Remington Financial Group – Brad Sweet

Perception is reality. Just look at the negative perception “Nervous Nellie” banks are creating about the increasingly poor prospects for financing commercial properties along the BP-oil-inundated Gulf Coast. Even big name lenders are feeding the perception that owners and developers of coastal commercial property have a better chance of finding a date on a deserted island than a bank willing to finance or refinance a commercial project on that 600-mile stretch of coastal property.

That’s one perception; a negative one. Here’s another; a brighter one. “If banks can’t or won’t support the financing needs of distressed commercial properties on the Gulf Coast,” Andy Bogdanoff said, “then private capital may well be the best way for many owners and developers to avoid bankruptcy. And Remington, with hundreds of well-heeled sources of private capital in its global network, is reputed to be the best source of commercial capital in the country, particularly for those unable to find traditional financing.”

With commercial real estate values in the Gulf Coast area expected to fall another 10% on top of the 40% or so drop experienced already nationwide since 2007, “Many of the entrepreneurial lenders and investors we work with are biting at the bit to enter the Gulf Coast’s artificially low market,” Andy explained. “They see the Gulf Coast market as a huge investment opportunity, particularly as more and more banks become increasingly willing to discount or even walk away from existing loans.”

In the first quarter of 2010, apartment vacancies across the US declined. Although only a small decline, experts predict that this trend will continue, and indicate the direction the market is headed. Read more on this here.

Commercial Mortgage defaults have hit their highest since 1992. It is believed that the current rate will soon surpass the all-time record of 4.55% by the end of 2010.

Read the rest of the story here.

Commercial real estate in the United States delivered its first positive quarterly return in 18 months during the first quarter. Many experts see this as a turn around in the commercial financing world. How ever, most sources of capital are still not lending money. Remington has the necessary expertise and lender relationships to get your project funded.

An increase of about $1.3 Billion dollars into the commercial real estate sector from some pension funds. Do you think this announcement reflects the credit markets for real-estate investors is loosening up in the private sector since the major losses that these firms saw in the past 3 years?

http://www.costar.com/News/Article.aspx?id=F9036429036E8683E3328013040B377F

While Latin America and Asia are still leading in commercial property transactions, the United States is seeing a turn around in commercial property sales. Many economists have stated that inexpensive US property is starting to attract investors for the first time in three years. Few borrowers are attempting to retain control through bankruptcy and litigation, because there is simply no equity value to protect.

In any investment opportunity it’s important to do your homework. Whether you are buying stocks or houses. Commercial real-estate transactions are no different. It is important to have a practical understanding of how these deals are evaluated by a lender so that you can complete a comprehensive case study before purchasing a new property.

Here at Remington we typically will assign an anlytical team to complete the following tasks:

• Evaluation of the Borrower

1. Track Record and Reputation
2. Management and staff
3. Liabilities
4. Assets
5. Financial Status of borrowing entity

• General Information

1. Understanding the market
2. Sensitivity Analysis
3. Evaluating assumptions
4. Market analysis
5. Absorption Studies

• Evaluation the Property

1. Potential legal issues
2. Environmental issues
3. Reviewing Leases or other contracts
4. Physical review and potential issues

• Evaluation of Loan Structure

1. Effective use of leverage
2. Matching cash flow

• Other

1. Evaluating risk/return
2. Insurance
3. Reserve accounts
4. Partnership Agreements

Every lender has different requirements and different algorithms they will use to calculate whether the risk of any given transaction is within their tolerance. It is important to get them a good package for the initial application so they can quickly look at your file, understand it, and make a decision.

Here at Remington we have a standard submission form which helps us to pull out all the pedigree information on the transaction such as NOI, loan amount, value of collateral and exit strategy. It also explores other items such as potential ownership possibilities, IRR and cash invested to date.

Along with the submission form most lenders will request an executive summary, a business plan, pro-forma, tax returns (corporate and personal), an appraisal, and any other pertinent documents that should be provided.

Remember to start with the most general information first (submission form, executive summary and business plan) and move forward towards to more detailed information. You want the lender to quickly get an understanding and not have too much information to sift through. Many files may get disregarded with not submitted correctly so be sure to ask the representative you are speaking with about what he wants to see.

Standard lending policies for construction loans typically will allow the lender to build in an interest reserve if the property is not cash-flowing during the construction phase. The interest reserve is kept in an escrow account and money can be drawn from there to make interest payments during the ramp up phase.

At Remington our analytical teams work with our clients to teach them how to account for these payments. Feel free to call me directly and ask more about how this works.

Lenders look for something called “skin-in-the-game” when making loans on houses, businesses, developments, or even auto loans. This term refers to the borrower’s equity contributed towards a project and tells the lender that the individual has something to lose if the project fails.

When a borrower does not have the necessary liquidity that traditional sources require all may not be lost. At Remington we deal with capital sources that can finance up to 100% for qualifying deals.

In exchange for the increased risk the take on the front end, they typically require a share in the profits on the back end of the deal, typically between 15-50% ownership can be exchanged for the down-payment or skin-in-the-game.

Taking on a partner is not always the most attractive offer, but it can be crucial in getting deals done when the borrower does not have enough money to make it work on his own.