CRE Thought Leadership

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.

1. Background
2. Sources & Uses
3. Capex Budget
4. Historicals + Pro Forma
5. Sponsor Background
6. Market Data

Securing a commercial bridge loan can be a lot of work and any missteps can prove costly.  Below are some tips, that if followed, will increase the probability of obtaining attractive bridge financing.

Have a Defined Plan

It is imperative to have a defined plan with an accompanying budget including a spreadsheet of monthly income and expenses for the first 24 months of the loan period.  A lender’s ability to both understand and quantify the strategy quickly always works to the sponsor’s advantage.  In particular, ensure that you are thorough in describing why this is a value-add opportunity.

For example, if poor management is to blame, talk through why they are a poor manager (limited experience, minimal properties under management, etc.).  Additionally, any insight as to why the current ownership didn’t recognize or address this shortcoming is also helpful.  A well-defined strategy, along with supporting details that paint a clear picture, will give significant credibility to the deal up front.  

Understand the Timing Required

Here at RRA Capital, we evaluate CRE bridge loan requests every single day. Over the last decade, several common themes have begun to arise, and we’d like to share the top ten missteps that brokers make when trying to secure a bridge loan on behalf of their client.

1.  Sloppy/No Package 

Only forwarding an OM (offering memorandum) or historical financials without putting together a package typically looks lazy or desperate.  The easier it is to cohesively synthesize the information, the better the response will be from the lender.  Lenders are ideally looking for concise descriptions of the business plan, pro forma cash flows along with assumptions, sponsor bio, and sources and uses.  A lone faxed copy of Q2-2012 cash flows likely won’t solicit a sharp quote.