Connecting with a Commercial Banker in Houston

[Jordan Decuir]

So I just listened to @Brandon Turner speak on "The One Thing" on the Ask BP podcast...great (yet very simple) concept and podcast episode by the way, be sure to check it out....and it led me to the conclusion that I need to figure out what I need to get in line so that I can: 1) connect with a local commercial real estate banker here in Houston to discuss funding for multi-family/apartment investments, and 2) understand what it is that the commercial lender would be looking for in terms of sort of pre-qualifying my partner and I for funding.

We are looking to make multi-family/apartment investments here in the Houston area as part of a buy/rehab/rent strategy.

Any and all input and suggestions are welcome.

[Waylon Themer]

Hey @Jordan Decuir I would be happy to sit down with you some time and tell you what banks look for.  To give you the short and sweet version commercial real estate lenders look for:

Financial Capacity of sponsorship:  Do you have the liquidity to not only put 25% or so into the project but also enough liquidity left over in case things don't go as planned--vacancy, cost overruns, unexpected cap ex?  Do you have strong enough secondary source of income to not only carry your personal obligations but also have enough earnings left over to prop up the project if needed?

Project:  What is the risk level of the project?  What class of building and neighborhood? What are the prevailing occupancy and rent rates?  What is the history of the project?  

Experience/history of sponsorship:  Have you ever taken on a similar project? Were you successful?  What is your business plan and how do you know it will work?  What is your track record as a borrower (credit score)?

That is a brief overview of what we look for.  The decision is usually made based on combination of comfort level between the three categories.  If you have no experience then you better have a lot of financial backing.  If you are buying a distressed asset or building ground up then you better have good financial backing and good experience.  So on and so forth.  

Commercial lenders underwrite two things: probability of default and amount of expected loss if default occurs then they try to balance the two to make a decision.