Tonight I want to explore how land development financing has changes over the last six months. We have seen drastic changes as the experienced developer's funding sources have been dried up. It used to be that any experienced developer could either walk into their local bank, access their favorite insurance company or knock on the doors of Wall Street for funding. Not any more....
The experienced developers have made significant changes to adopt to this economic environment. The one thing that we have noticed is that the number of units per phase have been reduced dramatically. Where we used to see 50 to 100 units per phase and even greater we are now seeing 10 to 15 per phase, if they are still developing and moving forward at all.
Lets shift our focus to the individual that wants to develop land for their own facility such as a medical center etc. Lenders will still lend on these projects if the borrower has a substantial liquid net worth as compared to the money needed to be borrowed. Lenders are not lending money to acquire the land as there is no more land-banking.
But they will lend money to projects that are ready to pull building permits, provided the borrowers meet the 5C's +E test for SBA funding or 4C's + E for non-SBA projects, the "C" of character not being applicable.
The key is to be ready to pull the building permit within 30 days or less. Projects that are being funded are ready to be built. No political risk involved. Generally the only thing that should be outstanding at the time of funding for the project to move forward is the capital to move forward.
Visit loanforbiz to read much more about land development financing.
Wednesday, October 15, 2008
Tuesday, October 14, 2008
Daily Observations - Residential Issues
Tonight I want tot look at how residential real estate is being treated by commercial lenders as a form of collateral.
First of all we have had over the last couple of weeks commercial lenders totally discount to zero the value of residential real estate as a form of collateral for SBA Loans. We used to be able to pledge any type of real estate as a form of collateral, residential or commercial. But today the only form of collateral that the lenders are comfortable is commercial. I believe that is because commercial real estate has two forms of value.
The value of the real estate, but also the income value. If a lender takes back a commercial piece of property they can usually receive the income associated with that property should they elect to keep the property on their books in the unlikelihood instance that they are not able to sell the property.
The second way residential is being effected has to do with how SBA looks at equity. SBA requires a lien on all property that has greater than 25% equity. Therefore even if you are buying a commercial property if you have greater than 25% equity in any of your other property, ie. your personal residence` SBA will require that the residential property be taken as additional collateral.
So don't exaggerate your equity to make the banks feel more comfortable with the loan application. In essence its is now better for your commercial borrowers that they understate their equity. Chances are that the desk top appraisal software that the commercial lender uses will be much lower than the borrower thinks his or her property is worth.
Visit loanforbiz for updates to the SBA program as they are occurring.
First of all we have had over the last couple of weeks commercial lenders totally discount to zero the value of residential real estate as a form of collateral for SBA Loans. We used to be able to pledge any type of real estate as a form of collateral, residential or commercial. But today the only form of collateral that the lenders are comfortable is commercial. I believe that is because commercial real estate has two forms of value.
The value of the real estate, but also the income value. If a lender takes back a commercial piece of property they can usually receive the income associated with that property should they elect to keep the property on their books in the unlikelihood instance that they are not able to sell the property.
The second way residential is being effected has to do with how SBA looks at equity. SBA requires a lien on all property that has greater than 25% equity. Therefore even if you are buying a commercial property if you have greater than 25% equity in any of your other property, ie. your personal residence` SBA will require that the residential property be taken as additional collateral.
So don't exaggerate your equity to make the banks feel more comfortable with the loan application. In essence its is now better for your commercial borrowers that they understate their equity. Chances are that the desk top appraisal software that the commercial lender uses will be much lower than the borrower thinks his or her property is worth.
Visit loanforbiz for updates to the SBA program as they are occurring.
Sunday, October 12, 2008
Daily Observations - Loans Are Still Closing
Just a quick blog tonight, loans are still closing.
Last week, we closed a commercial loan for the purchase of an office condo. I very rarely announce the deals that we close, but I thought in today's economic environment. It was something important for everyone to hear.
We closed this particular transaction in less than 45 days from start to finish. The appraisal for the office condo came in at exactly what the purchase price was. The lender pre-approved the transaction, and at closing pricing was even more competitive than what was written in the letter of intent.
The only reason I'm sharing this information tonight is that I do not want anyone to give up. Even when the news is very bad, there still are lenders that are lending their own capital, and portfolioing their own loans. If you're deal makes economic sense, is cash flowing, and have a strong buyer, there is no reason why you cannot fund the loan.
Do not let this economy control you, you must control your own economy.
Visit loanforbiz for much more information on small business and commercial loans.
