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Three Conversations to Have with Lenders
by John Randall & Doug Misner, EverBank Commercial Real Estate
A hike in the Federal Funds Rate has been a looming prospect for commercial real estate agents and brokers for a long time now, but with the majority of economists and pundits believing that we will experience at least a moderate increase in September, it is essential to consider how a rate increase will impact the transactions you have in the works, as well as your long term business strategy.
Now is the time to reach out to your network of lenders and open up a dialogue around the impact of a rate increase along with how you can mitigate the effects on your properties.
Different lenders do different things and their roles are constantly evolving. In a world of living on “repeat business,” a broker needs to know when a relationship is impacted by changes in lender responsibilities and the economic environment. The following are three conversations you should consider having with your financing partners on a regular basis going forward..
1. Flexibility- It’s important to gauge the flexibility of your various lending partners to determine in advance which one will make the most sense for certain transactions. The most successful brokers know that finding the lowest rate, whether from a conduit or another lending source, is not always the best option for their client.
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Exploring lenders that keep deals on their balance sheets can offer much more flexibility through the life of the loan. For instance, if an investor has a short-term hold strategy or may need to do a building expansion in the near future, they will need prepayment flexibility or the ability to restructure their loan. A balance sheet lender can generally accommodate these and other hot-button issues or challenges faced by the borrower. That flexibility can be the difference in winning or losing a deal.
2. Locking in Rates- With the aforementioned rate increase by the Federal Reserve on everyone’s mind, it’s important to consider your options. Find out if your lenders offer the ability to lock in rates.
Being able to offer a forward fixed rate for execution at a later date is a strong value-add, allowing you to know what your expenses will be against that income, rather than take a chance on rate fluctuation between present day and your close date.
3. Dealing with “king cash”- While the recovery in the real estate market has been modest, the commercial market has been improving. Sales volumes for commercial real estate were up 11 percent year over year in the first quarter of 2015. As the competitive landscape heats up, brokers are again encountering some of the more aggressive bargaining tactics we saw at the real estate market’s peak.
Cash offers are now back on the table. They are typically a trump card, but there is a way to combat it. Partner with a lender who can deliver with speed and certainty. For this to work, you need that strong lender relationship and certainty of execution. Discussing with your lenders the potential for this arrangement could prove helpful.
About the Author
John Randall is the managing director of the EverBank Commercial Real Estate multi-tenant and multi-family businesses. Doug Misner is the sales leader for EverBank Commercial Real Estate. EverBank Commercial Real Estate is a division of EverBank, and works with real estate brokers, owners and developers to provide tailored financing solutions. EverBank is an Equal Housing Lender.
We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.