ASK MIKE MONDAYS - Can I get a LOAN PRE-APPROVAL on an apartment transaction?

Michael discusses what lenders are looking for when applying for financing on an apartment transaction.  With apartment lending- the quality, condition and location of the asset are the most important factors in underwriting. A PRE-APPROVAL is not going to be available because 2/3rds of an apartment lending decision is based on subject property. The lender needs to have a complete picture on a number of critical underwriting variables. Examples: Where is property located and age? What are historical cash flows for the last 2 years and year to date? How much deferred maintenance does the property currently have and what is rehab budget necessary to cure? Who is going to manage the property? What does your monthly proforma show; what is your future expected operating expenses and total income?  1/3 of an apartment lending decision is based on you. What is your liquidity? What is your net worth? What is your past apartment experience and level of ownership or management? Do you receive consistent personal income outside this transaction? Are you going to have additional guarantors, with a sufficient balance sheet that will stand with you?  Bottom line, the lender can give you an indication on how much you can qualify for, but because the age, condition and location of the asset is so important in an underwriting approval, a WRITTEN PRE-APPROVAL, before the asset is selected is NOT WORTH VERY MUCH. Speak with your commercial mortgage broker on how to structure the transaction for approval. They will give you a verbal insight on how much you can qualify for based on the total picture. Checklist of Items You’ll Need to Provide Your Commercial Loan Broker: ✓ Updated signed personal financial statement ✓ Liquidity verification (bank and/or brokerage statements) ✓ Last 2 years of personal/corporate tax returns ✓ Real estate resume- detail your real estate experience. “I bought a home, fixed it up, and sold it.” Tell the story of your successes in real estate. It’s like you’re applying for the job of running the property. ✓ Schedule of Real Estate owned (what do you currently own; loan balance, value, contingent liability or non-recourse; annual NOI, annual debt service, etc.) ✓ Broker’s Offering Memorandum on the property you are looking to purchase ✓ Property’s historical monthly operating statements (last two years and YTD) ✓ Current rent roll  ✓ Five digital pictures of the interior/ exterior of the property ✓ Your analysis of transaction; share your monthly PROFORMA for the next 12 months. How are you going to operate property?

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