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.
2. Missing or Confusing Sources and Uses
Sources and uses allow the lender to know how much leverage is being requested and what it will be used for. It gives lenders a sense of the business plan and leverage profile. Most often, when we don’t see sources and uses, it seems that the borrower is trying to obscure the fact the new loan will be cashing out equity or financing something other than the current secured debt. If the borrower needs liquidity to buy that dream boat. Don’t hide it. Put “Dream Boat” on the sources and uses so that we can politely decline to fund it.
3. Including Pictures of the Property at Dusk or Night
Dark and grainy pictures of the property leads the lender to assume that the building is old and tired looking. Everything looks great under the glow of a glorious sunset. How about a mid-day shot? We can take it.
4. Not Having a Decent Borrower Website
If we Google the borrower’s principal and/or company name and nothing professional looking comes up on the first page, that’s a red flag. Are they mafia? CIA? It is very easy to have a web presence these days. Not having one signals that a borrower is perhaps not taking their investment activities very seriously…or don’t want to be found.
5. Going Dark
It’s important to keep the lines of communication open. Even if nothing has changed, it’s good to check in with the lender every few days to let them know you haven’t forgotten about them. We can get self-conscious.
6. Harassing the Lender for a Quote
The opposite of going dark. Calling every phone line. Emails. Texts. Carrier pigeons. It makes the broker seem desperate or inexperienced. In the early stages of a deal, one touch per day can be just fine.
7. Not Mentioning Borrower Blemishes
If Google tells us about a blemish before the broker does, they’ve got some explaining to do. We’ve discovered numerous bankruptcies and lawsuits just by searching a few key terms. If you tell a lender about any rough patches up front, they’ll likely be more forgiving.
8. Relying Too Heavily on One Quote
Although RRA always performs, we’ve seen this a lot with bank quotes. A borrower will get a solid term sheet but then several weeks later the deal gets killed in committee and the borrower is high and dry. In the interest of the borrower, it is important to have creditable quote backups that can move quickly if necessary.
9. Getting a Deal Multiple Times from Different Brokers
Trust the process. Choose one broker and execute with them. When a lender sees a deal submitted multiple times and from different brokers, they will assume the borrower is probably blaming a broker for not getting a deal done. In reality, it might just be a tough deal to secure funding for. Similarly, seeing a deal less than two years after we first saw it is not good. We are bridge lenders. Borrowers are supposed to bridge from us to…something else. But definitely not another bridge loan. These near-term reappearances typically mean something hasn’t gone to plan.
10. Including a Recent Appraisal Ordered by Another Lender
Brokers may provide a recent appraisal from another lender as a way to demonstrate that the property has significant value. However, lenders might view it as a signal that another lender fell out of diligence or wants out of the deal for another reason. I don’t think the receipt of a recent appraisal has ever improved our impression of a deal.
If you follow the above recommendations, I can assure you that your conversations and closings with potential lenders will go much more quickly and effectively in the future.