?
- What’s your max Loan-to-Value, Loan-to-Cost, Debt-Service-Coverage-Ratio, Debt Yield?
- For construction and value-add, do you size your loans to a stabilized Loan-to-Value?
- Investor only or do you also lend owner-user deals?
- What locations do you lend in?
- Does the Sponsor also need to reside in the same State?
- Do you require recourse?
- Is your rate fixed or floating?
- What is the minimum and maximum rate you have seen get approved by committee?
- If the lender is a debt fund or private capital, what is the minimum all-in yield you are solving for? (This “all-in yield” will signal you that the combination of interest rate and points will need to be at or above that minimum yield)
- If the interest rate is floating, do you have a rate or index floor?
- What is your typical amortization?
- Do you have a prepayment penalty?
- How is your company structured?
- How is your credit committee structured?
- Can you describe your closing process?
- What is your typical time to close deals?
These represent most of the questions I try ask. As you can imagine, these conversations are dynamic so consider this list as purely a guide.
Best of luck out there my friends.
If I missed anything important, I’m happy to engage with you in the comments so that everyone can learn. If you prefer to share privately, feel free to email me at firstname.lastname@example.org.
Our expert Capital Advisors help you secure your ideal capital stack, resulting in a lower cost of capital for your investments in less time and with more transparency than a traditional commercial mortgage brokerage. Learn more at StackSource.com.