Do Term Sheets or Commitment Letters Show Financial Credibility to Brokers/Agents?

[Nadia Jones]

For newer CRE developers working to establish credibility for larger scale deals, I'm curious about the role of financial documentation in building trust with brokers and sellers. Specifically:

1. 1. How do brokers evaluate the credibility of a buyer who provides a loan term sheet versus a loan commitment letter from a lender?
2. 2. Do either of these documents meaningfully address concerns about a buyer's ability to close a deal?
3. 3. Are there particular elements (e.g., lender reputation, conditions in the letter, proof of equity) that you look for to validate the buyer’s financial readiness?

What would push the needle for you as a broker to confidently move forward with a buyer in the process of acquiring a building? Are there any other critical factors that signal a buyer is serious and capable of closing?

[Doug Smith]

A terms sheet will tell a pro whether you know what you're talking about and give them a structure of the deal you propose, but it won't establish credibility with respect to your financial ability to pull off the deal. As lenders, well issue a prequal/preapproval letter if we've analyzed your income, assets (bank and brokerage statements to establish that you have the liquidity to afford the down payment, closing costs, and reserves), review credit of the guarantors, review the relevant experience to ensure that we're not throwing our money away on newbies that are wandering around in the dark, and have put together a reasonable plan of attack for the project. Over my time (over 30 years), if your lender will make a call to the seller/seller's rep to explain the level of due diligence we've done on the buyer usually goes a long way. Do you have the Capacity/Ability to close, do you have the Character/Credit to close (including relevant experience), and do you have the liquidity to properly provide enough collateral (are you injecting enough into the deal). If you can convince them a bona fide lender is on board, that's 90% of the battle.