Category Archives: Multifamily

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Indiana Multi-Family Refinance

Senior Associate Ryan Dumas is pleased to announce the refinance of a multi-family loan in Indiana.

Our clients, experienced multi-family owners, needed to refinance an existing loan. They were looking for stable financing at competitive prices.

Ryan worked hard with the clients, who were extremely motivated. Fortunately, the clients had also engaged a fantastic on-site manager. She worked closely with the GRP Capital team to provide up to the minute financials and rent rolls, so the loan could close as quickly as possible.

Our clients were extremely pleased with the process. As busy entreprenuers, they particularly liked how GRP Capital breaks down the lender checklists into bite-size to-do lists. The client told our loan processor, “Thank you so much for this email with a simple list”, remarking that other lists from previous lenders can be overwhelming at times. The team also shepherded the clients through the Environmental Site Assessment (which was not done for the original acquisition loan) as well as a necessary survey. As an added bonus, the clients were vacationing near our office during their scheduled closing date, so they were able to pop right in and sign their documents while we notarized. We loved meeting them and their adorable children.

Ryan Dumas stated, “I’m thrilled that we closed this loan for our clients. They are wonderful businesspeople. I’m particularly impressed with how they turned around this property. They own a lovely multi-family product with a very good reputation in a location that needed this type of housing. Our team worked very hard with them, and we hope to help them find more properties in the future.”

Looking for Multi-Family Financing?

• Get your paperwork ready. Lenders will request rent rolls, copies of leases and financials. Keep your files up to date and in good format (where the numbers from the various reports are congruent with each other.)

• Discuss options with our team: Many lenders want to finance multi-family projects. As a result, there are different types of loans that might be applicable for your project. We can explain the benefits of Fannie and Freddie backed loans, conventional loans, SBA Loans (for smaller properties) and even USDA loans for projects outside of metro areas.

• Keep up your occupancy: If you are seeking a refinance, lenders wants to see a healthy occupancy rate. If you are purchasing an underperforming property, the lenders need a strong, clear business plan to rehab and turn around the business.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Multifamily Loan Product Finances 100% of your Renovation Costs

We are very excited to offer a multifamily loan product that is perfect for purchases of multifamily properties.

Many purchasers of multifamily properties have renovation and improvement plans. Their goal is to improve the property and therefore increase the rental income as a value-add investment. If you are in a similar situation, this multifamily loan may be the perfect fit.

Cover Your Full Multifamily Loan Cost of Renovations

• Loan to Value vs. Loan to Cost: Loan-to-value (LTV) compares the loan amount to the expected market value of the completed project. On the other hand, loan-to-cost (LTC) compares the financing amount of a commercial real estate project to its costs. Lenders are typically limited to a maximum LTV/LTC or a a combination of both. However, this multifamily loan product will cover up to 100% of the renovation cost. This delivers a higher overall leverage for the borrower, while at the same time maintaining the desired total leverage parameters for the lender. Structuring the loan in this innovative way benefits borrowers and lenders alike.

• Why Should I Care about LTV/LTC ?The LTV value affects your rates and your collateralization needs. Lenders look at the total value of the property to determine how much money they are willing to loan. Getting to their sweet spot means more lenders want to offer financing. When we structure this loan and pitch your financing needs to our lending partners, they respond positively. They like the LTV and are willing to come in with extra financing for worthy renovation projects. Lenders are especially keen on renovations that will enhance future profitability and stabilize the property’s value.

• Call Us Before you make a Bid:  If you can swing it, let us know at GRP Capital when you have your eye on a multifamily property. We can evaluate your financing needs. You will have a better sense of what type of financing you will be able to acquire. In this way, you can use the information prior to even making an opening bid on the property.

If you would like to discuss this multifamily loan product with us, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

Debt Coverage: How DSCR has Eclipsed LTV

Have you been hearing terms like debt coverage and DSCR more than ever before?

Did you already know about loan to value or LTV and are now wondering about this new alphabet soup?

Well, here is what is going on!

