I found out today that New Mexico is not LAST in everything.  We are first is DWIs as well as the first state to adopt a Real Estate Recovery Fund…which has now been adopted by most states.  So…yes…we do have pride in being first….or maybe we have pride in being last?

Anyway…

Quick thought….

A while back I was reading  a book by Nassim Nicholas Taleb called The Black Swan.  Great book by the way.  Anyway…I remember Mr. Taleb talking about banks and how over the years…the banks have gotten bigger all over the world (smaller banks being absorbed by the big ones).  What was more interesting was how he stated that all the banks are tightly connected in a dangerous way.  More specifically, how if one big banks goes down how it impacts all the other banks.

Now…we all saw this when big banks started failing in the United States….but have we really been impacted by failing banks in other parts of the world?  I am sure we have in one form or another…but what is happening in Dubai brings Mr. Taleb’s words back to life.  If…by some chance the ordeal with Dubai explodes.  Will we see another big bank fall?  Which we all know is possible.  If another big bank falls…what will be the impact to us Americans?  ….to the world?

I am sure I am showing my ignorance…but in the big picture of things….I do know this is a dangerous situation.  Chances are someone will save the day ….for now….but I am sure we have not heard the last of this situation.

Read more here on the situation in Dubai:

Dubai Scrounges for Cash as New Deadline Looms

Until next time…..rob

Level 1

Financial

• Current rent rolls

• Operating and capital budget

• Operating statements YTD or 12 months running (certified)

• Discrepancies between rent roll and actual occupancy

• Unit mix or certified square footage

o Respective rents

• Existing financing or liens on property

• Check of value

o Cap rate

o Cost/Unit

o Cost/Sq Foot

o Gross Rent Multiplier

o Replacement Cost

• Understand staffing costs

o All current employees

• Name

• Job title and description

• Pay rate

o Benefits

General

• Physical confirmation of property conditions through site walkthrough

• View all vacant spaces to determine what capital would be required to induce a

new tenant

• View all common areas and base building areas

• Interview management team, leasing personnel, handyman (scope of work,

employee or contract labor, rate)

• Machinery/Equipment

o Office Equipment

o Maintenance Equipment

o Tools

o Vehicles

o Other

• Supplies

Physical

• Physical confirmation of property conditions through site walk through

• Property zoning classification

• View all base building areas, all floors, central plant, roof, exterior wall

• View all areas of building exterior and interior common areas

• Walk property line, photographs

• Night Inspection

o Security and lighting

• Review all architectural and engineering documents related to property

• Street size, congestion, condition, accessibility into property

• Biggest recurring maintenance problem

• Vacant sites on property (potential to expand existing property)

Level 2

Financial

• Add: Rent rolls, Operating Statements (certified), Capital Expenditures past 3

years

o Operating Income statements for past 3 years

o Balance sheet statements for past 3 years

o Tax returns for past 3 years

o Chart of accounts

o Accounts Receivable:

• Rents (Rate, due dates, history)

• Misc. Income sources

• Home sales, leases, rent/lease option, notes, contracts

• Bank accounts, deposits, other financial assets

o Accounts payable:

• Purchase orders

• Open/credit accounts

• Petty cash

• Notes payable

o Approved vendors

o Contracts

• Copies of every lease on rent roll

o Include names, addresses, current amount, deposits, rent history, estoppel

certificates, late fees, NSF, collection)

• Schedule for rent increases

• Estoppels from no less than 75% of tenants in commercial building, including

ALL tenants expiring or renewing in next 3 years and ALL tenants leasing over

10% of the building area

• Determine if any change in property taxes (Do taxes break out cost of land?)

• Pull original land purchase price on project

• Understand all transaction costs

o Real estate commission, if any

o Legal fees pursuant to transaction

o Accounting fees relative to financial statement review and pro forma

preparation

o Possible acquisition fee if an advisor’s services are utilized

o Title-related costs (insurance)

o Mortgage costs (points and closing fees)

o Appraisal

o Inspection

o Engineering reports/survey

o Environmental study

• Recalculate:

o Cap rate

o Cost/unit

o Cost/sq ft

o 1st year cash-on-cash

o 1st year total ROI

• Investigate financing possibilities

General

• Thorough understanding of the workings of the property under current setup

o Policies/procedures Manual

o Move in & move out procedures

o Existent files for residents, vendors, etc

o Emergency notebook

o Leases (written or verbal)

o Deposits/administrative fees

o Software used including maintenance and support

o Office supplies

o Forms/letterheads

• Interview all tenants on estoppel list to confirm information provided by seller

o Ask about problem areas—Management, physical property/structure, etc

• Delinquent units

• Confirm all information received against information developed through

investigation

• Develop a trust quotient with Seller

• Name and contact info for existing Insurance agent and coverage

o Copy of existing policy

o Workmen’s comp, liability, bond, hazard

• Local commercial agent

o What do apts sell for

o What are current rents

o What would comparable structure sell for

o Sales info for other groups in same area

o Average per capita of storage square footage

• Local residential agent

• Look into local advertising

o Current yellow pages cost

o Yellow book

• What percentage of competitors are in Yellow book

o Other avenues

• Local transactional real estate attorney

• Local Industry contacts i.e. Applicable associations

• Location of local:

o Post office

o Bank

o Schools

o Stores

o Employers

o Public Transportation

• Local rent survey, average rates for standard units

o Last 2 completed by Seller

o Over last 5-10 years if possible

o Check local newspapers for ads, etc.

