06Mar

Access to Capital is Key to Real Estate Investment Success

March 6, 2021 Civic Financial Services

By William J. Tessar, President and CEO of Civic Financial Services, a premier institutional private money lender for real estate investment financing. With more than 30-years of experience in the mortgage and lending space, he is also host of Industry Insights the monthly show featuring expert advice and discussion on the real estate investment market.

The most important aspect of success in real estate investing is having ready-access to capital when you need it, so you can seize opportunities in today’s dynamic real estate market. In fact, many investors will wait for the right opportunity to roll along only to see it vanish because they didn’t plan ahead and have capital partners with different financing options all lined up and ready to go.

If you’re only looking for capital when you need it, 99 times out of 100 you’re not going to make the best decision—only the fastest. The better strategy is to cultivate your real estate financing sources first, beginning with understanding the different options that are available and what lenders are looking for. Each option has different requirements and parameters, which we explored in our recent Industry Insights show.

Understanding the Differences

“One common option for investors is conventional real estate financing, which is based not only on the property, but primarily on the warm body behind it,” said Robert Kang, relationships manager at First Republic Bank. When working with real estate investors, Kang looks at where the borrower’s income is coming from, their ability to pay off the loan and whether the investor has a second source of repayment if things go south.

Kang also looks at whether the capital will help the investor achieve their goals or actually hinder them. “We’re taking a snapshot of what their life looks like at a certain point,” he says. “That’s why we love to build relationships and get to know the individual investor, where they are today, and where they are going.”

Hard money and private money lenders each look at residential investment property financing opportunities with a different set of optics. “We don’t have set guidelines,” says Kevin Guisnow, a senior loan officer with PCL Group, a true hard money lender. “Each deal is individual and we look at it with an open mind.”

Guisnow says he likes to get to know investors, their passion for their project, their exit strategy and how they plan to repay. However, he adds that the property itself comes first, because if the investor defaults, Guisnow has to determine whether he can take it back and sell it to recoup his investment.

Institutional private money lenders like CIVIC, are a kind of hybrid capital partner. They have access to capital from institutional partners like banks and from Wall Street. They can operate more quickly and have more flexibility than conventional lenders, but also have stricter underwriting guidelines than a pure hard money lender.

Investors who need a steady stream of accessible capital can also get residential financing from a private money lender or a correspondent lender to access ‘warehouse lines’ of credit. These are lines of credit that, once established, can be used to finance properties that meet certain guidelines established by the lender. While having ready access to affordable capital is hugely advantageous, there are often barriers such as volume commitments that may create barriers for typical investors or small brokers.

“Some warehouse financing vehicles can be complicated, while others are fairly straightforward,” says Vinnie Ciardullo, senior vice president of capital markets for CIVIC Financial. He adds that the longer that a warehouse lender holds real estate assets, the greater amount of due diligence it requires from the lender.

Speed to Close

In addition to greater flexibility, another big benefit of hard money lenders is that they can usually close loans much faster than other sources. For example, conventional financing typically takes 45 days, while private money lenders like CIVIC typically take one or two weeks. If the deal is right, hard money lenders like PCL Group can get them done in a few days.

For example, Guisnow recently had an investor who was buying an unhabitable historic landmark with no comparables within five miles—and she had to close in seven days. Guisnow was able to qualify the investor based on her tax returns and her 70 percent loan-to-value (LTV) position. “After getting her on the phone and hearing her passion and vision, I got past the valuation part of it,” he said. “I got the feeling this is going to be a good loan, and to this date, so far, so good.”

With hard money lenders like PCL Group, there is no minimum or maximum financing, although they may not look at deals less than $400,000. The money can be used for anything from single-family properties to apartment buildings, even ground-up construction, but not for buying land.

Conventional lenders will typically provide financing for owner-occupied homes, therefore it is generally challenging for non-owner-occupied properties. The DTI, Income qualification and LTV requirements are usually more stringent as well. Kang said most of his investment financing deals are around 60 percent LTV, but says he’s gone way above that many times when “it made sense.” For true hard money lenders like PCL Group, the LTV ratios are generally between 70 and 80 percent, but other private money lenders like CIVIC can go as high as the low 90s.

