I am in Insurance, Real Estate, and Residential Loans. I am residential loan officer with limited
commercial experience. I am trying to get started on Commercial BUT the problem with my
clients is income documentation.

Current Deal:
Fico: 687
Property Type: Retail Store (currently a coffee shop).
Current Loan : $320K at 7.5% Interest 30 due in 10.
Lease: 4,250 Tripple Net Lease Expires 10/2010
Current Value at $900 (low end)
Documentation Type: Stated Income Verified Assets

This client has two other commercial properties which generate + cashflow but his main business
has had decreasing revenues the past three years.

I have been quoted a rate of 12.5% with 1 year prepaid and 6 points in fees which my client will not
accept at $610K or 68% LTV.

That valuation seems a little high for that amount of net income. Maybe the property’s highest and best use is something else and the market is taking that into consideration when valuing. The $610M seems to have been designed to hit the 100% loan-to-value as a rental using a cap rate around 8%.

If your client does not want to pay those rates and fees, he is going to have to lower his request to something that the property’s cash flow can service. The way that the deal that you mentioned is structured, your client will be lucky to clear $200M from the cash-out. A deal might be doable where he clears a little under $100M and has much better rates and fees.

The whole stated income / verified assets is something that most bank lenders will just not do. Talking to non-bank lenders seems like the best choice. The other choice is to sell the property now at $900M

Decreasing or negative revenues will prevent him from getting better terms he currently has if he operates the coffee shop.

You don't say whether the coffee busines is his or not. You also mention a NNN lease. Does he rent the property or is the property he owns rented out to someone else? Remember that it is not the borrowers income that is scrutinized but rather the property's.

If he rents this out to another business with a true NNN lease, you will need to show that the business/tenant is successful at the location(it is common for landlords to make single, non credit tenants provide periodic financials)

Based on $4,250 per month and taking into consideration loss to lease risk and DSCR of 1.20, the max. loan amount would be around $420,000.

I can't see how the property is worth 900k if he is only getting $4,250 in NNN rents. Commercial properties are underwritten and valued based on income not comparable value. With a 10 yr lease and without knowing if there are any escalation clauses, income does not support a $900k valuation. With that lease in place he would not be able to sell the property for $900k. The cap rate at 900k with 10% vacancy/loss to lease and DSCR of 1.20 would be over 23%.

If he owns the building and you need to go stated (remember to add back for depreciation, guaranteed officer or partner payments and mortgage interest paid) Try Interbay or Met-West. Their rates won't be nearly as good as he has now, but you should be able to get around 10% with no lender points. That assumes the property appraises via income approach at current rent structure so that the LTV does no exceed 70%.

Who is the tenant and what are the terms of the lease? The valuation suggests the tenant is someone like Starbucks. Cap rates on Starbucks hover around 5% these days so the valuation might be OK. The critical issue is the lease term. Are there any extensions after 2010? Also, how much is the borrower looking for and how long does he/she want the fixed rate for? Anything above $650K will be very difficult to get.

Tenant is not Starbucks but they charge the same prices. He does not own the business he owns the bldf. There is an 2 year option after 2010. He is looking for $275 to $300K. The rate should be fixed for 5 years.

Sorry, but this is going to be tough. Commercial LO is right on target.

I can do this as a stated loan. The rate will not be that high and neither will the fees. It is pretty easy.