The world of commercial lending is changing.
Lockdowns, eviction moratoriums, stimulus, and financial system instability are just a few of the many factors contributing to the whirlwind.
Today we’re discussing the current state of commercial financing with an expert … and sharing what EVERY investor NEEDS to know about financing commercial properties.
In this episode of The Real Estate Guys™ show, hear from:
- Your commercial-grade host, Robert Helms
- His falling apart co-host, Russell Gray
- Apartment and commercial financing expert, Anton Mattli
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Your lender is your friend
Have you thought about investing in larger properties? Today we’re diving into everything you need to know about commercial lending.
One of the most critical elements of acquiring real estate is leverage.
There are certainly people who buy all types of property for cash. But pretty quickly the average investor finds out that it’s sometimes … many times … better to use other people’s money.
Right now we are at a period of time where interest rates have been in a 40-year downward trend. Interest rates are ridiculously low.
That translates into things like cap rates falling … which means equity grows. And when you have low interest rates … equity happens.
Money is the fuel we use to acquire real estate. When we borrow money, it comes with a cost and a benefit.
Most investors want the upside. They want the upside of the value of the property. They want the upside of rent. They want to be able to fix up the property or add amenities and increase the revenue.
But to do that, investors need to engage with a lender.
A lender is concerned with two things … how are you going to make the payment and what happens if you don’t?
Multi-family lending is a different animal than your typical mortgage.
Residential lenders are interested in the borrower. Commercial lenders are primarily interested in the property and its performance.
Here’s the biggest thing to remember … an experienced lender is your friend.
They have to do prudent underwriting … and they are better at it than most folks you know. They have a wider perspective … and they do 12, 15, 20 loans like yours a month.
View the lender as your advocate … and put a person in your corner who is going to make sure everything falls into place correctly.
Why multi-family?
Anton Mattli has decades of experience in commercial and investment banking, private equity, and commercial real estate.
For the last 15 years, Anton has been advising family offices, high net worth individuals, and private investment funds, directing investments in commercial real estate across Europe and the United States.
Anton works heavily with multi-family properties. Why is it that this niche tends to have the lowest interest rates and the best kind of loans?
There are two primary reasons.
First … multi-family is a very stable asset class.
When we look back at the various recessions we have experienced … including the great recession in 2008 … multi-family recovered much faster than other commercial asset classes.
Second … there is no other asset class that has as broad of access to financing.
With multi-family properties, you have access to Fannie Mae and Freddie Mac … they are in roughly half of all the multi-family financing in the U.S.
That’s a massive benefit.
The government wants people to have affordable housing … so these entities are really pushing hard to provide property owners with financing that is attractive so that tenants have reasonably priced housing available to them.
There are many sources for funding … but having some big sources like Fannie and Freddie tells you that the arena is going to stay competitive.
Things to consider when applying for financing
When a professional like Anton sits down with someone to help them get a loan … the process is a little bit different than applying for a residential loan.
Anton’s goal is to make the investor look the best they possibly can and increase their likelihood of success.
“It’s really important to figure out what story the sponsor has and what they bring to the table,” Anton says. “And of course the property is key. If the property is not good, even the best sponsor isn’t going to help.”
Having the right team ready and in order can be essential for an investor hoping to qualify for financing.
“Having done your due diligence, having people that help with asset management and property management, having lawyers lined up, all of this has to happen beforehand,” Anton says.
A great mortgage broker is going to sit down with you, look at your specific situation, and say, “Based on the condition of the property and your experience resume, here is what needs to be done.”
When you buy a single family home, you can close in 30 or 45 days. How much time does it take to get a big multi-family loan?
Anton says to count on around 60 days to 80 days.
And remember, in multi-family loans … having the right property manager in place can make all the difference.
The key takeaway … the very first person you really need to have on your team … right by your side … is your mortgage professional.
You borrowing power is one of your most valuable assets … and you want to manage that proactively.
Your broker is like your resume coach. They are the person who is going to take you and coach you up on how to fit into the box the lender wants to put you in.
For more on financing commercial multi-family properties … listen to our full episode!
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