Doug Marshall
Market Assessment
Published May 27, 2009
What do borrowers have to do get the financing that they require to survive the credit crisis? Ryan Krauch, writing for CIRE Magazine, is emphatic (and very right) on this point – borrowers are going to be forced to adjust their realities.
The good ol’ days are just that – OLD. They are gone; they’re over and done with and they’re not coming back… at least not in the short term. CMBS loans are a thing of the past, as are loan applications that contain questionable data on the borrower.
So a new manual has to be written for those poor souls in this predicament. And they’re not going to like it.
Borrowers’ Tips For Survival:
· Fundamentals Matter – Underwriting a loan is now going to require proof of real, sustainable business plans and exit strategies. Lenders will be tight with they’re requirements and disciplined with their processes.
· Operating Track Records Count – Padded pro formas that assume more than can be proven are a thing of the past. Real, tangible numbers that prove the value of the property will be required.
· Borrowers Must Be Well-Capitalized – Nope, sorry, investors will need to put a lot more capital into a deal in order to get financing. “Significant equity” will be required of borrowers in order to obtain financing.
· Capital Costs More – There are borrowers out there who, because of the free-and-easy way in which they have acquired capital in the past, get downright belligerent when told that their new money is going to cost them more. It’s true, though; spreads will be higher, lenders will be hedging against risk, and pricing continues to climb.
The deals are still there to do. The money is around, though more difficult to find. And the work required to get it, as well as the burden now placed back on borrowers, to achieve it is substantial.
However, if this market is going to right itself again and become what it should – a disciplined and reasonable industry – the pain is going to have to precede the gain. Sorry…
Source:
Ryan Krauch, “Back To Basics”, CIRE Magazine's Financing Focus, May 15, 2009
Market Assessment
Published May 27, 2009
What do borrowers have to do get the financing that they require to survive the credit crisis? Ryan Krauch, writing for CIRE Magazine, is emphatic (and very right) on this point – borrowers are going to be forced to adjust their realities.The good ol’ days are just that – OLD. They are gone; they’re over and done with and they’re not coming back… at least not in the short term. CMBS loans are a thing of the past, as are loan applications that contain questionable data on the borrower.
So a new manual has to be written for those poor souls in this predicament. And they’re not going to like it.
Borrowers’ Tips For Survival:
· Fundamentals Matter – Underwriting a loan is now going to require proof of real, sustainable business plans and exit strategies. Lenders will be tight with they’re requirements and disciplined with their processes.
· Operating Track Records Count – Padded pro formas that assume more than can be proven are a thing of the past. Real, tangible numbers that prove the value of the property will be required.
· Borrowers Must Be Well-Capitalized – Nope, sorry, investors will need to put a lot more capital into a deal in order to get financing. “Significant equity” will be required of borrowers in order to obtain financing.· Capital Costs More – There are borrowers out there who, because of the free-and-easy way in which they have acquired capital in the past, get downright belligerent when told that their new money is going to cost them more. It’s true, though; spreads will be higher, lenders will be hedging against risk, and pricing continues to climb.
The deals are still there to do. The money is around, though more difficult to find. And the work required to get it, as well as the burden now placed back on borrowers, to achieve it is substantial.
However, if this market is going to right itself again and become what it should – a disciplined and reasonable industry – the pain is going to have to precede the gain. Sorry…
Source:
Ryan Krauch, “Back To Basics”, CIRE Magazine's Financing Focus, May 15, 2009
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