Loan Placement Matrix
- Life companies are picture postcard lenders. Must take a gorgeous picture.
- They are extremely risk adverse.
- Loan must cash flow 1.35x (1.25x rock bottom)
- Loan-to-value ratio should be less than 60% (65% absolute max.)
- Loan must be over $1,000,000.
- Property must be less than 5 years old (brand new preferred)
- Exception: Less than 10 years old and in very affluent area.
- Must be a standard property type
- Concrete industrial
- High net worth borrower usually required
- Net worth should be 1.5 times the loan amount.
- Borrower must have good credit.
- They like fixed rate
- Their loans are either locked-out or have huge defeasance penalties.
- Low points (1 or maybe even par)
NOTE: In 25 years Blackburne & Brown has never closed a life company loan!
CMBS Lenders (Conduits):
CMBS stands for Commercial Mortgage-Backed Securities. CMBS lenders pool their loans, securitize them and sell them off to Wall Street. Therefore conduits have unlimited cash for deals not good enough for life insurance companies. Conduits are motivated by BIG profits to close deals with just a little bit of hair. Conduits only lend on specific property types that fit into their cookie cutter molds, but they have lots of molds:
- Apartment buildings Office buildings
- Retail buildings and strip centers Shopping centers
- Industrial buildings Hotels and motels
- Mobile home parks (currently out of favor but coming back)
- Mini-warehouses (currently out of favor but coming back)
- Health care facilities, residential care homes, convalescent hospitals and congregate care (currently out of favor but coming back)
- Loans as small as $100,000 to as large as $2 billion - Unlimited funds. Always hungry.
- Debt service coverage ratios: 1.20 minimum.
- Borrowers must have at least average credit (some tiny blemishes probably okay.)
- Net-worth-to-loan-size ratio not officially computed but ideally should be reasonably close to 1:1.
- Rate is almost always fixed, usually at some spread over 10 year treasuries.
- Spreads over 10 year Treasuries usually about 1/2 higher than life insurance companies.
- Loans are either locked in or have huge defeasance prepayment penalties. Low points, usually 1.
- Conduits will accept older, not so beautiful properties. Conduits will make loans to 75% LTV and very often 80%! Best lender for max cash!
Savings & Loans
- S&L’s are real estate cash flow lenders. Loan Must Cash Flow 1.25x.
- Standard Property Types Only
- Industrial (Concrete or brand new steel skinned)
- Borrower need not have a big net worth.
- Borrower must have good credit.
- They write few fixed rate loans. They want floating rate loans.
- Low points (usually 1)
- Loans to 75% LTV common. 80% occasionally.
- Banks are balance sheet lenders. They like liquid net worths. Banks want a deposit relationship. Very important.
- Exception: Japanese and money centers banks (WFB, BofA)
- Standard Property Types Preferred
- Industrial (Will do older steel skinned)
- Business properties considered if business very successful (as evidenced by large cash deposits)
- Loan must cash flow 1.25x (in theory but this rule is frequently broken)
- Borrower must have good credit
- The Japanese and money center banks write fixed rate loans for resale as CMBS loans.
- The small banks make 5 year loans with a 5 year rollover at market rates.
- Low points - usually 1 to 1.5.
- Credit companies are tax return lenders.
- Business properties financed regularly if debt service supported by the tax returns. Borrower must have good credit
- Property must cash flow 1.0 based on last years’ tax returns (Hard because most borrowers cheat a little)
- If the tax returns are good, the closing ratio is excellent. All of their loans are tied to Prime, usually Prime plus 3%.
- Lowish points (2 to3)
Thrift & Loans
- (Note: By 2005 all former thrift and loans have converted to banks.) A special form of small bank found in California only
- Common sense lenders
- Maximum loan $1,000,000 (maybe $1.5MM if very cherry) Very flexible on property type
- Most active special use lender Not dependent on tax returns
- Will allow a negative cash flow if borrower can support debt. Expensive
- Good credit preferred but not essential. Common sense. Loans are tied to Libor (usually 3% to 5% margins) Healthy points (usually 1 to 2)
- Terms of ten years and longer are now common
- Hard money lenders are equity lenders 65% usual max
- Credit not very important
- Negative cash flow okay to 65% loan-to-value Very expensive
- Decent fixed rates (usually 12% to 14%) Big Points (3 to 6)
- Short term (1 to 5 years)