-Post by Scott Lynn
Two years ago, local and regional banks were not returning our phone calls about new commercial real estate loan (CRE) opportunities. Our friends in the banking community gave us a standard response: too busy dealing with loan defaults, foreclosures, falling property values, or keeping regulators placated by not making new CRE loans.
What a difference two years makes! It really does feel like spring is in the air again! During the month of March alone, Metropolitan Capital Advisors (“MCA”) completed over $10,000,000 of loan placements with banks that offered very attractive terms to our clients.
Examples of our March bank placements include a $3,450,000 five-year floating rate secured by a fully-leased 18,000 sq. foot shopping center near Ft. Hood military base in Texas. MCA represented a privately-held opportunistic investment fund that had purchased an existing note, foreclosed on the asset, and stabilized the property. The refinance proceeds allowed our client to repatriate their equity investment and pursue new acquisition opportunities. This loan was closed in 36 days start-to-finish.
Other interesting bank placements included a loan on an apartment complex in Houston (purchased two years ago) that is now fully renovated and stabilized. A regional bank stepped to the table with a $4,250,000 term loan to pay off a high rate/high leverage acquisition loan. The borrower’s interest rate cost was cut in half — from 12% to 6%. Now the borrower/client is enjoying significant after-debt-service cash flow while they market the property for sale.
Sometimes banks are as competitive as life insurance companies and CMBS/securitized lenders when it comes to offering an attractive fixed rate loan. Included in our March Madness loan closing tally was a $1,700,000 loan secured by a portfolio of light industrial & warehouse properties located in Ft. Worth, where our client locked in a five-year interest rate at 5.85%.
While banks are typically the “go to” source for constructions loans, the ground-up development arena has not exactly been a growth industry when the economy was in a healing mode. Banks need to generate loans to make a profit — so with underwriting and quoting existing cash flow, CRE can easily turn out to be a win/win situation for both the lender and the borrower.
Here is a top ten list on why you might want to consider a bank for your next CRE loan:
1) Banks can be flexible on structure and will sometimes accept other collateral to get to the desired loan proceeds.
2) Banks usually do not charge prepayment penalties… a perfect way to park a deal until you sell it.
3) Bank floating rate pricing is well below the fixed rate pricing offered by other conventional sources.
4) Banks may also have very competitive fixed rate programs as noted above.
5) Banks are always the preferred source when construction or renovation is involved.
6) Banks can agree to “partial release” provisions if you have a “For Sale” deal, such as a condo or land development.
7) Banks can usually move fast — MCA just closed a deal in 36 days
8) Banks are relationship-oriented and welcome multiple transactions.
9) Banks are back in the market, so there is a variety to choose from for most transactions.
10) Banks with a wide operational footprint can be the best option for out-of-state and foreign borrowers.
The downside (if any) is banks usually require full or partial recourse from borrowers with good credit, minimal legacy, and with strong sponsor credentials. Non-recourse (no personal liability) loans are the exception in the banking world, and are usually only discussed when a transaction is low leverage, low loan-to-value, and has a high debt service coverage. Banks may also be better disposed to a non-recourse transaction if the income stream is supported by a strong credit tenant.
Knowing what banks to go to, which banks will lend on specific property types, minimum and maximum loan amounts, and other critical lending parameters requires a wide knowledge base to navigate the evolving market. Since 1992, MCA has historically used the bank community on over 57% of its debt placements — that’s almost $4.8 billion of closed bank loans. MCA has the deal flow, market knowledge, and established relationships to guide your prospective transaction to the best possible outcome with a wide variety of local, regional, national, and international banks.