All Forum Posts by: Chris Winterhalter

@Fred Conway 

@Michael Blank owns several craft pizza franchisees.  I'm sure he can chime in to give you his thoughts...

@Brie Schmidt 

I like several of the points that @Cliff Mccue makes regarding credit cycles.  This is an on-going concern not only with real estate but small/med size business in general.  We don't have the ability to borrow like large institutions do and if over exposed, leveraged, or caught in a downturn without ample reserves it can bring down even long standing, successful operations.  

But that means building strong relationships with not only one bank but multiple. If you have at least two strong relationships (and a few back burner ones) you will have an easier time finding credit in a downturn. All banks are lending now, however in 2008-10 trying to get a new banking relationship for CRE loans (w/ local/regional banks) was practically impossible. I talked to DOZENS of banks and finally was able to get a loan that I didn't want at terms I didn't like in 2009. Many of the banks I spoke with stated they were only lending to previous clients. Now I currently have two strong relationships and one of the banks was recently acquired by another local bank. Luckily the other bank had already provided term sheets for us in the past and understands our business and financials.

The likelihood that you keep the 30 year fixed loan for 30 years is extremely small.  You will either need to/want to re-capitalize the asset, reposition (i.e. condos), refinance into a better loan program, etc etc.  Although I would love a fixed 30 year rate I'm not sure it's worth the 225 basis point increase.  You might want to let your current loans season for a year or so and try for a rate reduction.  Did you have a previous relationship with the bank?  See if you can get a term sheet from another bank for low 4's.  Take it to your current relationship and see if they will adjust the rate (with an amendment).  Just one option... 

@Karen Margrave 

Unlimited resources is right!  But it's actually wonderful, innovation in real estate is something we don't talk about very much.  And I won't say we aren't innovating as developers, architects, builders, etc. however it's generally in small steps.  Certain innovation takes dollars (not all) but real estate tends to innovate slowly.  You don't see Blackstone investing a 100MM in their real estate innovation incubator, but you might with biomedical or tech.  When someone like Google can invest in a project that redefines real estate and space, it can help drive innovation for our industry.  

Hey @Karen Margrave 

I saw this yesterday, wild!  It puts a whole new meaning on real estate, design, planning, & architecture!  

Maybe you can get the GC portion? 

@Brie Schmidt 

Who's the lender on the program? Interest rate risk is always a concern, that's why it's better to get past the 2MM loan size where your options open up a little more with Fannie/Freddie/CMBS/Life.

With that being said I'm in a similar situation with my portfolio however most of our loans are 20 year AM, in the low 4's, and 5 year ballons.   

I would probably evaluate the 7.25% 30 year fixed loan program. Are all things equal to your other loans? I.e. LTV, org fees/closing costs, recourse (limited/full)? How about pre-payment penalties? I have to think the 30 year fixed program has a pre-payment program. Is the loan assumable?

None of my loans have pre-payment penalties and my closing costs are extremely loan because of my current local bank relationships.  I really don't think rates will sky rocket quickly, so I figure I can lock in another 5 years as rates start to climb up.  However a huge rate adjustment can definitely affect cash flow, especially if you are coming up on capex.  

However it depends on your goals, are you planning to hold these for the long term?  Then it might make sense to lock in a decent rate especially if you're currently in the 5's.  However make sure you plan for capex as refinancing will only be the right option under the right circumstances.  

I will also add that I saw James Bullard (President of St Louis FED) speak in Chicago at a CFA Institute event a few months ago.  It was really interesting to hear his predictions and although he basically said the FED can't accurately predict the next 5 years he did think the government would get involved if rates were increased & the economy hit a decline (more QE).  Essentially meaning that interest rates will be raised slowly over the next few years.   

@Account Closed 

Haha, I'm not sure if I should take that as a compliment...I'll make sure to work on my tan on the next photo op though.  

By the way did you know that Tom Vu turned into a professional poker player a few years ago?   http://en.wikipedia.org/wiki/Tom_Vu

When I first watched one of the videos I figured success looked like Yachts & babes in bikini's...if anyone is looking for a mentor, they need to call Tom Vu! 

Alright I'm done hijacking the thread....

@Tom V. 

Amazing story and awesome job!  

@Account Closed I had to read your post twice, Tom Vu, I'm not necessarily old enough to remember the TV commercials but I was somehow directed to old commercials via Youtube by a good friend of mine who knows I'm in real estate.  It's still an on-going joke between us...I think I'll have to go re-watch one of the infomercials!  

Hey @Jimmy Klein Glad to hear you are working on a deal.  

I think it's going to depend on the CMBS lender. What's the difference in purchase price & loan amount?

You could potentially get the seller to take back 5% of PP to give you the additional liquidity. Underwriting would still want to verify your DSCR. And I'm not 100% sure this will work.

Do you know a good CMBS broker that you can reach out to for advice? I can make a few suggestions if needed.

I don't have much experience with CMBS or assumptions in general but I wanted to at least offer a few ideas. Good luck!

@Bryan Hylenski 

I wanted to update my message with some information about the SBA 504 program.  I actually had to look into this program recently for a hotel project we are looking at developing.  

SBA 504 program is administered by CDC's or Certified Development Companies.  There are around 240 of these non-profit companies around the US.  They work with local, regional, and national banks to administer the 504 program.  The basic run down for a hotel/B&B would be this...

50% - 1st mortgage provided by bank

30% - provided by SBA (SBA will go up to 40% but because it's a new business they add 5% & ding you for another 5% because it's a single purpose asset (hotel)).  

20% - down from borrower 

Full Recourse for any borrower with 20%+ in equity stake 

The 50% bank piece term & rate are somewhat up to the bank with a few exceptions.  The 30% CDC/SBA piece is 20 year fully amortized fixed rate loan that sits around 4.5% right now + fees).  It's the same rate around the country.  It has a prepayment penalty that scales down for 10 years.  

If this interests you I would recommend contacting the top producing CDC in your area/region.  You can find this information on the SBA's website or by searching online.  Ask them who are the active hotel lenders in your local area.  Talk to these banks and get the full scoop about appetite.  

@Luis Montanez 

What you are asking for is possible, although I will say you didn't mention a fixed rate period.  You are probably more like a 5 year fixed rate with an adjustment.  Some markets are ballon markets and some are fully amortizing, however no local/regional banks (small balance commercial loans) provide fully amortized fixed loans past 7 years.  If they did it would be a very rare case to appease a large relationship.  Local/regional banks are worried about interest rate risk (as you and I are).  You are looking for a small commercial lender i.e. community/local bank, regional bank, credit union.  You've stated that you have called everyone in your area, well I'm sure you've missed a few.  Ask other real estate investors, brokers, insurance brokers, and property managers for recommendations.  Specifically in the small rental real estate space <$500k.  Finding the right banks and building the right relationships is key (and not easy).  Don't give up though!  

You are having issues, 1 because you probably don't have an existing relationship, 2 because you are pushing a few guidelines that most banks follow and 3 because your loan size isn't extremely attractive.  

A lot of local banks don't want to cash you out of your project within a short time frame especially without a relationship.  The right bank should be able to do the loan though.  6 months seasoning should be acceptable for most local banks however many have guidelines that go out past a year.  25 year amortization is possible however once again many will over offer up to 20 year am.  They might say they have a 25 year option however that's only for existing relationships.  You're probably looking at this if you find the right bank....

75% LTV

5 year fixed loan 

20 year amortization 

Loan in LLC with personal guarantee (but doesn't show up on credit report)

DSCR > 1.28