When Was the Last Time you Were Asked a Tough Question?

We’ll start by saying that this blog entry is clearly targeted to our network of property owners and investors.  For our broker and investment banker friends, listen up…it is a new world out there.  Please thank us later.

We all know that financing your property is the secret to maximizing profitability.  Whether it is a low interest senior loan, attractive mezzanine loans, or an equity partner you would never have thought was out there – there ARE resources out there to make you more money.  Most owners and investors rely on their trusted brokers to provide access to financing sources.  The vast majority of commercial real estate owners’ path to obtaining commercial real estate financing is through commercial real estate brokers and commercial real estate investment bankers.  Typical garden variety commercial real estate brokers spend the majority of their time trying to place the loan as the shortest timeline until they get paid when the loan is made.  This is contrasted sharply with the services of a commercial real estate investment banker who will perform a thorough underwriting of the asset before it is seen to their targeted lending sources.  Our firm is one of many out there, but we pride ourselves on providing necessary additional services which typical brokers do not do….which makes us investment bankers, not just brokers.

That brings us back to the title of this blog.  When you engage our services, even preliminarily, we will ask you the tough questions right away.  By tough questions, we aren’t trying to challenge your specific situation, we are only trying to get all the cards on the table right away.  The ONLY way to get a deal done in this market is full disclosure.  Our firm prides itself on working through all aspects of the deal, sponsor AND property related, to identify the strengths and weaknesses from the very beginning.  All of our financing sources greatly appreciate the work we do to illustrate the various nuances of the deal right off the bat. 

Quite often the biggest mistake we repeatedly see are the prototypical brokers who are very quick to put many eyes on the deal.  There are very few deals which benefit from this “immediate-to-market” approach.  Realistically, it takes careful and targeted underwriting to effectively present a deal to the financing markets.  Unfortunately, brokers are so anxious to get their hands on a deal that they don’t even consider if that specific deal can actually get done, let alone create a workable plan for presenting the deal. 

Presentation of the deal is everything, because you may only get one, very brief, opportunity to capture the attention of the right financing sources.  Are these components of your business plan:

• Forecasted shrinking CAP rates,
• High leverage LTC/LTV thresholds,
  
• Pioneering development,
  
• Sponsor related transaction fees,
  
• Relying on exponential rental growth & unproven vacancies, 
  
• Cash-out financing, 
  
• Legacy asset issues
  
• Tertiary market?
  

If so, these components must be clearly presented and supported or else you will likely get an immediate NO.  The reality is that once you get a NO, it is nearly impossible to get a second look at the deal.  Active financing sources do not have the time to repeatedly revisit deals that have already been perceived dead.  This is why it is critical that you not rush to market with a broker who wants to hammer a square into a round hole.

We are not saying that brokers don’t have their place in the market, but taking the time to engage an investment banker may ultimately be the ticket to success.  Good investment bankers have the same access to sources that brokers do, but also have the ability to present the deal in the proper format to achieve success.  So we ask again: “When was the last time you were asked a tough question?”  Only if you have been asked a tough question will you know that your deal is ready to be presented and ultimately ready for financing.