All Forum Posts by: Darryl Dahlen

I don't know of a factoring lender who would lend against future rent.

Factoring involves accounts receivables of companies who have strong contracts in place for a product. As Charles indicated, factoring is usually used when the billing cycle for is 30-120 days behind the invoice, so the factoring agent advances money on the contract, gets paid in full (plus their fee), and refunds the difference to the client.

Companies that typically use factoring are:
• Oil Field Service Providers
• Staffing Companies
• Manufacturers
• Distributors
• Wholesalers
• Transportation Companies
• Service Providers

There ends your factoring 101 class for the day.

I understand your plight and agree with you. In the case where you are looking at HM/JV financing it is easier to run into credibility issues more than with conventional lenders. As mentioned earlier, this is another good reason to look for local money.

There are plenty of HML/JV outfits who will often not show their hand until there is a contract on the table. Of course there are those who will show recent closings, but as far as a phone reference, I think you're going to run into issues with a phone reference until the developer is ready to pull the trigger on a contract. A lender could put people on the phone all day long which would quickly lead to having no verifiable references. I think a lot people are unaware as to how busy lenders really are these days.

In my case, once I have enough relevant info to make a decision as to if the deal is real I try to get someone from the lender on the phone with the borrower as fast as possible. This is to show that I am real, but also so the lender and borrower can feel each other out as to if they are a good fit for each other.

In the case of hard money, my lender(s) will often request further docs after the call to fill in any holes in the hopes of issuing a term sheet. Up until that point, some lenders will show proof of past closings, but that really is about all they will do. Once a term sheet is on the table, I have one who will provide a phone reference or two, but the others will not.

Again, I don't run into issues with my clients as 9 out of 10 are comfortable once they've talked to someone from the lender, checked out the website, BBB, etc. If a phone referral was still needed I think the lender would be turned off and think the borrower to be high maintenance and pass on the deal.

Good point about going local. Especially when it comes to hard money/JV and/or when dealing with Texas as there are some funky rules about lending there.

Bryan, yours is a tough spot to be in, but let me share with you my experience and you can take from it what you will.

As a commercial broker, I can tell you what some of the problem I run into on a regular basis.

1.There are also a lot of borrowers who have been burned by fee grabbers, and as a result, have dug their heels in by being unrealistic about how the loan process works. This often means the borrower expects all fees to be paid at closing which is simply not going to happen. This thinking can lead to a lot of false starts so its important that I take a temperature reading on the borrower as well as vet the project.

2. There are a lot of broken projects out there. The project can suffer from a poor market, broke developer, too high of an LTC due to falling values, expired permits, on and on. I need to see the current numbers to see if the loan request is reasonable and that the relevant information supports the loan.

3. There is a LOT of fraud out there. People are forging financial statements, money spent on the project, etc. I don't take any one's word on anything relating to finances. They have to prove to me they are real and financially capable of closing a deal. It doesn't matter how good a loan looks if the borrower can't afford to draw permits or pay for closing costs.

I could go on, but I think the point is clear. As a broker, I need to vet the client to make sure the project is real and is above water. With lenders being more selective than ever it is critically important to maintain my relationship with them and not waste their time.

There is more to a project than an executive summary, but typically, that is the first doc that is provided. If the summary looks good, I then require YTD financial statements, budgets, resume(s), appraisal, etc.This helps me to make an informed decision as to if the project still has legs, or is a pipe-dream.

From the developers end, all of the requested information should be on hand, so it should be no big deal to provide it when requested. If I were a borrower, I would take solace in the fact someone wanted to see it so they are well informed about my project.

As far as vetting goes. I think it's pretty easy to determine if you are working with someone who knows what they're talking about. I can tell within a few minutes if I'm dealing with someone who is realistic about lending in 2010 or if they're stuck in 2006 and are looking for the impossible. I would like to think a perspective borrower could tell if I have 8 years experience and actually have real lenders behind me versus if I'm some used car salesman trying to make a quick buck.

