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Digital Banking

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tips for commercial real estate lending requests

Throughout our time in financing commercial real estate at regional and community bank levels, we have often noted that novice real estate developers, as well as experienced and established developers, approach banks with poorly-organized and inadequately-detailed requests for financing. Submission of a substandard request typically results in a delayed response, or worse, dismissal of the request without thorough consideration and underwriting.

This can be avoided with a well-organized and comprehensive financing request package that contains the following basic elements:

  1. Developer Credentials should describe real estate development and management experience, especially experience with the property type you are looking to finance, including leasing and management. If this is your first project, explain why you are confident in your ability to execute the development and manage the property to keep it stabilized and generating sufficient cash flow to cover debt service.
For a new construction project, discuss your construction experience and/or identify the general contractor you intend to engage. Provide their credentials and financial resources and describe why they are qualified for the project.
  1. Personal or Corporate Financial Statement of developer/guarantor, organized by assets, liabilities and net worth. Assets should include an indication of liquid assets ‒ marketable securities and cash. Provide annual income generated by real estate and other sources, and consider including two or three years of personal tax returns, as you’ll likely be asked for them during the underwriting/approval process.
  2. Description of Current Commercial Real Estate Portfolio by property type, including location and a brief description of each property. The spreadsheet should include, for each property, the most recent year’s total income, expenses, net income, debt service, net cash flow, ownership percentage, estimated value, mortgage balance (if any) and net value. The bank, and you, can then analyze the performance of your existing portfolio in terms of global debt service coverage and leverage, or loan-to-value. This is a valuable tool for self- assessment of portfolio health and should be kept current, and not just updated when applying for financing.
  3. Project Description should be a concise yet thorough description of the project, including property type (retail, office, apartments or distribution/industrial), size in square feet or number of units, and location. Renderings are always helpful as well. Provide commentary on the surrounding market and why you believe there is demand for the space. Try to include examples of competing properties with rent and current occupancy levels.
  4. Project Budget should identify all sources of capital and uses of capital, with sufficient detail of construction costs. Types and sources of subsidy, subordinate public debt sources and investor equity such as Opportunity Zone equity should also be included. A consultant would be advisable if your project budget contemplates tax credit equity. 
  5. Rent Roll will describe spaces to be leased and terms of actual or prospective leases, including square footage and rent per square foot per year for commercial projects or per month per unit for apartments.
  6. Revenue Projection should be based on the rent roll and anticipated expenses, beginning with the first full year of operation and extending out up to 10 years. Expenses should include real estate taxes (reflecting expected abatements), insurance, maintenance, reserves, and management costs.
For the refinancing of an existing property, three years of actual operating statements and/or tax returns for the specific property should be provided. The lender will determine debt service coverage and estimated property value.
  1. Environmental Reports will be required at some point in the process. If you have an environmental report that is less than one year old, you should submit it as part of your financing package. The lender may eventually require and update it if the loan is approved.
  2. An Appraisal will be required if the loan is approved. Do not order your own appraisal unless you want it for your own assessment. Per regulatory requirements, the lender must directly order an appraisal for their approval purposes. 

Including the above elements in an organized and professional package, combined with clear communications with a prospective lender, will improve your chances of a timely and successful loan approval process.