o Local telephone directory and Yellow book for ads

o List of local competing retailers

o Evaluation Seller’s currently used ads, signage, brochures, etc.

o Chamber of Commerce packet

o Verify occupancy, rates fees charged, security systems

o Phone call and physical visit to each competing property (See

supplemental “Market Study” form)

• Pictures if permissible

• Interview managers

• Name of off-site management company

• Need copies of permits:

o All city and county permits

o Storm water management permit

o Consumption use permit

o Water supply permits

o Pool, Jacuzzi, etc.

• Learn about local laws

o Leases

o Evictions

o Regulation

o Licenses

Regulatory Agencies

• Board of health

o Copy of license

o Property records

o Pool and Jacuzzi reports

o Violation notices, if any

• Building department

o Talk with inspector

o Planning for other similar projects

o Ease of permitting

o Name of good roofer

o Name of good inspection company

o Building costs

o Name of good appraiser

o Certificates of occupancy

o Permits in force

o Local codes

o Known violations and records thereof

• Engineering Department

o Drainage information

o Local soil maps

o Proposed area improvements and related assessments

o Impact fees

o Utilities concerns

• Sewer, water, electrical and gas

• DER-EPA (Dept of Environmental regulation and environmental protection

agency)

o Wastewater treatment plant discharge permit

o Effluent testing results

o Flow records

o Treatment plant violations

o Domestic water supply permit

o Domestic water test results,

o Domestic water violations

o Domestic water flow records.

• City Planning—talk to senior planner

o Current new building permits for projects under development

o Path of development

o Floodplain maps

o Impact fees?

o Barriers to entry

o Ease of permitting

o Zoning in 4 mile radius

o Zoning in our area

o Special zoning?

• Map

o Thoughts of over-building of ________(student housing, self storage, etc)

• Tax assessors

o How much will property taxes be after sale

o How often do they reassess

o Name of good appraiser

• Better business bureau

• Chamber of commerce

o Growth statistics

o Boom bust economy

o Typical job types

o Projected growth areas

o Path of development

• Register of Deeds (or possibly a title company)

o Property ownership

o Eases and Encumbrances

o Legal description and acreage

Utilities

• Copies of meter record for both treatment plant and water supply wells

o Sewage treatment plant and water supply records

• Approvals for water sanitary collection system

• Approvals for domestic water distribution system

• Utilities Department

o Sewer and water rates

o Tap-in fees

o Impact fees

o Sewer and water capacity requirements

• Utilities commission

o Rules, regulation and status of utility

• Drainage district

• Name and contact info for gas and electric utility company

o Types of approved units

o Who owns and maintains

• Name and Contact info for telephone company

• Trash collection

• Name and contact info Cable television

o Who owns system

o Who maintains system

o Who invoices users

o Existence of a formal agreement between property and cable company

• Can it be renegotiated

Physical

• Professional contractor inspection

• Maintenance

o Evaluation

o Deferred maintenance items

o Obsolescence (how/why)

• Night Inspection

o Security and lighting

• Street plans with utilities identified

• Roof condition

• Boundary survey including all easements and encumberances

• Retrieve air quality samples

• Drainage type and adequacy

• Sewerage handling and adequacy

• Irrigation system

• Floodplain presence

• Vegetation and maintenance

• Environmental issues

• Inspect all maintenance records and interview supervisors in charge of critical

areas

• Receive copies of all documents related to mandatory inspections ADA/TDLR

compliance, ACM inspections, etc.

• Develop 5-10 year Capital plan for property, price projects, schedule out

o 2 Bids on cost of major improvements

o Cost for installing security, alarms, video

• Research any problems with elevators, other equipment

Fire/Life safety system status

• Type of building structure, any below grade levels, soil type

• Type of building cooling and heating systems

• Vertical transportation systems

• Type, age, and condition of roof (warranty)

• General assessment of leaks and exterior wall condition

• Elevators up to ASME A17.3 standards (Texas)

Red Flags

• Seller balks at providing records or access as committed in contract

• Stained ceiling tiles around the perimeter of the building (or shrinking

gaskets/joint failure)

• Dirty mechanical and electrical closets

• Poor maintenance and inspection records

• Financial records or estoppels not available

• Significant error in process or accounting

So….A big thank you to all of you for reading and following us here at the www.TheRealWealthBlog.com

Keep on a look out for our new “Community” site where all our resources are free.  No joke!

Until next time…..rob

So you want a loan? I love to say "NO"

Greetings from the metropolis of Cedar Crest, NM.  Where the heat is getting to me.

So….leaving for California tomorrow and looking forward to it.  I have yet to pack and I have yet to do anything I need to do before I leave….but what is new?

