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Study says lenders looking to BPO to control costs and risk

National Mortgage Professional
Nov 20, 2006

The commercial corner: Multi-family commercial properties: Helpful hintsMike Boggianocommercial property, multi-family The Mortgage Press is pleased to present "The Commercial Corner," a monthly column by Mike Boggiano of Silver Hill Financial LLC, dedicated to answering your questions about the commercial mortgage marketplace. If you have a question that you would like answered in a future installment of "The Commercial Corner," please e-mail [email protected] Each commercial property type has nuances in arranging financing, and mortgage brokers who learn how to navigate through these details will experience a smoother transaction. Now that you've decided to broker small-balance commercial deals, here are some tips on what you need to know about the most vanilla commercial property - multi-family. Q: What documentation do I need for multi-family commercial deals? A: Multi-family is one of the most common small commercial property types, especially for brokers getting into commercial from the residential side. After all, multi-family properties (which are considered commercial if they contain five or more units) are most similar to residential and the easiest to lend against, with comparisons usually readily available in the marketplace. Each lender has specific requirements for borrower documentation, but in general, you will need: - A rent roll documenting the tenancy of the property. Simply defined, the rent roll is a register of rents listing the names of tenants and the amount of rent that they pay. - Two years of operating statements to determine the expense load on the property (two years is a general rule for most lenders); and - A valid Real Estate Purchase and Sale Agreement (which is not required for refinances). Q: Can you elaborate on what I need to know about the rent roll? A: Lenders generally look for the following to be included in the rent roll: - Schedule of all tenants in a building, documenting occupancy status; - For each unit, the tenant name, unit number, number of bedrooms/bathrooms, term of the lease, rent amount and expenses the renter is responsible to pay, such as gas, electric and other utilities (with multi-family properties, tenants are typically responsible for paying utilities, but units are generally not metered separately for water); - Current occupancy status; and - Rents in alignment with market value. Most lenders utilize market levels for their underwriting guidelines. The normalizing of the rents allows for the recognition of the upside in value for rents that are below market value. Conversely, rents that are above-market need to be brought in line to properly reflect the true economics of the lease. For example, if rent is listed as $1,000 per month but the market supports a lower monthly amount, most lenders will use the market value. Your responsibility as a broker is not only to provide a completed rent roll, but also to understand how it affects the transaction. For instance, if the start dates of the leases are subsequent to the financing, this is a fairly good indication that the transaction is a construction loan or the stated occupancy is not accurate. This will impact the available financing options, as some lenders do not offer construction loans. Another point about rent levels is that if a variance from the market exists, an explanation must be provided. Below-market rents often indicate either mismanagement or deferred maintenance that need to be corrected before an upward adjustment can be made. On the other hand, rents that are substantially above market may point to ghost renters. Keep these tips in mind when reviewing the rent roll. Ask your lender for a Multifamily Tenant Rent Roll and Certification Form. Most should have one available online or by request. Q: What type of evaluation is required with a multi-family commercial property? A: Environmental concerns are rare for multi-family properties, so look for a program that allows the less expensive and quicker transactional screen (versus a Phase 1 Environmental Site Assessment - see "The Commercial Corner: Environmental issues with commercial deals," The Mortgage Press, July 2006). Being aware of these common requirements for multi-family commercial deals helps you establish credibility with property owners, as they realize that you've done more than just add commercial lending to your business card. By educating yourself through online resources, professional organizations and lender-sponsored training, you will enhance your role as a trusted advisor and earn the respect of commercial borrowers and lenders alike. Mike Boggiano is senior vice president, national sales manager for Silver Hill Financial LLC. He may be reached by phone at (877) 676-1562 or e-mail [email protected]
Published
Nov 20, 2006
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