Tuesday, October 7, 2008
Daily Observations - I "Hope" this is not a TREND
Short and to the point this evening. One of my major lenders has completely stopped doing any SBA 7A loans that do not have a commercial component.
Very simply, we used to be able to do SBA 7A loans with residential collateral as long as the collateral covered 90% of the loan. As of today the only collateral this lender will accept is a commercial piece of property. What does that say about their faith in the residential market coming back,,,Not Much!!!
They will do loans that are SBA that have real estate as part of the purchase, but without real estate as part of the purchase and no commercial real estate as collateral - NO LOAN
The problem I have is that this particular lender is usually a trend setter, and if other banks and or financial institutions follow suit, we are only going to go deeper into the muck and mire.
Now for the good news this evening we are still closing deals!!!!
There are still lenders that want depository relationships and as such are looking at these deals differently than they did before this debacle started to unwind.
Visit us at LoanForBiz
Very simply, we used to be able to do SBA 7A loans with residential collateral as long as the collateral covered 90% of the loan. As of today the only collateral this lender will accept is a commercial piece of property. What does that say about their faith in the residential market coming back,,,Not Much!!!
They will do loans that are SBA that have real estate as part of the purchase, but without real estate as part of the purchase and no commercial real estate as collateral - NO LOAN
The problem I have is that this particular lender is usually a trend setter, and if other banks and or financial institutions follow suit, we are only going to go deeper into the muck and mire.
Now for the good news this evening we are still closing deals!!!!
There are still lenders that want depository relationships and as such are looking at these deals differently than they did before this debacle started to unwind.
Visit us at LoanForBiz
Monday, October 6, 2008
Daily Observations - What is Going On???
The market was all over the place again. We were down approximately 780 points but closed at -364. What a comeback! Europe is bringing us down as well as Germany and France.
So what's one to do.
I don't usually talk about investment strategy but I wanted to share what a few of my friends are doing as well as what the knowledgeable advisers are suggesting.
STAY THE COURSE
The market has plummeted so far that if you sell now you are selling into a panic mode, ride the storm out, The market always comes back. On a personal note when I was an investment banker I sold my own parents California Tax Free Bonds and when in the early 80's Cal Tax Free Bonds had a major free fall when the Orange County bonds went into default I recommended for them to sell. Had they not listened to their (not knowledgeable) son, they would have been much better off by holding them and still receiving the dividends that were still thrown off.
With that story in the back of my mind I called my Investment Counselor, the one I use to work for and asked him what to do and he gave me the above advice. So for what ever its worth tonight I offer the same advice to you. (seek your own counsel when making any investment decisions)
Lastly Make your own economy, don't let the economy make or in this case break you.
So what's one to do.
I don't usually talk about investment strategy but I wanted to share what a few of my friends are doing as well as what the knowledgeable advisers are suggesting.
STAY THE COURSE
The market has plummeted so far that if you sell now you are selling into a panic mode, ride the storm out, The market always comes back. On a personal note when I was an investment banker I sold my own parents California Tax Free Bonds and when in the early 80's Cal Tax Free Bonds had a major free fall when the Orange County bonds went into default I recommended for them to sell. Had they not listened to their (not knowledgeable) son, they would have been much better off by holding them and still receiving the dividends that were still thrown off.
With that story in the back of my mind I called my Investment Counselor, the one I use to work for and asked him what to do and he gave me the above advice. So for what ever its worth tonight I offer the same advice to you. (seek your own counsel when making any investment decisions)
Lastly Make your own economy, don't let the economy make or in this case break you.
Sunday, October 5, 2008
Daily Observation - My "Guide Sheet"
Tonight I am sharing with you my guide to qualifying sheet that I use to evaluate all of our commercial and SBA deals. For more info view loanforbiz.
1. Credit – We need a credit score for SBA Loans greater than 650 for all the borrowers.
For some SBA loans I can go lower but the lender is going to look and ensure that all the other C’s are “without blemish”
2. Collateral – For SBA Loans without real estate most lenders are going to want anywhere between 50 to 95% coverage. For deals with real estate they will look to the real estate for the collateral, but if there is also a business acquisition involved they will want additional collateral to secure the “biz op”.
Remember that if any property has 25% equity the SBA REQUIRES that the property is also placed as additional collateral
3. Contribution – This is another word for down payment and the following guidelines are provided.
For Properties that are considered single purpose a minimum of 15% down
For Properties that are multi-purpose 10% will be sufficient.
For either property I still recommend a seller carry back of at least 10% of the Real estate.