While I have references, I don't pass them out to just anyone. I want to know that I'm not dealing with a tire kicker, shopper, or an unrealistic borrower. If they pass the sniff test, I am more than happy to appease any concerns they may have about me, but they have to prove themselves to me first. After all, they came to me (in most cases).

So, I think it is important for any borrower to have up to date docs on hand as most real brokers will require it. You didn't state if your developer friends has a good executive summary on hand, but if they don't, then they are putting the cart before the horse and need to spend some time putting one together.

Hopefully, this post gives you some insight into the mind of a broker. Again, take from it what you will as everyone does things differently.

Tough spot. Most HMLs aren't looking at land these days, and the ones that are are lending in the 30-35% LTV range. That, and as Jon stated, you could expect worse terms than what you have now.

More than likely, your lender isn't going to get aggressive with you because you are paying, and if they take the land, there goes the income stream they had.

I agree with the mentioned strategy where you might want to entertain a fire sale and capture some of the equity you have. There are some people out there land banking property for when the market turns.

This video is spot on and has a good dose of humor to it. Anyone else think this sums it up?

http://www.ibtimes.com/articles/20100529/world-collapse-explained-inminutes.htm

I've replied using the terms my client's have gotten as of late from my go-to lender.

1. Are you finding the loans? Being a broker I bring the borrower to the lender and work with them to create new programs

2. Do you have skin in the game? If so, what %? Typically, the lender wants to see 35% skin/equity from the borrower

3. Why do you think you're not finding the loan?

4. Are your lenders normally local? This lender is out of Atlanta, but lends in NC, SC, GA, GL, TN, and AL. They will not fund until they’ve put boots on the property, but that lending area is larger than most lenders I’ve seen.

5. Actual rate you’re currently paying Typical rates range from 12-14% I/O with 4-6 points with terms up to 18 months and extensions available.

6. Would you say this borrowing system has been a success? This lender is BUSY as they will do construction, equity plays, bridge, rehab, and cash-out deals making them unique.

If so, why and what would you suggest to others? Look for ways to be different than other lenders. Find out what is needed in your area, develop a program(s) to fill that need, market the program, and close deals.

Email sent.

It's too hard to tell from the information provided, and I hate to speculate.
I'll say this though, HUD relies heavily on experience and the quality of the management company. Their loans are non-recourse, so the borrower's financials don't factor into the loan nearly as much as they do with recourse loans. They'll scrutinize the construction budget and proforma from every angle so make sure your numbers are spot on.
IF you set up a quality team, have a good lawyer who understands HUD on staff, can withstand the time it takes to close a loan, and have the necessary funds, you should have a ballgame.
Do your DD with regards to how much money you need, ask for the qualifications of the lender's underwriter and how many 221(d)4 loans they have closed. As I suggested, link up with a MAP approved lender. You are almost guaranteed to have a good lender if they're MAP approved.
Post your email address and I'll send you a HUD analysis for you to review.

HUD is very good at eliminating potential deal killers upfront. Speaking from experience with my lender, the lender will heavily evaluate the loan prior to ordering the appraisal/phase 1/HUD inspection, etc. Once the preliminary analysis has been done, the lender should issue you an in-depth analysis of the numbers to you via a proposal (I can send you an example of one if you would like to see one).
Once the terms are negotiated (you "can" modify the PPP and replacement reserve account on some deals), and settled, you will be issued a contract. Once you engage the contract you will also be required to send the fee for underwriting the loan and for the 3rd party fees.
After the 3rd party reports come back, any revisions to the numbers will take place. Once that is done, the application will be sent to HUD along with the application fee (1/3 of 1% of the loan amount). The lender will underwrite the file according to HUD guidelines, so there should be no surprises once HUD receives the file.
Obviously, this "should" decrease the UW time, but these loans can take up to 9 months to close s making them an exercise in patience.
I would strongly suggest you link up with a MAP approved lender as that will further decrease the time to close your deal. A list of approved lenders can be found through a quick search.