Financing Focus

Lender Talk Tips

Maximize your role in discussions with your financing partner.

It's a good time to be a commercial real estate broker.

Sales volume for commercial real estate properties for the first half of 2015 was up 36 percent year over year, according to Real Capital Analytics. Vacancies continue to tighten across all asset classes. During second quarter 2015, the national multifamily vacancy rate held steady at 4.2 percent, according to Reis.

Office and flex space are now at a premium in many markets, presenting new challenges for brokers when it comes to competing effectively, from listing properties to landing the right buyer. One area where brokers and agents can really set themselves apart is navigating the financing process with a little extra panache.

Particularly in tight markets, the relationship you form with the potential buyer and conversations that you have with the financing partner can make or break each transaction. Here are five actions you can do as a broker or agent to more effectively secure the best possible financing on any given property.

Five Lender Conversations

1. Understand your role as a storyteller. Our peers in consumer lending are a bit more adept at this role as they move beyond a pure assessment of property amenities and encourage potential homeowners to imagine themselves in their new dream homes.

It's perhaps rarer to encounter a potential commercial real estate buyer who gets sentimental about the HVAC system and square footage for cubicles. But conversations with your client's banker that move beyond just dollars and cents can help negotiate the terms of the agreement.

How long and why tenants will stay in a particular property matters to your financing partner. Thinking of additional scenarios that might be of interest to your banker - such as what happens if a property experiences unexpected vacancy - can help put your financing partner at ease and demonstrate that you not only have a plan B in place, but a clearly thought-out plan C as well.

2. Leverage your market experience. Your market and industry-specific expertise matter when dealing with a financing partner. Consider a marketplace like Silicon Valley, where today's blossoming tech start-up can turn into tomorrow's Twitter - or end up another vacant office space back on the rental market. Experience specific to the tech sector, social media enterprises, and venture capital funding can all put you in a better position to gauge the potential of your tenants.

The same holds true whether your market is a burgeoning regional healthcare center or a newly revived auto manufacturing area: Know everything you can about your market's employers and employment trends. In this way, your ability to assist your financing partner in forecasting for a particular property can give you a leg up in securing a favorable financing arrangement.

3. Term length matters. Know your client's investment strategy for the collateral and shape the terms around their investment horizons. Use lenders with prepayment provisions that allow for flexibility.

Don't be afraid to explore term-length options based on what you know about the property, potential tenants, and your goals on the transaction. Structuring loans to accommodate shorter term leases is a possibility, but it requires a conversation with your lender to discuss why the term makes sense for the property's unique dynamics.

4. Protect your prospective deals. The belief held by many in the banking sector is that interest rates will increase before the end of 2015. That increase will impact commercial brokers long-term, but there is a way to mitigate the immediate effects that could put a damper on your transactions. Ask potential lenders in advance about getting a rate lock. This will allow you to secure the best possible rate for a property even before the ink is dry on the transaction. Being able to offer your customers a forward fixed rate for execution at a later date is a strong value-add, allowing you to know what your expenses will be against that income, rather than take a chance on rate fluctuation between present day and your close date.

5. Find flexibility. It's important to gauge the flexibility of your various lending partners to determine in advance which one will make the most sense for certain transactions. The most successful brokers know that finding the lowest rate, whether from a conduit or another lending source, is not always the best option for their client.

Exploring lenders that keep deals on their balance sheets can offer much more flexibility through the life of the loan. For instance, if an investor has a short-term hold strategy or may need to do a building expansion in the near future, they will need prepayment flexibility or the ability to restructure their loan. A balance sheet lender can generally accommodate these and other hot-button issues or challenges faced by the borrower. That flexibility can be the difference in winning or losing a deal.

 

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John Randall

John Randall is the managing director of multi-tenant and multifamily businesses for EverBank Commercial Real Estate, a division of EverBank. Contact him  at John.Randall@everbank.com.

Doug Misner

Doug Misner is the sales leader for EverBank Commercial Real Estate, a division of EverBank. Contact him at Doug.Misner@everbank.com

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