I've had more than one client in the last few years not be able to get a loan from Fannie/Freddie and other big banks due to their name being on the internet for several things. The two biggies are leasing space to dispensaries and being a slumlord.
I've never heard it called Reputation Risk until yesterday. I found that interesting.
I don't really see the problem with lending to these people if the asset being lent on is in average or better shape and meets all other lending criteria.
I have a $100mil+ net worth guy who only has $15mil in debt and is liquid for $7mil+. He can't get an agency loan, Chase said no, local CU's said no. I'm blown away really. This particular client doesn't deserve the grief as a slumlord. I've been through his entire portfolio. His real estate is average to good condition. I think he's smeared on the net because he's shrewd. And he is...
Back in the early 2000's nobody ever googled a borrower to see what dirt is out there.
I think all these lenders and banks are tightening up their reputation risks lately due to HSBC's recent scandal with the mexican gangs and other cases. No one wants to risk being involved in something that might backfire
Out of curiosity, why do the various lenders view him as a reputation risk and/or slumlord?
Generally there's a google search to evaluate reputation risk, it's probably an investigative news article labeling him as a slumlord. End of the day PR matters and he should spend the money to improve his reputation if his name's been tarnished.
How does one spend money to clear things off the internet?
Because there are articles that say so. No due diligence, no driving of his portfolio...just articles.
Lexis Nexus was the old form of Googling. Lenders are huge into reputational risk because they are usually 60 to 70% of the equity in a deal. Nobody wants to be made out as a "business partner" of someone who did bad shit.
Funny. How many banks caught rigging markets since gfc, not to mention slinging all the crap that triggered gfc, and they're worried about their reputations
Are the articles telling lies? Where is the line between slumlord and just your garden variety landlord who doesn’t care about his tenants?
One building a client of mine owns was master leased to a large charity. They brought over refugees from the Congo and stacked them in there. These refugees practically tore the place down. Even defecated multiple times on the front lawn. With no warning the city filed criminal charges against my client. Not code enforcement, criminal...
It's so frivolous. My client is tough and shrewd, but c'mon, is he taking craps on his tenants lawns? I doubt it. The investor has a long legal history with the city due to leasing to dispensaries. They'r just going after him any way they can now.
Wow. Pardon my ignorance, but what is a dispensary in this case? Is that for distributing medical marijuana?
Google Sanford Capital. There's so much risk there, we actually got push-back as a purchaser of one of their assets, because the fear was they've done so much wrong you can't possibly diligence everything and the amount of backlash from residents is ridiculous. (Our deal didn't go through).
Can't speak for the other big banks and what not, but Fannie/Freddie have something called A-check, an internal database that basically a bad-boy VIP list.
You can be on this list for several reasons ranging from Your properties with Fannie/Freddie failing property inspections to defaulting on a loan, bad operator, slumlord, etc.
If you are on this list, you will not be given a loan. Sometimes you can rectify the situation and resolve it. Sometimes, not. Fannie and Freddie know which of their borrowers operate as slumlords but still take decent care of properties and pay on time. If you are a shitty operator or have proven that you're not a decent candidate to borrow, you won't get a loan again.
TL;DR: Fannie and Freddie have a VIP list of Bad boys. If you are on this list, you will not be given a loan.
Aren’t these two things in direct contradiction? Explain please
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