DSCR stands for Debt Service Coverage Ratio. It’s actually a very simple fraction. Your DSCR is your net operating income (NOI) divided by your annual debt payment. So, if your business netted $500,000 annually and you pay $400,000 yearly in mortgages and other long-term debt, your DSCR would be 1.25.

What to know about your Debt Coverage:

• What’s a good DSCR? “Good” DSCR figures can vary by industry and even location. In general, lenders are looking for a DSCR of at least 1.15. However, sometimes there are extenuating circumstances, like ongoing long-term renovation, buyouts of partners and other issues.

• Hey, I have a great LTV! We talk with our lending partners every day. Three or four years ago, the most important number in securing financing for our clients was the LTV or loan to value. This figure is a ratio that expresses the value of your property and business divided by the amount of the financing you are requesting. However, lenders are telling us now that they are not as concerned with LTV and are much more carefully eyeing DSCR!

• Why is DSCR as important or more important than LTV now?  Within the last several years, commercial real estate had been rising rapidly in all sectors from office space to hospitality to everything in between. But the changing economic climate has thrown disorder into many sectors. Lenders and appraisers have become much more conservative and are not assuming high valuations like they used to. Instead, they are looking at what is tangible and real: how much a business earns and how much it costs to pay for debt.

What happens if my DSCR is too low?  Sometimes a property’s debt service coverage ratio is below the lender’s minimum. At the same time, the client wants a loan at the upper limit of the LTV. When this happens, the lender will have to reduce the loan amount in order to maintain the minimum DSCR. This is referred to as the loan amount being debt service constrained.

• Business and Personal Cash Flow: Lenders of course evaluate your business DSCR. But they also evaluate your global cash flow. They add up the income from all of your businesses and determine your expenses, including debt payments, both business and personal.

Don’t Forget Your EIDL!

• EIDL is Debt:  If you had an EIDL (Economic Injury Disaster Loan), this shows up as debt on your balance sheet and is included in your DSCR calculations. Fortunately, the low rates on EIDL’s make the payments for them relatively affordable, but they do add to your indebtedness and affect the DSCR ratio.

• What happens to my previous EIDL’s if I’m selling, buying or refinancing? This varies depending on your debt coverage and your circumstances. To learn more about these issues, see this blog about EIDL‘s and new loan transactions.

If you are considering a loan for purchase or refinance or construction and would like to discuss your plans, feel free to contact our team.  We can conduct a business evaluation and even prequalify you for a loan at no cost to you. We will help you determine your DSCR and LTV and match you to appropriate lenders for your projects.

Business Evaluation: Call Us BEFORE You Bid

Why are we offering you a free business evaluation? Many clients are looking right now for the next project. Are you one of these people?

If so, we love to hear from clients who are ready to take on new challenges. These might include expanding current businesses or adding new projects to portfolios. However, we find we can be even more helpful to clients when they contact us even before bidding on a business or property.

Before You Make an Offer:

• Business Evaluation of the subject property: We can help evaluate the business. We examine the documents you have or with your permission, we can also contact the current owners. Then we begin to determine the business’ strengths and weaknesses. We provide an independent opinion on reasonable projections for expenses and revenues as well as advice on possible challenges.

• Understanding You as a Borrower: Our clients’ comfort and trust in our process is critical. In order to foster the very best relationships, we spend a lot of time getting to know our clients. We want to understand your business goals as well any concerns you might have. As a result, we will then know what your priorities are in terms of financing and finding the best loan products for you.

• Considering Hidden Costs You Might Not Have Considered:  We have the benefit of closing hundreds of loans. Therefore, we have experienced potential hiccups and can pass on that wisdom to you. We can offer information about whether a survey will be necessary, timely advice about insurance in your local marketplace or the willingness of lenders to fund your business proposal. Our experience and advice can save you time, money and frustration.

Free Prequalification:

• Getting to Know All of the Partners:  We will discuss your organizational structure and make sure it is set up in the best way to find an appropriate lender. Having this conversation before making a bid can prevent having to make changes in the ownership of businesses. It also allows for a free and honest conversation about what will be expected monetarily from each of the partners during the initial setup of the business.

