The CRE investment market should continue “hot” into 2022 as new capital enters the fray and inflation mount – the question is whether the lending industry can keep up the borrower demand.
“Sellers will continue to drive terms and command short escrow periods for top-notch properties,” per Rob Murphy, Vice President of Structured Finance and Capital Markets at Transwestern. (Source: GlobeSt.com)
Low interest rates have been fueling the CRE market for years. Staffing shortages and the supply chain issues have added additional stress to closing timelines that previously had been met in somewhat an expected fashion. While it’s going to take time for these issues to iron themselves out, users of acquisition debt are in a tough spot given they’re competing with all-cash buyers in this seller’s market for the best properties.
Having the borrower and lender agree on the property’s pro forma cash flow early in the underwriting process is key to expediting closings. Pro forma cash flow determines essential factors for the lender’s decision making. Items like loan size and structure, including any necessary reserves, are needed for the lender to formulate the covenants that are incorporated into the loan docs. Late-in-the-process items in the loan approval process can cause delays in incorporating the covenants, and may cause a hold up in finalizing the loan documents for closing.
Private lenders can be more flexible with loan documentation, whereas institutional lenders typically have more exhaustive, lengthy requirements that can add days to the closing process. Borrowers should also take note of whether private lenders have discretionary authority to fund loans, or whether they have capital partners that must approve lending.
Borrowers should understand the details of the loan-approval process prior to selecting a lender.
Borrowers should also address the issue of staffing shortages by asking lenders if they are hiring contractors to outsource underwriting. And also consider if lenders have expanded their third-party vendor list to include those providers with more manageable turnaround times than the 6-weeks-plus many appraisal and environmental service companies are currently citing due to COVID-19 backlogs. Third-party reports also include title reports and surveys – these should also be ordered early in the due diligence period.
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Today’s post is written by Michael Green, Commercial Loan Originator for Counsel Mortgage Group, LLC.
Counsel Mortgage Group®, LLC
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