Non-Bank CRE Loans at Near-Bank Rates
www.arrivatollc.com – We are generally recognized within the industry for the track record we have developed in financing and creating strategic partnerships among bigger ticket transactions and within our own companies. There is another area of focus that is among our most active on a daily basis – small balance commercial real estate lending.
That is always a good question. The fact is 80% of all commercial real estate transactions within the industry are small balance. It not only makes good sense to focus on this as a consistent revenue model whether we are deploying capital into fund strategies or into direct transactions. It also fits the core ideology of Arrivato, which is to make a difference within local and regional communities – the foundation of our economy.
Through the many years of experience among our leadership at Arrivato, we have a lot of personal relationships with localized industry professionals and more often than not, they reach out to us regarding a challenge of trying to secure a loan at the local or regional bank to acquire or refinance an asset.
We find that most people assume they have to pay an expensive hard money lender. In some cases, this is the only option Fortunately, as we learned at a young age, we should never assume. In many scenarios, there are very attractive options with pricing that is either comparable or not too far outside conventional bank pricing.
I like to call these semi-conventional loans.
What are some the characteristics of a semi-conventional loan?
Let’s start with the property revenues. The current revenues should be traditionally bankable. Secondly, we need a stable and capable borrower.
You might be wondering how a capable borrower who is acquiring or refinancing an asset with stable revenues is getting turned down by banks. There are a couple reasons for this. A local or regional bank generally is careful what type of properties they position into their portfolio, especially one that is within an old money community. If the property has zero curb appeal and needs what some might call TLC, the local bank is likely not going to desire having their name associated with an ugly duckling within their community. These are typically not the properties you will see featured in a magazine.
The other primary reason is the borrower. While the borrower is currently stable, there might be an event from a few years ago, even a bankruptcy that has nicked the borrower’s credit profile. Even the slightest nick on a credit profile could keep a borrower just outside one of the underwriting boxes at the bank. In other cases, the borrower’s tax returns are not quite strong enough.
This is when I am often contacted.
This is where regulatory metrics versus the story comes into place. Within our non-conventional environment, we look at the story behind the transaction and the people. This does not mean that the numbers do not matter. In fact, they matter just as much, if not even more than at your conventional bank. Our non-conventional lenders create underwriting models that carefully evaluate risk through evaluation of the current cash flows, potential future performance of the asset, rent rolls, and valuation without the regulatory constraints of the traditional bank.
I have relationships with private lenders and also private High and Ultra-High Net Worth individuals who will issue loans to scenarios that are just outside the conventional banking box. In select situations, these are loans comparable to bank pricing with interest rates in 3-5% range or slightly outside the banking range at 4.75% to 9% with leverage up to 75% and even 80% LTV. The terms on these loans can be for 5, 7, or 10 years.
I can share a quick example with you.
We were introduced to a borrower who was seeking to refinance a 34-unit multi-family residential asset. The property had stable revenues and the borrower had a tremendous track record buying and selling commercial assets throughout his career. He initially contacted a handful of local and regional banks where he was given some rough quotes in the 4.25% to 4.75% range. When a couple of these banks did a drive by on their way home from the bank in the evening or reviewed pictures of the asset, they rescinded their original quotes and turned down the request. The property had zero curb appeal and was not a true apartment community. While there were no signs of distressed or significant deferred maintenance issues, it was simply a drab and tired looking asset.
With that being said, I was brought into the situation.
I quickly spoke to a few people and was able to quickly bring together a loan offer from a private lender. It was a five-year term at 70% LTV, representing $2.3 million. The interest rate was 4.875%. If the borrower wanted to take cash out of the property, the interest rate would have been 5.375%.
The bottom line is that this is an attractive option for an individual who was turned down by their local banks.
Your situation might be different. Perhaps you have tax liens that need to be retired, maybe there are multiple debts that you would like to consolidate, or you would like to complete some light upgrades to your property.
We welcome you to contact us anytime to discuss a scenario and review your options. We have been known to surprise a few borrowers with terms far lower than they expected – even in scenarios that did not require tax returns.