• Choosing Guarantors: Not every partner should necessarily be a guarantor. We can guide you to select guarantors based upon the merits of your project.

• Review Personal Financial Statements: Again, we help all our clients to establish their own personal financial statement, which we then (as needed) share with potential lenders. This process helps us work together to determine what each client can afford and how to best show their personal assets and liabilities to greatest advantage.

If you would like to schedule your free business evaluation, contact Veeraj Patel, our Credit Analyst at 239.294.1664.

If you are considering a loan for purchase or refinance and would like to discuss your plans, feel free to contact our team.  We can conduct a business evaluation and even prequalify you for a loan at no cost to you.

What about your EIDL Loan?

If you have an EIDL loan (Economic Injury Disaster Loans offered by the Small Business Association), what do you need to know about future loan transactions?

  • What about buying a new business?
  • What about refinancing a current business?
  • What about selling my business?

Many of our clients have an EIDL loan. We encouraged our clients to obtain these during the most restrictive part of the COVID pandemic. These low interest loans gave needed relief to some of the hardest hit industries, including hospitality.

Selling a Business with an EIDL Loan:

• EIDL Loans Mostly Have to Be Paid off poor to sale: Any lender who is funding the purchase of a business with real estate will require that buyers own the property “free and clear”. This means that there cannot be any liens (claims from lenders) on the property or the business. So, sellers must pay off previous EIDL loans prior to or at closing.

• Perhaps One Exception:  Sellers may have multiple businesses or properties. Some sellers, especially larger corporate sellers, may have an EIDL for the parent company but not the smaller component business being sold. If the EIDL is for the parent business, the new lender may find a way to make an exception.

Paying off an EIDL at or before closing:  Be aware that the SBA does not accept payoff via wire. At closing the title or escrow company will have to make out a physical check for the balance of the EIDL. The borrower can find the balance on their SBA portal. The SBA website also has clear instructions for paying off the loan via mail.

I Have an EIDL and I want to Refinance

• Size matters!  If your EIDL loan is small, then the lender may agree to pay it off. They will roll the remainder of the EIDL into the total loan value. If the loan is larger, there are a few possibilities.

• Paying off an EIDL: You may be holding on to the proceeds of the loan (and therefore have cash on hand). But new lenders will not consider the proceeds of the EIDL as an asset without also considering your EIDL loan as a liability. Therefore, a large EIDL may negatively impact your debt to income ratio. The lender may consider that you have too much debt and require you to pay off or pay down the loan.

• Subordinating an EIDL: Often lenders will agree to subordinate an EIDL. This means that they will request permission from the SBA to delay receiving payments for the EIDL until the mortgage has been paid off. Borrowers have to officially request subordination and the SBA has to grant it. This process is not automatic. In addition, requesting subordination can take some time. We have found that subordination happens most easily when we work with our network of SBA preferred lending partners.

I Have Other Businesses with EIDL loans and I’m Getting a New Loan:

The lender will underwrite your entire file and look at your affiliate businesses. If your other businesses are cash flowing and covering your debts, there are no issues with other EIDL loans. We are happy to help you do a self-evaluation of your cash position for all of your businesses. This will help you if you need to make your portfolio stronger prior to looking for financing.

If you are considering a loan for purchase or refinance and would like to discuss your plans,  feel free to contact our team.  We have a network of lenders and can find the best match for your funding needs, saving you time and money, so you can focus on running your business.

EIDL Loans: What to know if you are buying, selling or refinancing

EIDL Loans (Economic Injury Disaster Loans offered by the Small Business Association) have helped many small business owners during the COVID pandemic. These low interest loans gave needed relief to some of the hardest hit industries, including hospitality.

Many business owners have EIDL Loans on the books. What do you need to know? What do you need to do? An EIDL has an impact on selling, buying and refinancing.

