All Forum Posts by: Dan Wallace

Sounds like a fairly unique property. You may be lucky to get 70% financing. Will the owner do an owner carry for 10% to help bridge the financing?

Borrowing with an LLC as the borrowing entity is very typical in commercial lending. Many times the LLC is a special purpose entity formed to own and operate a commercial property for various legal and accounting reasons.

A commercial lender will typically want to get information on the ownership group of the LLC with a few exceptions. In underwriting any commercial loan the lender will want to identify three sources of repayment. The first repayment is the cash flow of the subject property, the second is the liquidation value of the collateral and the third is the possible recourse to the guarantors of the note.

Important to know when developing an LLC or investment entity to secure lending is that lenders have different approaches to underwriting. Some lenders may want all owners of the LLC to provide a full recourse personal guaranty while some lenders may only require a limited personal guarantee. There is also the possibility that a lender could require no personal guarantee but that typically requires a large down payment.

Since each LLC member will invariably be required to provide some sort of personal guaranty, you will need to provide tax returns and personal financial statements for all individuals. Depending on the circumstances of each individual, more information may be requested by the lender.

I think you can sell the note at any time. A history of payments would obviously get you a better return but be prepared for a note buyer to basically want to underwrite the entire deal. Is this a start-up business or expansion? Is there a personal guaranty? What did the property appraise for?

I know of buyers of notes and these are some of the questions they will ask.

What kind of commercial project are we talking about? Depending on your project it may be best to use a national or regional source. Local, regional and national banks generally offer typical "off the shelf" pricing consistent with their cost of funds. 

If you can provide more general details about your project including property type, loan amount, etc. it will be easier to point you in the right direction.

When it comes to commercial lending there are several guidelines and rules that can vary by lender. From my experience the issues that come from using an owner carry for the bulk or entire amount of the non-bank financed portion is that underwriters to want to see cash or skin in the game from the buyer. An owner carry is just not the same as cash equity. The terms of the owner carry can also be problematic. Can the property cash flow the additional debt burden? Also, is there some sort of balloon or due clause on the owner carry that could jeopardize the project and therefore the bank/conventional lender's loan.

Some suggestions would be to try and structure the owner carry on as lucrative terms as possible and push out any balloon or call provision. If the cash flow is strong enough to carry all of the debt burden you may have a chance but in general lenders want to see cash into a deal.

If you haven't already come across the below thread, I would encourage you to review. Sounds like what you are trying to do follows this type of transaction which addresses the experience, go big attitude and how financing was approached.

BTW, most of the commercial financing you will be looking at will be full, personal recourse. Don't confuse what you are trying to do with institutional lending where non-recourse is possible.

https://www.biggerpockets.com/forums/223/topics/625168-first-syndication-complete-64-units-in-colorado-springs?page=3#p3751181

I don't see the issue of having an annual DSC covenant tested annually. This is fairly typical and at 50% LTV you should not have any covenant violations.

In the 28 years I have done commercial lending, I don't believe I have ever seen a reputable lender place a loan in default for a DSC covenant violation. Not to say a lender would not, but more likely would be if a violation were to exist, the lender may demand you to refinance with another lender but to call the note due, in my opinion, would be remote.

The rent capture requirement does seem restrictive. 

If you deal is this strong, you should have no issues negotiating these items or getting the third party reports and going to another lender.

@Mark Anderson When you reference "commercial" loan that can mean several things. Also, what do you mean about "fixed?" Do you mean fixed for a certain period of time such as 5, 10 years, etc or do you mean fixed for the life of the loan?

I remember this thread from a few months ago. History does repeat itself and I think the points in this video may be right on.

https://youtu.be/Gubf0A5pHL0

@Sam Rust Congrats on the deal. Was this project listed on the MLS, a pocket listing or possible entirely off market? I would have thought a project this size in a good market like C Springs would have attracted larger buyers with institutional funds.