But here’s what you need to do to get great financing
StackSource is a tech-enabled platform that helps you get a commercial real estate loan. We build thoughtful, streamlined technology tools that connect you to lenders and keep track of the process, and we also have an expert team of Capital Advisors that guide you through the entire process, ensuring you end up with the best financing possible.
But in the interest of transparency, you don’t need us. You can get a great commercial mortgage without using an intermediary, because you can go straight to direct lenders to get your loan. I’ll even guide you through the entire process here.
First, you’ll need to professionally underwrite your commercial property investment. You’ll want to look at your deal the way a lender will look at it — with all the potential risks and downsides accounted for, and with market data and proof that your deal is going to be a great one. You only get one first impression with a lender, so prep your underwriting to make it a good one.
Use data to determine which lenders are most active and most competitive in your specific market, rather than just defaulting to who you know already. There are several paid software and data products out there these days that let you subscribe to market and lending data across the country, or in a specific market. You’ll be able to search, sort, and filter lists of lenders that have lent on different types of properties over time. Finding the right capital sources, rather than just a workable lender, can be the difference between good and great investment returns.
How many minutes will each loan officer spend looking into your loan request before ignoring it and moving onto the next one in the stack? Not many, especially if you don’t immediately provide the information they are looking for. A positive impression with a loan officer is a key first step in getting your financing — they are looking to screen deals for location, asset type, a few key metrics, and the right story (and sponsor) that fits within their loan parameters. Make sure to call out key points of the loan request, like the loan amount, LTV, and desired terms.
It’s also important to note that lenders hate surprises. If you fail to mention a key detail here and they find out about it later, it could be a killer, and you could be left out to dry.
Once you have the pitch book prepared, you’ll want to reach the right person with it, and make sure they give it the time of day. Ideally, you’ll want all the lenders that are viable options for your project to be opening these around the same time. The reasons for this are 1) You’ll be able to measure who is most responsive and 2) You’ll be able to compare quotes within a reasonable amount of time, keeping your deal on track to close.
There’s no formula to nail this step. It requires some people skills, some negotiation skills, and often, an ongoing relationship. Think of it like job hunting — the most successful strategy is not to blindly submit an application and cover letter, and then wait to hear back from the employer. The ideal strategy is to study what that employer wants, find a way to connect personally with the hiring manager, and follow up thoughtfully. Lenders are the same way. Know what they want, connect personally, and follow up thoughtfully. And sometimes, politely and tactfully kick their butt if they are slow or wrong.
This is the fun part for a good deal. Now that you’ve netted some term sheets, analyzing them and figuring out what’s the best financing for your investment will help maximize your returns, and minimize risks. Analyze and optimize not just for the best Rate, for best deal return metrics, keeping in mind the differences between balance sheet, securitized, or agency secured loan options.
This step will be a bit more tricky if a more complex capital stack is involved — like a mezz piece or preferred equity between you and the senior lender.
Recognize where a term sheet might be negotiable. It’s typically not effective to go back to a lender who’s given you a term sheet and say “I want a lower rate”. You need to understand how the lender views the pricing within the constraints of their exposure timeframe (loan term, extensions), protection (recourse, insurance, prepayment penalty), and structure (amortization, pre-reserves).
Once you’ve gotten as close to your ideal scenario as possible from each loan option, you can choose the one that fits your deal best and submit an application and deposit with that lender. Note that the raw information on the term sheet is still not the only factor you should be considering — you’ll also want to think about the lender’s reputation and efficiency, timing constraints if you’re under contract to acquire, and loan servicing situation. Your relationship with the lender is only just beginning, so understand what your loan experience will be after closing.
Hold the lender just as accountable as they hold you, pointing out pieces of information you knew to provide up front back in step 3. Leverage your knowledge and relationships in the market to call out BS if any arises, or even call in a favor if needed. Commercial mortgages are funny things. There is a lot of complexity, even in this technological age where information is communicated more effectively. Make sure you understand the issues that a lender will prioritize during the due diligence period. There are still human decision makers. You don’t have a committed loan here, yet!
Was the appraisal ordered? What day is the credit committee reviewing the loan package? Is the lender missing any information that they need? To keep your deal on track to close on time, don’t assume someone else remembered to dot every i and cross every t. Like a good Reaganite: Trust, but Verify.
Keeping track of all of your loan information (package, quotes, term sheet, documentation, etc) will make it easier to access next time you need to get a commercial mortgage. Store everything in a centrally accessible drive, so you and your whole team can easily access all of it with a few clicks.
See? It’s simple. Follow the above eleven step guide and you’ll never need to work with a loan broker, or even a transparent platform like StackSource to finance your commercial property investment! Feel free to contact us though, if you think any of the above steps might be better suited to a commercial mortgage pro who’s on your side, who can execute on all the above steps as your advisor, and who also knows what not to say that will jeopardize your best possible loan.