2016 has started with a thud. As we know, real estate is subject to the same forces and psychology as the wider economy. With the dollar sinking and the rapid job losses in the West, lenders across Canada seem to be retrenching and moving to a more conservative view of the future.
With my many years of lending experience, I have seen this show before.
So as a potential borrower, you may be asking yourself what can I do to present myself in the best possible way?
Here are 4 tips that could help your deal move quickly through the approval and funding process:
1. List Your Relevant Experience
Lenders today are looking for borrowers who have direct and successful experience in the property type that you are looking to finance. Don’t be shy about listing all the relevant experience. For instance, if you have developed and leased 5 industrial buildings previously, give details about how well the project went. You can say it came in on budget, was leased at proforma, was leased ahead of projections.
Lenders want battle tested clients who can weather any upcoming challenges.
2. Provide a Detailed Upfront Package
Lenders don’t like surprises, especially in today’s uncertain world. Get your environmental phase 1 done, complete the engineering report, get an updated appraisal, get current financials.
The more a lender can get comfortable with the risks and mitigants, the quicker your deal will get approved.
3. Settle Partnership Details Beforehand
Most deals today have partnerships. This gets complicated when the lender is looking at who will provide the guarantee. I have seen many deals get delayed because the 5 partners argue as to who will be stepping up to provide this covenant. Lenders have to do a more intense KYC (Know Your Customer) on the guarantors and this process can sometimes take two weeks.
As best you can, try and settle these partnership details upfront before you send in the package.
4. Don’t Be Afraid to Show Some Downside Scenarios on your Proformas
Most borrowers think that its best to show very aggressive numbers on their projections. So if you are projecting a vacancy rate of 3% and the market you are in is 10%, most lenders are going to take 10% not 3%.
You will get credibility if your numbers are realistic and you have a built in margin in case things don’t go exactly as planned.
About the Author: Warren Appotive is a Vice President & Broker at Commercial Mortgage Corporation. CMC specializes in commercial real estate debt and equity placements by arranging commercial mortgages from $3 million to over $150 million on commercial real estate properties and portfolios across Canada and the United States.
For more information, contact firstname.lastname@example.org