“ Critical Key Factors That Affect Residential and Commercial Loan Officers Demystify”

meet-the-lendersThere are many factors that a mortgage loan officer would investigate before issuing a loan request for financing an apartment building and shopping center. For shopping centers the lender want to see the base rent of the rent roll, escalations, the square footage of each space, the rent per square foot for each tenant, and a total rentable square feet.  Even though some of the same factors must be applicable in order for the lender to issue financing for shopping centers, the lending activities usually come from commercial banks and thrifts more due to their longer terms and on different type of multiple leases.

As for multi-family house, the income and expenses projection for the property is very important, which makes the last two to three years of operating statements very crucial. Lenders want to see the rent rolls, and the lease schedule that specifically show the names of tenants occupying the building and who are actually paying rent. In fact, lenders will usually send their inspectors to investigate apartment properties in order to have verification about: the actual tenants who are living in the building, the roof, the boiler, and the environment.

Lenders need this information because they want to take a position in the loan and making sure that the loan is closed in their names with no surprises. Additionally, lenders are very sensitive these days about how they lend and to whom they lend to. One, they want to lend on class asset A properties more, although, they are willing to lend on asset class B properties with a caliber A borrower. Two, lenders are also concerned about the debt service coverage due to the risk factors that are involved. Because of these reasons, lenders today would not lend on a property that doesn’t include the important data that are required. The fact that it’s an apartment building, the lender wants to make sure that the loan is exculpatory as well, meaning that the lender will loan the borrower solely at the producing income property, look only at the recovery of its assets, and not using any personal guarantees.mortgage agreement

Furthermore, the lender wants to know about the description and address of the property with a complete survey of the property. For example, items such as photos, location map, fact sheet, and aerial photo and tax maps should be included in the loan package as supporting assets. Lenders also want to see the current year of operating budget, full disclosure of existing mortgage balances and terms including mezzanine financing, if applicable. Nowadays, lenders are very strict about what should be included in a loan request package due to the recent collapse of the subprime mortgage lending activities that caused turmoil in the real estate market.

Therefore, they want to minimize their risks as much as possible and making sure the resume of the principals are keen. They also want to see a detail breakdown of ownership. In terms of resume of the principals, the lender wants to know about their experiences in real estate such as: are they businessmen who own investment real estate? Are their financial statements worthy? Do they own other companies? What’s the address of the entity they own? Is the entity a partnership or corporation? Who has more interest in the property? How many years of experience they’ve had in managing property and so on?

Finally, after all of these factors have been met, investigated thoroughly and are true to the knowledge of the lender, either she or he will proceed with the loan request and the financing of the apartment house and the shopping center.


Ibsen Alexandre

Real Estate Finance

Disclaimer: The contents in this article are not meant to give financial advice, investment advice, nor investing advice. They are based on the point of view and opinion of what the author wants to convey and for educational information purpose only.


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