I’m Buying or Selling a Business with an EIDL Loan:

• All liens have to be released: Any lender who is funding the purchase of a business with real estate will require that buyers own the property “free and clear”. This means that there cannot be any liens (claims from lenders) on the property or the business. So, sellers must pay off previous EIDL loans be paid off prior to or at closing. Also, previous PPP (Paycheck Protection Program loans) will need to be have been forgiven.

• Perhaps One Exception:  Sellers may have multiple businesses or properties. If the EIDL is for the parent business, the new lender may find a way to make an exception.

Paying off an EIDL:  Be aware that the SBA does not accept payoff via wire. At closing the title or escrow company will have to make out a check for the balance of the EIDL. The borrower can find the balance on their SBA portal. The SBA website also has instructions for paying off the loan via mail.

I Have an EIDL and I want to Refinance

• Size matters!  If your EIDL loan is small, then the lender may agree to pay it off. They will roll the remainder of the EIDL into the total loan value. If the loan is larger, there are a few possibilities.

• Paying off an EIDL: You may be holding on to the proceeds of the loan (and therefore have cash on hand). However, a large EIDL may negatively impact your debt to income ratio. The lender may consider that you have too much debt and require you to pay off or pay down the loan.

• Subordinating an EIDL: Often lenders will agree to subordinate an EIDL. This means that they will request permission from the SBA to delay receiving payments for the EIDL until the mortgage has been paid off. Borrowers have to officially request subordination and the SBA has to grant it. This process is not automatic. In addition, requesting subordination can take some time. We have found that subordination happens most easily when we work with our network of SBA preferred lending partners.

I Have Other Businesses with EIDL loans:

The lender will underwrite your entire file and look at your affiliate businesses. If your businesses are cash flowing and covering your debts, there are no issues with other EIDL loans.

If you are considering a loan for purchase or refinance and would like to discuss your plans,  feel free to contact our team.  We have a network of lenders and can find the best match for your funding needs, saving you time and money, so you can focus on running your business.

Multi-Family Loans: Another Great Opportunity

Multi-family loans are another great opportunity for many entrepreneurs. Whether you are in the position to purchase an existing multi-family business or embark on construction, many lenders are willing to extend credit to qualified buyers.

As part of our Great Opportunity Series, let’s examine the advantages of multi-family loans at this time.

Why are Multi-Family Loans Great Opportunities?

• High Demand: The National Apartment Association recently reported that the U.S. needs about 4.6 million new multifamily units by 2030 to keep up with demand. On a yearly basis, that comes out to about 328,000 new units annually over the next 10 years.

• More renters: Millennials are contributing to increased multi-family housing demand. Their high student debt combined with  high home purchase prices make renting more attractive than home ownership. In addition, millennials are interested in more dense housing options featuring downtowns, walkable distances to restaurants and entertainment and a decreased need for automobiles.

• Low Interest Rates: Historically low interest rates are a great incentive for business loans in general. The Fed has indicated their interest in maintaining low rates in order to incentivize borrowing and investment. Wise business owners can take advantage of these low rates.

What Elements of a Multi-Family Entity are Most Attractive?

• High occupancy: Current multi-family buildings with nearly full occupancy as well as a manageable turnover are attractive to lenders. However, if this has not been the case in the past, a prospective buyer can demonstrate a management plan to fix any previous problems with a detailed plan to make improvements. Creating a three year financial projection can bolster a borrower’s case. GRP Capital is adept at helping to create these documents in consultation with our clients.

• High Local Demand: Multi-family demand is typically high in large urban areas. However, the increased national demand is now taking root in secondary markets and suburban areas, too. Demonstrating the local demand for multi-family housing is a critical component of our communication with potential lenders.

• Stability even during recent pandemic: Many multi-family entities have suffered during the recent pandemic. It’s important to determine if the subject property can bounce back and will be resilient through the vagaries of future economic cycles.  Lenders will also want to know the borrower’s management plans to maintain cleanliness and safe practices through the continued post-COVID reality.

If you are interested in any form of multi-family loans, now is the time to act. Read more about other aspects of finding funding in today’s climate here:

Becoming a Better Borrower

What Businesses do Lenders Like Now?