Steven Fischler | May 03, 2016
by Steven Fischler
With $200 Billion of upcoming CMBS loan maturities in 2016 and 2017, borrowers with maturing loans should be preparing to get the best possible refinance loan.
- Engage an expert. Debt advisors and brokers know the capital markets, the various types of lenders and are in touch with them on a daily basis. Take advantage of their knowledge, contacts and expertise. A fully marketed loan creates competition amongst lenders. In the end the enhanced loan terms will more than offset the fee.
- Prepare a loan request package. Don’t just send a bunch of financial and STR reports to a lender. Prepare a formal package (or have your debt advisor do it for you) including the loan request, market data, historical financials, STR and other relevant info. This will be the introduction to a lender about your property. The first impression is key.
- Create a data room. Create an organized data room with everything a lender will be looking for. Historical financials in Excel, multiple years of STR Reports, franchise agreement, management agreement, property tax statements for the last few years, photos, market info, etc. The more organized the data room is, the simpler the process is for a lender. This will get you quotes quicker and show that you are disciplined and on top of your game.
- Be open. Don’t try to hide things that will come out during due diligence. When a property has a CMBS loan on it, lenders have access to systems that show the property’s historical performance. Don’t say you only have 2 years of historical financials when they will see you owned the property for 10 years and had a hiccup 3 years ago. Be upfront, explain the issue and what you have done to move past it.
- Understand that changes have occurred in lending. Depending on the type of property you have and the loan you took 10 years ago, there will be differences. Interest rates are cheaper today than 10 years ago. A CMBS mortgage 10 years ago was over 6 percent. Today’s rates are at the 5 percent range, which will lower your debt payment. Keep in mind though, lending standards today are stricter than they were 10 years ago and that could potentially offset some of the interest rate decrease. More realistic underwriting is done by lenders which could lead to lower loan proceeds than 10 years ago. Mezzanine financing is available to help bridge any gap that may exist. Rates are typically in the low double digits but your overall coupon will still be lower than the existing interest rate you are paying.
- Know the timing. It takes several weeks to talk to debt advisors and engage one and then a few more weeks to prepare the loan request package and data room. Once you go to market, give 2-4 weeks for lenders to review the financing request and provide quotes. Once you sign with a lender, it will be 4-6 weeks for them to complete due diligence and for loan documents to be negotiated. And finally, understand when your loan can be paid off. Loans may only be pre-payable on a certain day or month and/or the loan servicer will need notice before the loan pays off to prepare the payoff quote. The entire process from start to finish will take at least 3 months, so don’t wait until 30 days before your loan matures to start your refinancing process.
