Secret of of Commercial Real Estate - Seeds Don't Grow If You Plant Them In The Middle of the Road
By Ameet Chagan
My uncle was once told me you can’t throw a bunch of seeds in the middle of the street and expect to get a tree to grow. Everything has systems; it’s a fact of life. Shave off a few days on your closing process by asking your loan officer exactly what will be needed to close the loan. Ask if certain tests or studies are necessary and if personal guarantees are needed. Knowing ahead of time will give you the option to find another lender if it’s more paperwork than you’re willing to submit. Alternatively, if you’re already with a reputable lender, you’ll know what you need to prepare for in advance.
Nothing drives a commercial real estate developer crazy like a request for a report or study that could have been asked for weeks in advance. If your deal is a week from closing and you're hemorrhaging cash every day in delays, you’re going give the lender whatever they want anyway. You’re too far into the process. You're just not going to be happy about it waiting for apparently no reason.
Suppose your lender has a Phase I environmental report on their list of items that they need completed before closing. Some loan officers may forget to ask for an important document early on and if you bet that you can sneak by without it, you’re probably asking for a delay. The problem is that the loan officer doesn’t have the last word. There is often a committee that analyzes the risk and someone will remember. The whole underwriting process is them figuring out what you’re not telling them.
If they forget to mention something you believe will likely be needed, then you need to plan for it. We would like to think that giants such as Bank of America spend eight hours a day for thirty days analyzing our apartment complex deal. The truth is, humans handle your loan. Assume that there are three bigger deals than yours that are also closing before yours and that they forgot to mention the document you need. Don’t wait until they have nothing better to do than to scrutinize all of your documents (like the week of projected closing). The underwriting process is a system. They don’t know how great or smart you are. Underwriters rely on the paperwork you send them.
However, don’t order the appraisal on your own! Banks are often required to find an appraiser to give an non-bias opinion of the project and are often forced to order an appraisal on the loan, even if you already have one that is current.
It’s nice when the lender doesn’t need the pageantry of every document under the sun, but don’t be romanticized into believing that it can’t ever happen. It’s more economical for you to prepare and keep connected with the loan officer. When in doubt, ask if they will need a particular document so it's not the one document holding up funding your project.
Ameet Chagan is a licensed commercial real estate broker with first hand experience in owning income producing assets. He specializes in helping motivated entrepreneurs get commercial loans for their real estate acquisitions. His website is http://www.lionheartfinance.com