Obtaining commercial real estate debt financing is no easy task. In certain scenarios, gathering and organizing the required information can be a monumental undertaking. Many times, closing timeframes or difficult sellers can make it impossible. However, when presenting an opportunity to a lender, the more information you can provide the better. More importantly, you can expect more accurate feedback. From a lender’s perspective, the overall focus or theme is “don’t lose.” Because of this directive, lenders can be seen as “Debbie Downers” or “Negative Nellies”, seemingly unable to focus anywhere but on the downside scenario of the opportunity. Because typical debt structures do not allow the lender to participate in the upside, the downside risks take the majority of the lender’s focus. From this perspective, it is easy to see why lenders will tend to take a conservative approach. As a broker (or sponsor), it is important to try and not let a lender replace missing information with overly negative assumptions (sometimes they just can’t help themselves). A debt package that provides a complete picture of the opportunity will help manage any lender concerns upfront. This allows the lender to focus on the business plan presented, rather than stalling out with questions about missing information.
Below is an outline of important parts of any debt package that, when included, will help to keep the lender’s attention on the deal.
- Background
- Sources & Uses
- Capex Budget
- Historicals + Pro Forma
- Sponsor Background
- Market Data