Is there any rule of thumb regarding what non recourse lenders will require for net worth and liquidity requirements, as it relates to the total loan dollars borrowed? i.e. if loan size is $20MM, how much net worth and liquidity would a lender require, plus or minus?
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If it were a Freddie deal, I think you'd need to be liquid for 10% of the loan. Not sure about net worth.
Net worth is = to the loan size. Which is fine if it's a refinance but might run into trouble if it's a purchase
Fannie and Freddie require net worth equal to 100% of the loan amount and liquidity equal to 10% of the loan amount. That’s generally the rule of the thumb for all non-recourse lenders however I have seen CMBS and debt fund lenders be a little more lenient (ie taking an entity with lower nw and liquidity as a guarantor)
I would agree with the above. Life Cos will not surprisingly be the most conservative and likely will want 2x+....if there is a very compelling reason to do 1-1.5x they might (credit, class-A real estate, etc.), but that will be the exception, not the rule. Life Cos are known for little to no structure on their deals (opposite of CMBS) so they rely more on their sponsorship to take care of issues down the road as opposed to credit enhancements on the loan itself.
They are similar to other classes (CMBS, Funds, agencies, etc.) on liquidity and usually only need 10% for a straightforward deal.
Rule of Thumb: NW ~ 100% | Liquidity ~ 10% of Loan Amount
I've seen this deviate in both directions depending on the strength of the sponsor, but that's the general starting point.
Second the net worth here, usually try to back stop liquidity at $5M regardless of loan size. Want to make sure the sponsor your dealing with is real.
What are the options to satisfying this requirement as a newer sponsor with little net worth? For example, a sponsor has a propriety development deal, equity raised from LPs, sponsor equity in the deal and a lender willing to lend on the deal contingent on the net worth and liquidity requirements. Are there investors that could be brought in the deal just to back the loan covenants for a fee/ownership in the deal?
You can certainly try to pay someone to guarantee the debt. They will want a fee, which you will have to negotiate.
I've seen actual repayment guarantees (like construction loan debt guarantees) be done for ~3%. It would probably be secured with your ownership (meaning if they have to pony up, you'll lose your equity if you can't repay them).
A true Non-Recourse Carve-Out guarantee shouldn't cost as much
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