In the news….

Is Microsoft feeling the heat from Apple?  I would say so.  Mircosoft if launching retail stores to compete with Apple stores.  I bought my first every Mac several months ago after experiencing the iPhone.  When I got the iPhone, I could not believe how great it was in almost every facet.  So I dumped my Blackberry and embraced Apple’s iphone.  Then I asked myself, if the iPhone is this good….maybe the Mac is that much better than a PC.  Well…it is.  Imagine a computer that does not freeze up on you?  Imagine no viruses?  Imagine a computer that works all the time?  Yes….after seventeen years of the PC….I went against my own rules….left my pride at the door of an Apple store and bought my Mac.  I don’t see myself ever going back to a PC….well…”never say never”…but I hope not.

So….

We continue our educational journey into financing commercial real estate.  By the way….if you are looking for a great commercial real estate mortgage lender, by all means, give Terry Painter a visit @ www.apartmentloanstore.com.  Terry has pulled rabbits out of his hat for me.  Tell him I sent you and he may do the same for you!

Anyway….on to lending basics….

There are several aspects to obtaining financing for the acquisition of a commercial property. This post will focus on the duties of an originator and outline this person’s crucial role in the commercial lending process.

What does an originator do?

According to investorwords.com, a mortgage originator is a person that oversees the mortgage process by helping the borrower complete the necessary steps to complete the transaction. The successful issuance of a loan is largely due to the skills and experience of the origination and processing teams.

How is commercial mortgage origination different than residential origination?

Information Gathering

For commercial lending, an originator must collect property information, including two years of operating statements, the current rent roll and a brief property description. For residential lending, the originator must collect two years of tax returns, pay stubs and three months of bank statements from the borrower.

Paperwork Completion

For commercial lending, the originator must complete a loan application that has applied appropriate underwritten reserves, calculated the stabilized NCF, supported the derivation of NCF in the executive summary, estimated value and calculated loan to value and debt service coverage ratios and normalized the property’s income and expenses while adjusting for inflation. For residential lending, the originator must complete a 1003 using residential processing software, pulled the borrower’s credit scores, reviewed FICO and calculated debt-to-income ratios.

Additional Steps

For commercial lending, the originator must then submit the loan package to lenders in an acceptable package, receive the final term sheet, obtain signatures and fund the loan. For residential lenders, the originator must determine the lender and appropriate loan, submit the application for preliminary approval, lock or float the loan, order an appraisal, order escrow and title services, submit for final underwriting, order the necessary documents and fund the loan.

The Lender’s Role

For commercial lending, the lender must review the LTV, DSCR and NCF, send a quote to the originator and order the applicable services including an appraisal, environmental, engineering, escrow, title, and UCC. The lender can then fund the loan. For residential lending, the lender reviews the credit histories of the borrower and the prepared 1003, completes final underwriting, prepares and obtains signatures for the necessary documents and funds the loan.

Originators play a crucial role in a finance transaction. When obtaining funding for your next property, make sure to develop a good working relationship with your mortgage originator to make obtaining financing as quick and painless as possible.

Until next time……rob

HURRY....SEATS ARE FILLING UP!

Commercial real estate investment seminars can provide you with a wealth of information to help you make smarter, more profitable investments. Whether your portfolio is small or substantial, seminar attendance is an easy way to get access to new products and opportunities as well as strengthen your arsenal of investment strategies.

Research
In order to get the most value from seminars, you need to first decide what you want to learn from a seminar. Are you a novice commercial real estate investor or are you a seasoned veteran of the investment market? Do you want to learn more about one particular investment form from an expert or do you just need to gain general knowledge?

Seminars are of the most value when you are looking not only for networking opportunities, but also for specific information that you might not have been able to get from a book.

Finding a Commercial Real Estate Investment Seminar
Once you have decided what kind of seminar to look for, you are ready to scour the area to see if anything is being offered on your subject of interest. Make sure to check several sources including the Internet and your local real estate investment club.

Also, be sure to join our list at TheRealWealthBlog.com to get timely notifications of upcoming webinars and real estate investment seminars. The list will also put you in touch with top-notch investors who may be able to advise you whether to attend a specific seminar.

Getting Value From Your Seminar
Chances are, if you paid to go to a seminar, you are expecting to get your money’s worth. In order to get the full benefit of the seminar, make sure you take advantage of any hands on workshops or roundtable sessions. It is a perfect networking opportunity because all the people you would want to speak with are in the same place at the same time. This is a chance for you to talk to gurus and other experts in the field over the course of a few days. Once you receive your conference schedule, start calling the folks to set up appointments at the seminar.

Take your business cards. If you pass out 100 and only receive responses from ten people, at least it is ten people more than you would have had access to if you didn’t go to the seminar. And, the seminar gives you common talking points to build trusted relationships.

Want to Know More?
Top commercial real estate investors maintain TheRealWealthBlog.com. If you want to know more about upcoming commercial real estate investment seminars and webinars, please subscribe to our news feed by entering your email in the box to the right.