All Forum Posts by: Mark Brooks

Leo, I'm in Nacogdoches (one city north). PM me and I'll try to help you out.

Originally posted by @Wayne Brooks:

Sure, but I'm thinking a this commercial loan likely has a much better chance of getting called under the due on sale clause than a small run of the mill residential mtg.

 Piggybacking off this idea, I would say that the bank would absolutely need to be in the loop on this. But, I'll disagree that the bank will have an itchy trigger finger to call the note. I'm only seeing things through the lens of the community bank I work for, but I think it's safe to assume the following:

-The original borrower/current seller is probably struggling in some capacity. Otherwise, they wouldn't let the property go for exactly what they owe on it. That's a desperation "I'm tired" move, not a position of strength.

-The current loan officer knows that the credit is struggling; his/her supervisor knows, the market president knows, etc.

-The new borrower (you) represents a new potential "out" for everyone involved. It gives an additional person to go after in the event of foreclosure.

If my bank was facing a situation as above, it would viewed as a positive thing that you are interested in buying/transitioning the property, not a negative one. The LAST thing we would want is to foreclose on a CRE/Multifamily property.

Originally posted by @James Kojo:

@Mark Brooks that's very helpful.

You made the statement that I should "establish a base-line CAPEX and then average it out over time."

I guess that's the part I'm struggling with. If you aren't going to use a fixed % based estimate, how do you take the capex from the actuals and create that baseline?

Thanks!

James

Sorry my response was ambiguous.

By base-line, I just meant the "normal" level of actual expenses. Each property should have a certain level of "normal", recurring expenses that happen from year to year. Roofs, parking lots, etc. are not normal expenses; you fix those once and then they *should* be good to go for a while. Fixing things in between tenants or wear and tear items would be normal (flooring repair, doorknobs, paint, etc.) 

I'll take a look at the numbers in more depth if you want to reach out to my via PM. I'm happy to help, just giving my opinions. I have no skin in the game here, so don't take my word as actionable advice, just a perspective of how I would account for things.

I'm a credit analyst and underwriter for a commercial bank. If it was me, I would look at actual expenditures, but add-back anything that is non-recurring/extra-ordinary (roofs, parking lots, repainting exterior, etc). Also be sure you're establishing establish a base-line CAPEX and then average it out over time. I would make sure the borrower had sufficient funds to cover 1-2 years worth of "normal" capex plus and was proforma covering the PITI 1.35x+ from the property cash-flow. I would then "shock" it with a re-pricing rate hike, a significant loss of tenants and/or both. If it looked like it would still realistically cash-flow at a 1.0x when those "shocks" happened, then I wouldn't have an issue recommending approval.

But I'm looking at things from a conservative community bank's perspective, as an underwriter and not a loan officer. Better to be conservative on the front-end when running your underwriting, as opposed to ignoring some expenses you may incur. I've never seen anyone pissed off that their roof, driveways, etc. lasted longer than they expected.

I've worked for BOA and now a community bank. With BOA (or any of the trillion $ asset bank types), you either fit in the prescribed box or you don't. Score off by 5 points? Denied. LTV just a shade out of whack? Denied. BOA banks something like 150 million people, so they can afford to do that. Community banks are much more flexible, while still being prudent and conservative. I know that's somewhat ambiguous, but that's the best way I can describe it.

I'm a credit analyst for a commercial bank. I spend all day putting these deals together for my bank. If you have any other questions, let me know.

I would use google maps to see banks around the neighborhood you are investing in. Start calling the ones whose names aren't nationwide type banks. You're looking for community banks/commercial banks. They will be the ones most likely to be flexible on their deal structure and most likely to lend in a particular neighborhood or area since they are familiar with it.

I don't know where you guys are banking where your personal credit score won't matter. You will most likely be a personal guarantor on the note. I'm a credit analyst for a community commercial bank. I spend all day every day underwriting proposed commercial loans and analyzing the risks associated with them. Most banks will have varying levels of authorization for unsecured funds. Aka, if your officer is a AVP level person, it may be under a certain $ figure, whereas a SVP or Senior lending officer may be 4x that. I wouldn't waste any more time preparing a "plan" because each bank will have its own culture, structure, and appetite for risk. I would find out which banks in your area are even lending in that space and start talking to bankers. Just be honest about where you're at and where you want to be. Ask them if they can help you get there.