What information do lenders look for and pay attention to in a loan request package/OM?
I've read through a number of OMs and loan request packages and it seems that a lot of the information in the documents is somewhat superfluous and can be ignored. As such, what portions of a loan request package do lenders pay attention to. Additionally, what information are they generally looking for. Am I correct in that a lot of the information is superfluous and/or ignored? Thanks
It depends on the scenario (stabilized property, new construction, bridge), but generally:
property financials- For stabilized properties this is where the initial estimate of the loan size will come from. Might look at expense ratio, and how Income / expenses have increased declined over last couple of years and on a T-12 basis.
borrower track record - how have their previous properties performed, do they have a proven ability to lease up a property
borrower financial liquidity - basically want them to have a lot of cash, high DSCR on other properties in their portfolio
story of the property - what are the borrowers planning on doing with it? Flipping an apartment complex from class C multi family to class A? Leasing up a 50% occupied office building given that additional parking has recently been added? If the property is stabilized did it lease up in 9 months or 3 years?
Market Dynamics - is the Metro Area growing? Are jobs being added at a faster rate than the rest of the US? More importantly how is the sub market performing relative to the rest of the city? Even cities like Dallas that are booming have growing/declining areas within the city. Is the sub market a high income area IE 100k average household income and if so does that fit with the story of the building
Not all of this may be included in an OM but this is what lenders care about. Anyone else with experience feel free to expand on what your team looks at
Every loan submission should have the very first page be a narrative/cover letter outlining the deal and structure being pursued. This is your opportunity to pitch the deal to the lender even if it's a no brainer. In this letter you can also provide the borrowers bio/track record or have the very next page be the bio.
The story always matters.
Contrary to what some may think, the OM doesn't provide a bunch of superfluous information. The lenders generally have to write detailed internal OMs, which include all of that apparent BS. Send an OM in Word format, and you've saved your lender countless hours of time in research and writing. Also, a lot of national lenders may not know the difference between neighborhoods (e.g. one neighborhood may be ridiculously nice; a block away may be an undesirable dump). The purpose of the OM is to answer 100% of all questions before they are ever asked. It's to remove all doubt, all questions, thus allowing for a rapid and accurate production of the term sheet so that you can compare accurate quotes.
Depends on the lender... but mainly numbers and lease clauses. numbers = rent roll, historicals, budget. historicals includes occupancy history. obviously look for more but not in an OM. nobody cares about the type of marble in the lobby.
if you have market info great but we'll do that ourselves.
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