For The business opportunity the SBA is requesting the seller to hold the value of the good will at a minimum
4. Capacity – Capacity is the ability to cover the debt service. Most lenders want to see in the last year at least a 1.25% DSCR, and a trend of increasing DSCR for the last three years.
5. Character is exactly that, For SBA any character issues prevent the use of a PLP lender
6. Experience – The borrower must have direct experience in the industry. For Straight commercial properties the borrower must have owned similar properties as well.
1. Credit – We need a credit score for SBA Loans greater than 650 for all the borrowers.
For some SBA loans I can go lower but the lender is going to look and ensure that all the other C’s are “without blemish”
2. Collateral – For SBA Loans without real estate most lenders are going to want anywhere between 50 to 95% coverage. For deals with real estate they will look to the real estate for the collateral, but if there is also a business acquisition involved they will want additional collateral to secure the “biz op”.
Remember that if any property has 25% equity the SBA REQUIRES that the property is also placed as additional collateral
3. Contribution – This is another word for down payment and the following guidelines are provided.
For Properties that are considered single purpose a minimum of 15% down
For Properties that are multi-purpose 10% will be sufficient.
For either property I still recommend a seller carry back of at least 10% of the Real estate.
For The business opportunity the SBA is requesting the seller to hold the value of the good will at a minimum
4. Capacity – Capacity is the ability to cover the debt service. Most lenders want to see in the last year at least a 1.25% DSCR, and a trend of increasing DSCR for the last three years.
5. Character is exactly that, For SBA any character issues prevent the use of a PLP lender
6. Experience – The borrower must have direct experience in the industry. For Straight commercial properties the borrower must have owned similar properties as well.
Thursday, October 2, 2008
Daily Observation Day 6-9
I have to apologize for missing days 6 through 9, but I was forced to stop writing for some minor health issues that undertook me. Well I'm back at my PC again, and I missed not continuing this great debate that our economy is at the forefront.
I'm sure everyone now knows that the stock market has been all over the place up in anticipation of the Senate vote with all of their "pork"; down because the House has not come to a resolution yet. Even today as I am writing tonight the market dropped almost 350 points. Every night I have quoted CNN but tonight I am not going to go there.
We need to get to the core of the problem to be able to free up our credit. The question is will the Bail Out free up credit? The answer is yes but it will not be immediate. Tonight I want to expose what I believe is going on, the House is afraid to vote the way they want to because so many of the Congress officials are up for re-election. We need to take politics off the table so we can have much better financial management of all our assets.
This in essence is the point that no one seems to be recognizing. We are all talking about buying the assets of troubled financial institutions. But what we are forgetting is that the lenders that you and I need to be more free with credit are not being effected by the Bail Out.
The question has to be How does the lenders become comfortable to be able to relax their stringent criteria for lending? The lenders that we are talking to everyday have told me that number one even with the approved Bail Out they are not going to relax their policies, and on the other hand they have told us that because premiums in the secondary market are being reduced substantially they are raising their rates within the next 30 days.
So how is this going to help us? The lenders have to become comfortable so that they can lend again. THIS IS THE KEY
Remember SBA Loans are still getting funded each and every day, by us and other financial brokers. Visit loanforbiz for all your financing needs.
I'm sure everyone now knows that the stock market has been all over the place up in anticipation of the Senate vote with all of their "pork"; down because the House has not come to a resolution yet. Even today as I am writing tonight the market dropped almost 350 points. Every night I have quoted CNN but tonight I am not going to go there.
We need to get to the core of the problem to be able to free up our credit. The question is will the Bail Out free up credit? The answer is yes but it will not be immediate. Tonight I want to expose what I believe is going on, the House is afraid to vote the way they want to because so many of the Congress officials are up for re-election. We need to take politics off the table so we can have much better financial management of all our assets.
This in essence is the point that no one seems to be recognizing. We are all talking about buying the assets of troubled financial institutions. But what we are forgetting is that the lenders that you and I need to be more free with credit are not being effected by the Bail Out.
The question has to be How does the lenders become comfortable to be able to relax their stringent criteria for lending? The lenders that we are talking to everyday have told me that number one even with the approved Bail Out they are not going to relax their policies, and on the other hand they have told us that because premiums in the secondary market are being reduced substantially they are raising their rates within the next 30 days.
So how is this going to help us? The lenders have to become comfortable so that they can lend again. THIS IS THE KEY
Remember SBA Loans are still getting funded each and every day, by us and other financial brokers. Visit loanforbiz for all your financing needs.
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