Prepayment penalties are another factor to consider. For a conventional lender like First Republic Bank, paying off a loan in less than three years will cost the borrower just $500, no matter the loan size, Kang said. For a hard money lender like PCL Group, there may be a guaranteed interest involved if the investor plans to pay back the loan within a few months. For CIVIC, there is no prepayment penalty, however, there may be early termination fees when financing involves using warehouse lines of credit.

Tips for First-Time Investors

Most seasoned real estate investors are familiar with the different types of financing options and understand the process. But those relatively new to the game, it can be daunting. What can they expect?

Kang says to be prepared for lots of questions. As a conventional lender, he’s focused on how the money will be used and how the investor plans to pay it back. “We work with the deal from start to finish, so we have to understand every little piece of that deal,” he said.

Ciardullo adds that investors should consider how easy it is to work with a particular lender, noting that a lender with a low rate but is hard to deal with may not be worth it. “Even if you’re sacrificing cost, finding a partner that’s easy to deal with and gives you quick access to your capital is going to help you tremendously in the long run,” he said.

Guisnow says investors should understand the financing terms, do their own due diligence on the property, and be truthful with their lender. “Show us everything, because we’re going to find it, and if you don’t disclose it, your odds of getting a loan from me are slim and none,” he said. “Be upfront and be prepared, and you’ll have a better result.”

About Civic Financial Services

CIVIC is one of the nation’s leading institutional private money lenders, having funded more than 10,000 private loans totaling over $4.5B. For more information on our short term bridge loans or long term rental loans, call CIVIC at 877-472-4842 or visit www.civicfs.com

You can also access our Capital Strategies Guide @ https://www.civicfs.com/ThinkRealty

Join Industry Insights every month for real talk on real estate investing. Join live, or on demand.

© 2021 Civic Financial Services, LLC. All Rights Reserved. This is not a commitment to lend. All offers of credit are subject to credit approval. Restrictions may apply. All loans are made in compliance with Federal, State, and Local laws. Civic Financial Services, LLC is a California Finance Lender under NMLS 1099109. Loans made or arranged pursuant to a California Finance Lenders Law License 603L321. Civic Financial Services, LLC is an Equal Housing Lender. For complete licensing information, please visit https://www.civicfs.com/Licensing

10Nov

Blooma’s AI is Automating Commercial Real Estate Underwriting

November 10, 2020 Blooma

The days of manually pulling comps and wasting hours trudging through borrower documents is over. The Blooma platform serves as a digital underwriting assistant by automating the collection, aggregation, and analysis of deals to help lenders determine the right asset valuation and deal attractiveness with minimal human interaction. This includes asset, borrower, and financial analysis, as well as loan portfolio management, and tracking and auditing of loans over time. The platform is primarily driven by Blooma’s artificial intelligence analysis and scoring of each deal according to the lender’s predefined lending profile.

Blooma’s AI can read an offering memorandum, automatically pull relevant comps, read borrower documents, spread a borrower’s cashflow/liquidity, and analyze an asset’s potential LTV in a matter of minutes. Additionally, Blooma can integrate with existing LOS Systems, so lenders do not have to change their current user interface. The Blooma platform will simply streamline the data that underwriters are already manually entering into the existing LOS system making the loan underwriting and origination process far more efficient.

10Sep

Financial Statement Reporting for Proceeds from PPP Loans

September 10, 2020 Spiegel Accountancy Corp.

Spiegel Accountancy Corp.

History of the Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the US economy, including $349 billion that was earmarked for the Paycheck Protection Program (PPP) to be administered by the U.S. Small Business Administration (SBA). An additional $310 billion was later authorized for the PPP.

Under the PPP, eligible businesses can apply to an SBA-approved lender for a loan that does not require collateral or personal guarantees. The loans have a 1% fixed interest rate and are due in two years. However, these loans are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions. For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S. government. A recent bill has extended the repayment term to five years for any portion of the loan not forgiven.

