Commercial (Multi-Family) Financing Pain Point

[Rob Krach]

As this specifically relates to my job I have some questions and hoping for any insight from those who have gotten or applied for commercial financing with a bank for an apartment building with 5 units and above:

What are the pain point's you have experienced?

What would cause you to go with one lender vs another?

How important are the terms, (pre pay, fees, non-recourse, I/O, etc.) vs proceeds?

Is there anything you would like to see from a lender, to make any of the above easier?

Thanks,

Rob Krach

[John Barnette]

Contrary to what some folks experience has been with financing an acquisition of a small commercial loan for such building, the lender ABSOLUTELY reviews your numbers as a buyer and the building numbers. I closed on an 8 unit appt building in March 2017. 

My background. Have had various rental properties of one sort or another since 1997. On tax returns and self managed. I was in a 1031 exchange and this was an upleg. Already owned 9 other props. Mostly sfr, but also duplex and a condo. Mostly cash flowing on tax returns. 

Day job is real Estate agent and thus considered self employed.  16 yrs.  Decent income but also write off a bunch on tax return.  FICO about 770.

Property acquired in a C location and B/C condition. About a 10.5 GRM on actual rents that were about 10-15% under a very active Bay Area market. Coming in with about 35% down. Plenty of seasoned reserves. $1,150,000 price.

First Bank was Provident . They were quite optimistic to start and best rate. Most terms similar in shopping around. Paid appraisal and came in at value. 

But...they ultimately turned me down. Said global debt to income for me as a borrower was too high. I have no debt except a $400 car lease and 9 mortgages. About 50% ltv global on those too. They sliced and diced the income of the building, and increased the expenses for some huge vacancy factor on below market rents. So basically they underwrote  (word?) Me with reduced income and increased expense and completely ran me through the ringer on my personal side.  

Cost me a commercial appraisal and $700 in processing. Switched to a lender  (First Republic Bank) that I have a deep relationship with and they did it. Higher rate but also went from a 5 to a 7 yr arm.

So expect the full on body cavity search as a possibility.

I have heard from others familiar with this game that when you get to about 20 units, that the buyers are not scrutinized as much.

And stay away from Provident !