The largest source of capital for real estate comes from the debt lender, but investors tend to spend little time speaking with lenders to understand their requirements. On this episode, we speak with Scott Williams of Aline Capital on how to qualify for commercial loans. He shares great tips for syndicators and shares why the interest rate is not the most important metric you should evaluate.
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Key Market Insights
Provides both equity and debt financing
Equity: returns fluctuate with property; Debt returns are fixed
Institutional equity is deal based but operator must have experience
Grew up in commercial real estate, father was a commercial appraiser
Received a real estate degree out of Clemson
Worked as outsourced underwriter for Fannie Mae, Freddie Mac and CMBS
Common mistake operators make is seeking the lowest interest rate
The #1 thing to make or break returns on a deal are pre-payment fees
Yield maintenance: typically on CMBS
Step-down, open pre-pays
Operators seeking maximum IO (interest only payments)
Maximum IO comes with longer loan terms, even on a step down, you will have a higher pre-payment in the early years
Markets shift, watch prepayment for flexibility
Assumable loans help, but you want to ask if a second loan is acceptable
Fannie Mae loans are assumable, supplemental loans are permitted
Get comfortable with the stress metrics
What has to happen for this deal to fail? How likely is this scenario?
Pay attention to real estate taxes – in South Carolina, it is a point of sale state where property is re-assessed at the point of sale
You do not need to disclose to the lender that you are syndicating the deal
Lenders want to know that borrowers have skin in the game
To get a non-recourse loan: net worth equal to the loan, liquidity and post close liquidity (9 -12 months of debt service to 10% of loan proceeds)
Having a partner with liquidity is the #1 reason syndicators add partners
Partner: Check out the Passive Income through Multifamily Real Estate podcast with Kyle and Lalita Mitchell
Bull’s Eye Tips:
Winning the Best Commercial Loan: Work with someone before you find the property
Tracking Market Changes: Constantly evaluating interest rates and programs
Daily Habit: Only have 3 priorities per day
Resources:
Best Business Books:
Traction by Gino Wickman
Digital Resources
Podcasts
Tweet This:
“Common mistake operators make is seeking the lowest interest rate”
“The #1 thing to make or break returns on a deal are pre-payment fees”
“You do not need to disclose to the lender that you are syndicating the deal”
Places to Grab a Bite:
Connect with Scott:
Website: Alinecapital.com
Phone: 864-729-3990
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