Understand lender requirements essential - real estate financing lenders - Finance

Real Estate Weekly, May 20, 1992 by Michael Schochat

Despite the talk of gloom and doom in the real estate market, there are many opportunities in the financing arena for a wide variety of real estate products. Lenders are examining every request on a case-by-case basis, but they are willing to provide financing for deals that make sense and meet their requirements.

In order to order to obtain financing, properties must generate income, be at least 90 percent occupied, and have adequate debt service coverage, usually 1.25 percent to 1.30 percent. During the past year, we've been able to obtain financing for residential, taxpayer, commercial office and mixed-use products in the $500,000 to $5 million range that met these requirements.

Lenders that are currently active in the commercial real estate financing market include local savings banks, regional commercial banks and insurance companies. Middle market commercial banks are especially interested in financing or refinancing owner occupied transactions.

These transactions usually offer relationship banking for the financial institution and the borrower. Companies that own and occupy their real estate are able to finance or refinance these holdings based on their cash flow. The key is to be able to package the company properly to the lender by presenting well documented information on financial history and company growth; in many instances a working capital loan can also be negotiated. Terms for owner-occupied loans are usually five to 10 years with 15-year amortization on a fixed-rate basis.

Rehabilitation funds for multi-unit residential properties in low- or moderate-income neighborhoods are also available. Apartment buildings with over 30 units in need of renovations on such major systems as plumbing, electrical, roof, windows and boilers can qualify for construction financing at prime plus two, and permanent fixed-rate financing at 30 year treasuries in the range of 200 to 250 basis points with 30 to 35 years amortization.

Rents received must be in line with comparables in the neighborhood, but can be increased using formulas based on the completion of major capital improvements. This type of loan is currently available throughout the five boroughs and in Westchester County.

Individual borrowers can also obtain financing by taking advantage of shifting regulatory policies. In many cases banks that must seek payment on certain portions of their portfolios offer incentive discounts to borrowers. The borrower can then refinance the discounted property through another lending institution. Lenders view this type of transaction as a win/win situation because they remove problem loans from their balance sheets, while borrowers are eager to take advantage of the incentives being offered.