To say putting loans together in 2023 has been challenging would be an understatement. In another post, I titled it ‘It’s not 2009’. Well… it definitely is not 2009, however, the rise in interest rates and the gradual tightening of lending boxes coupled with bank mergers, has made closing deals more difficult. The keys now are good analysis and not giving up! The analysis piece simply involves knowing every aspect of the transaction down to the smallest detail. Missing a minor piece of information can in this environment have a devastating effect on the loan.
For example, not recognizing the way an onsite manager’s unit is shown on a rent roll and operating statement for an apartment purchase could either significantly overstate or possibly understate the income produced. We are in the process of closing a purchase loan where that was exactly the case and missing it would have caused the loan proceeds to decrease by $300-400,000! Not every owner or management company reports details in the same manner. Another example would be how CAM reimbursements are reported on a Retail or Office property. Once again you could find yourself in a position of applying an understated or overstated NOI to a project. In both of these cases, it’s not only embarrassing, but leaves you with a huge credibility gap with your client. And all of that for the sake of not spending some extra time going over the details.
Jim Valvano famously said during his ESPN acceptance speech to never give up. For those of us in the lending industry for any extended period of time, we know when a request from a client makes sense and should be doable. The challenge in this environment is finding the right lender for the request. Too many times in my career I have seen loan officers and/or borrowers throw in the towel after talking with 2, 3, or 4 lenders when in fact it was lender #5 who would have closed the loan. Any seasoned loan officer knows that provided the data is correct and the NOI spot on that there is a lender for that request. The challenge is figuring out the lender. And UNLIKE 2009 – when banks and credit unions were struggling to meet capital ratio requirements to fund loans, that’s not the case today. Despite the fears created after the SVB failure, the banking system as a whole has remained strong. However, those still strong banks are moving more and more cautiously and will likely continue in that fashion for the next 6-12 months as the currents in the economy get sorted out. That means it will take more work to find the right lender with the right guidelines and the right liquidity to approve and fund the loan. Whereas there may have been 5-10 options 2 years ago, there now may be only a few or even one. The key is to leave no stone unturned and find that one.
In 2009, banks had very limited liquidity. 2023 and into 2024 is more a case of ‘Where’s
Waldo’. Sometimes it’s easy to find, most times it’s not.
In the end, while getting to the finish line on transactions is harder now than in any year since 2010, they are still closing. The keys really are making sure you have all your ducks lined up by knowing the transaction inside and out and then just sticking with it until you find the right source for the financing. Now more that at any time since the last recession it’s critical to have someone in your corner fighting for you which is the role of the commercial mortgage broker.