18Aug

California MBA Statement on New FHFA Fee

August 18, 2020 California MBA

Today, the California MBA released the following statement regarding the FHFA’s announced new 0.5% fee on GSE refinances:

Last week the Federal Housing Finance Agency (FHFA) launched an attack on consumers, homeowners, lenders, and the entire housing and mortgage markets. The announced imposition of a new 0.5% fee on all GSE refinance transactions is an unwarranted, opportunistic, ill-timed, and potentially devastating blow to one of the few economic sectors that has helped support the U.S. economy during the unprecedented health and fiscal crisis we currently face. Adding an average of $1,400 (based on $280,000 loan) to each refinanced loan will certainly boost the coffers of Fannie Mae and Freddie Mac, but hurts homeowners and lenders with no clear indication that the fee will offset any purported risk to GSE portfolios. In fact, that the fee only targets refinance activity (which, thanks to lower rates and the fact that homeowners must be current on their loans to refinance will serve to make the loans more safe) clearly demonstrate that FHFA’s priorities are misplaced and that the fee should be withdrawn immediately.

In California, the situation is compounded with proposals currently moving through our State Legislature. AB 1436 (Chiu) includes many of the same provisions of AB 2501 (Limon), which was soundly defeated in June. Those include extensive forbearance provisions and punitive penalties for missing any provisions of the bill’s implementation, if passed.

“If the California housing market adds the effects of a bill such as this, it will likely lead to significant limits on the access to affordable mortgage credit for California borrowers by disrupting the securitization market that provides needed liquidity for the mortgage market and otherwise discouraging new mortgage lending in the state. Our state already has the most acute housing affordability challenges in the nation, and this bill will exacerbate, not help, that problem,” said Bill Lowman, President and CEO of American Pacific Mortgage and Chairman of the Board of Directors for the California Mortgage Bankers Association.

The California MBA stands with the countless business and consumer groups that have also spoken out against this irresponsible action, and we urge FHFA Director Calabria to immediately reverse this erroneous decision and protect access to affordable credit for all consumers. Working to recapitalize the GSEs and remove them from conservatorship is a laudable goal, but it must not come at the expense of the American people during a once-in-a-century health and economic disaster.

11Aug

Ransomware with Terms of Service

August 11, 2020 CyberCecurity

Mitch Tanenbaum, Partner & CISO, CyberCecurity

So you thought only companies like Microsoft and Google had terms of service. Apparently that is not the case.

I keep talking about the horror that ransomware 2.0 is with hackers stealing the data before they encrypt it and threatening to publish the data if you don’t pay.

That means backups alone are not sufficient to protect you.

Now one of the first players to use ransomware 2.0 against victims is upping the ante by creating terms of service like a legitimate software provider.

Here are their terms:

If you do not respond to their attack within 3 days, they will publish that you have been hacked on their web site. They say that if you don’t start communicating within 3 days, you only have yourself to blame.
They say that negotiating means dialog and finding the “best” solution for both parties. If the “client” is too shy, scared or just can’t negotiate, that is, they say, exclusively the client’s problem.
They say that if you can’t figure out how much it is going to cost you to recover without them, they will help you. It will cost you over 10 million dollars. Not sure how they came up that number, but there you go.

03Jun

Most Employers in CBRE Study Favor Phased Return to Workplace, Adding Touchless Tech, Restricting Visitors

June 3, 2020 CBRE Group Inc

Most companies included in an analysis by CBRE plan to take a gradual, cautious approach to bringing employees back to their workplaces as governments begin to lift restrictions tied to COVID-19.

Roughly half of the 203 company operations that CBRE studied across the globe are implementing touchless technology to enhance cleanliness. Most are following social-distancing standards. And most will provide their employees with face coverings, though less than a third will require the covering be worn at all times in any company facility unless mandated by local authorities.

CBRE gathered its findings by surveying account leaders in its Global Workplace Solutions business, which manages facilities and real estate projects for large companies. The surveyed account leaders oversee client relationships spanning 4.2 billion square feet of workspace in offices, industrial & logistics real estate, tech space, data centers, retail, and healthcare used by more than 38 million workers. The analysis includes data collected as of May 4.

“Our analysis of our clients’ return-to-work strategies shows that virtually all are engaged in detailed planning to ensure a careful and reasoned approach,” said Karen Ellzey, Executive Managing Director of Consulting and global lead for CBRE’s COVID-19 response for occupier clients. “Most of these companies have established their own criteria for when to return to the workplace beyond local and state government requirements. And nearly three quarters plan to bring employees back in phases rather than all at once.”