Friday, August 15, 2008

What If I Need A Non-Conventional Commercial Mortgage Loan?

Good morning. In a continuation of this weeks focus on looking at, and analyzing a commercial mortgage loan scenario, today I am going to address the information that you will need to know if you or your borrower is looking to do a commercial construction project, or if as a borrower you can't qualify for a conventional commercial mortgage loan.

In these turbulent times in the mortgage markets, minimum credit scores that were once 600 or even below are now typically in the 660+ range. If you need to borrow money, and at this point can't qualify conventionally, you can still borrow against property that you currently own, IF there is equity in that property to use as collateral for the new loan that you want.

Typically, bridge or "hard money" lenders will lend up to 60-65% of the "quick sale" value of the property they are using as collateral. What does this mean? If you have a building that appraises at $1.2 MM, the quick sale value, or the price that it would sell fast at in the event that the lender had to foreclose is $1 MM. The lender would lend you about $600 K interest only with typically a 1 year term. These are expensive loans in terms of rate (typically 12-16%) and cost (typically 2-5 points to the lender), and the lender will need to see a clear use of funds, but more importantly a CLEAR AND VIABLE EXIT STRATEGY. That is, how are you going to get out of the loan. If you have mortgage lates on your credit, that will typically kibosh the deal, even for a bridge lender.

Bridge money is also available for construction, and although it is more expensive than bank financing, in some cases it is the only game in town. It is just one more expense in the deal, and if the deal is good, and the developer is good, won't make that much of a difference.

There is more to the story of bridge money, but for the purpose here I tried to be as concise and clear as possible. If you have any questions please contact me at exetertraining (@) aol (.) com.

Below is a list of the items that you will need to know in order for a lender to get an idea of the deal. An Executive Summary or ES should also be written that describes the overall outline of the deal, use of funds, developer, market, pre-sales and exit strategy as well as any other critical details that make your deal good, viable and profitable. Here is the list, and again, let me know if there are any questions.

Have a good weekend.

Mike Haltman



The following questions will supply us with most of the information required to determine whether this bridge loan and/or construction project can be funded, as well as the ability of the owner to acquire that financing. Please fill it out as completely as possible, and fax it back to us at 516.741.6838 or send the information in an email to haltman easycommercial com . Each item is marked either bridge, construction or required for both. Items marked with an * are of particular importance. Thank you.

*Broker (if applicable) (bridge and construction):
*Borrower Name(s) (bridge and construction):
Commercial Capital Alliance contact (bridge and construction):
*1003 completed (bridge and construction)?
*Is a PFS available (bridge and construction)?
*Exact location and description of the property (bridge and construction):
Is a recent appraisal available (a new appraisal will be required) (bridge and construction)?
*Net operating income for the property to be financed (bridge loan):
*Amount of existing liens on the building (bridge loan):
*Loan amount desired (bridge and construction)?
Interest reserve requested (bridge and construction)?
*Hard dollars borrower currently has in the deal (construction)?
*Land free and clear or the amount of the mortgage remaining (construction):
Idea of the current value of the land (construction):
*When was the land bought, and for how much (construction)?
*Plans, permits and approvals already obtained (construction)?
Does the borrower have funds available for the interest expense (bridge and construction)?
*Borrowers’ FICO (bridge and construction):
*Is a line item budget available for hard costs (construction)?
Are there any other uses for loan proceeds ((construction)?
*What is the use for the loan proceeds (bridge)?
*For condo projects, an idea of rental comps in the area (construction):
*Finished value of the project (construction)?
*Resume of the borrower and builder (construction):
*Does the borrower have other collateral available, and would they be willing to use it to cross collateralize this loan (bridge and construction)?
*If yes, describe it and the amount of available equity (bridge and construction):
*How much of their own money will the borrower have in the project in hard costs (including the equity in the land) (construction)?
*Are their any pre-sales (construction)?
*Are the down payments for pre-sales being locked into an escrow (construction)?
*Overall exit strategy (bridge and construction):

Thanks again.

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