No, I can’t give you a quote

Tim Milazzo
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S̶o̶m̶e̶t̶i̶m̶e̶s̶ Way too often we get a financing inquiry from an investor that is brand new to the commercial real estate scene, and they ask for a loan quote while supplying such little information that giving them (an accurate) quote would impossible.

Sometimes this prospective borrower has flipped some houses and has experience with residential mortgages. On the residential side, generating a rate and loan size quote is pretty darn simple: you give your credit score, income, and down payment amount, blink, and it’s there. There’s nothing to it.

So now this investor strolls over into commercial real estate, sees a property they like, and immediately reach out to a Capital Advisor for a loan quote, just to see if it’s a deal worth pursuing.

No, bruh, we can’t give you a quote.

Here, in brief, is how a lender produces an accurate quote for a commercial real estate deal:

  1. Analyzes the property’s cash flow. If it’s a value-add or construction deal, there’s particular care here, because you’re talking about potential cash flow.
  2. Assesses the borrower’s track record.
  3. Consider’s the borrower’s financial status.

Each one of these activities has a quick version, and a longer, in-depth review. So to get a quick quote, you should provide at least enough information to cover the three above.

Below is the absolute minimum amount of information you need to supply to a lender or Capital Advisor to expect a reasonable loan quote back.

Property Cash Flow

Stabilized

Provide income statements and a current rent roll. Sometimes a sales offering memorandum will have most of the necessary info.

Value-add or Construction

Provide fully formed pro forma financial model, and some relevant comps. Do not just send a sales offering memorandum.

Sponsor Track Record

Either provide a Schedule of Real Estate Owned, or some sort of Credibility Booklet that shows deals that you have executed profitably in the past.

If you have any black marks that the lender will spot later (like a bankruptcy), admit that upfront.

Sponsor Financials

Many lenders will want to see a Personal Financial Statement (“PFS”) included in the initial loan request package. Many sponsors are hesitant to provide one because of the personal nature of the information.

I’ve found that you do not generally need to provide a fully-formed PFS to score an accurate quote. Instead, though, you should be prepared to share the bottom line of what will be found there in due diligence. So you should indicate, for the total group of loan guarantors (which will always include all 20%+ owners in the deal), the total net worth and total liquidity of the individual or group.

So there you have it. If you want a fairly accurate commercial mortgage quote, come prepared with the items in bold above. Note that this is far insufficient for a complete underwriting. But it will get you in the ballpark, and for many loans (but not all), will get you an accurate rate and term quote that will remain unchanged through to closing.

For full accuracy, you need to provide full information. Exactly what additional information would be relevant can vary based on the type of deal.

Examples of additional underwriting info

  • Tenant financials (income statements and balance sheet)
  • Tenant credit ratings
  • Full slate of sales comps
  • Full slate of rent comps
  • An abstract of commercial leases
  • A full copy of the property’s current leases and lease options
  • Historical view of concessions and free rent given to tenants
  • Past appraisals
  • Feasibility study

On a deal-by-deal basis, as special circumstances arrive, the list of underwriting info required will be dynamic. Don’t forget that a lender’s entire business revolves around mitigating risk. If there are special risk factors with your deal, then they need to be accounted for in the underwriting process, and that may impact your rate and terms.

StackSource is a tech-enabled commercial real estate loan platform. We connect investors who are developing or acquiring commercial properties with financing options like banks, insurance companies, and debt funds through a transparent online process. We’re taking the best of commercial mortgage brokerage and updating it for the 21st century. Learn more at StackSource.com.

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