Why Commercial Real Estate’s Final Conclusion is an excellent tool for Mortgage Brokers

Chuck’s first contact with me on the project was to advise me the borrower had just completed construction at a cost of $3,200,000, which made his request a 75% loan to cost. Chuck assured me the borrower was "strong" (a description over-used in our industry) and since the project was already 92% occupied, the loan was perfect. "Great," I replied, "when you get all of the numbers, let me know."

It took a couple of weeks and finally the day came when he was ready to come into our office with the package. Boy, was he flying high. Opportunities for $24,000 fees just do not present themselves to residential brokers and I could tell Chuck was already thinking about that hiatus to Bimini for a few days.

It took me exactly 30 seconds to advise my friend that the project would only support a loan of $1,850,000.

Mouth agape, he asked, "Bbbut wwwhy?" He was totally perplexed!

Simply stated, the borrower turned a $3,400,000 project into a $2,600,000 value. How? In order to induce tenants - to get the occupancy level up quickly - he gave monthly rent concessions - without regard to other considerations, such as shortening lease terms or adding escalation clauses during the original one-year lease periods. In other words, he did not follow, even remotely, his own pro-forma statement provided his construction lender, nor did he consider the appraisers comments that the "college rental market" for this area lasts year round and has adequate room for additional absorption. In other words, the borrower did not have to lower the rents, but did so arbitrarily.

If my friend had only been privy to this one simple formula, "Maximum Loan Supported By The Lender’s DSC Requirement," he might have saved time, expenses, anxiety and lastly, frustration at having the loan be turned down. The bottom line? No other lender would make the loan and the construction lender subsequently foreclosed.

In retrospect, on typical income property loans - such as: retail, office, warehouse, etc., a construction lender might have required bank approval prior to any leases being ratified. This would have insured the project was maintaining a satisfactory rent base and assured them of a future "take out." But, on multi-family projects, where the market rates are stable and the need for additional units is apparent, many lenders let the borrower have more latitude.

One of the very important points in commercial real estate loan brokering is knowing the right questions to ask your borrower. In the FINAL CONCLUSION, these questions are laid out for you in an easy to use format that anyone can understand with ZERO down time for implementation. Plus, every project type has its own special set of questions. In other words, go to the loan type, print the "input" data needed to underwrite that specific loan, have your borrower fill it out (it might take 2 minutes if they are super slow) and then - you take 30 to 60 seconds to enter the data into the FINAL CONCLUSION. Yes, it really is that simple.