Posted by Andy/IN on 12/7/06 7:25pm
Msg #164664

Commercial closing

As a newbie I have yet to experience a commercial closing and in 10 years as a mortgage originator have never encountered one so I am way out in left field on this one. What can I expect? What do I charge? Anything out of the ordinary that I need to be aware of? Any help would greatly be appreciated.

Reply by Andy/IN on 12/7/06 7:32pm
Msg #164666

I hit the search button and may have answered my own questions...looks to me like maybe I'll leave that dog alone!

Reply by PAW on 12/7/06 8:43pm
Msg #164675

Depending on what type of commercial property there is, it can be as simple as a residential loan or extremely complex which should be handled by attorneys. I've done a few, and they all have been different. I planned for an hour with one that took over three hours. Something along the order of 300 pages of lender/title documents. It was for an occupied strip mall, simple (and I use the term loosely) refinance, with no cash out and no RTC. So all documents had to be perused by the owner/borrower and his attorney.

Reply by BrendaTx on 12/7/06 10:51pm
Msg #164686

This is they type of docs I work on all day long. Rather than plain ol' homestead affidavits, you'll find that plus affidavits of non-homestead, DOTs in parity... where there's more than one piece of property securing these huge loans...maybe even in more than one county, financing statements, guarantors, guarantees, resolutions, entity docs, etc.

Like Paul said, these can be huge. When we are finished signing and recording, I have the student worker to put them in binders for delivery to the appropriate party. My last loan was a double set of 2 1/2" binders. In other words, five inches of documents in the stack.

Reply by Genkichan on 12/8/06 7:57am
Msg #164743

Wow, this sounds so strange. My hubby and I just bought a small strip mall (only two tenants) in Memphis, TN last week. Wachovia Small Business was our lender. I was so shocked at the fact that there were so few papers to sign, I thought something was wrong for sure. There probably weren't even 40 pages of stuff to sign, and much of it was repeat docs. We were in and out in 30 minutes, including time for BS'ing with the agents. I was shocked. Obviously, mine was a "small deal". ;-)

Reply by PAW on 12/8/06 11:42am
Msg #164791

Probably 90% of the docs were signed long prior to closing. That's typically the way banks do it. I'm getting into a new venture right now, which is providing funding for small business real estate loans (<$1MM) that banks won't or can't do, like for most self-employed folks who can't document income. I've been learning a lot about the workings on the commercial side.

Reply by Genkichan on 12/8/06 3:10pm
Msg #164842

Thing is...there really weren't all that terribly much Wachovia docs to fill out. My experience was -- They had a 4 or 5 page app., a few misc. docs, and wanted other cashflow/lease info about the property and tenants, 2 years' tax returns, and that's about it. The only bank docs signed at closing were the Deed and the Note (and HUD). No boat loads of disclosures about anything...Tell you what, though, I learned A TON going through the process. I found it nearly impossible to get a small loan for a commercial property (i.e. $120K). All local banks in Memphis turned me down because they couldn't "cost out" the loan based on their formulas for rental income, vacancies, mgmt, repair allowances, etc. They had tough ratios of around 1.25 or better. Then you have the national lenders. Sure, they'll give me an 80% LTV small commercial loan on my deal no problem. But guess what the terms were? Something like 10% interest, with a 5%/5year prepayment penalty. Well, those numbers didn't exactly work when I ran MY numbers on the property! I was really stuck between a rock and a hard spot, and almost walked away from a good deal because we couldn't find decent middle of the road financing. And I"m telling you our family's debt/income ratio is EXCELLENT by all standards, as are our FICO scores, so that wasn't the issue at all. Wachovia small business lending saved our day. They gave the loan not based on costing out the property so much as based on our ability to repay regardless of rental income. We ended up with a 7ARM/20 at 8% with no pre-payment penalties of any kind. Of course, it's a balloon (most commercial loans are re-set at the end) and it had to be 75% LTV and we had to dig up some extra cash to close. But in the end it was worth it. 7 years is plenty of time to figure out what to do with the place.

My point is that there are very few options out there for DECENT small loans for excellent creditors like my hubby and I, who want to purchase commercial real estate with cost ratios between 1-1.25. Local lender requirements are very stringent and national lenders' terms will kill the deal for you. It would have made our cash flow margins too narrow for me to stomach, and that pre-pay penalty was like swallowing a boulder. I wish you the best of luck in your new venture, and hope that you will find a "happy medium" loan product for situations like I encountered. High cost commercial RE loan options are very profitable for those that can sell them (so I've heard), BUT they just don't work for those buyers trying to enter the commercial market (i.e. typically buyers with purchases less than $1M).

P.S. Funny thing is, one of the national lenders I spoke to fully admitted that Wachovia bought all of his loans on the secondary market. Wachovia, huh? Thanks for the tip, MAN!!! ;-)

Reply by PAW on 12/8/06 4:19pm
Msg #164857

Small businesses face a big dilemma when it comes to mortgages and business loans. That's why I've chosen to broker with a lender that fits neatly between banks and hard money lenders. Banks don't like property loans for less than $2MM. Hard money lenders, though fast and next to no documentation required, have extremely high interest rates. I will be able to offer business loans **based on property value** only, and the owner's credit score, of course. These loans are always SISA (Stated Income, Stated Assets) which banks won't touch. This is great for the self-employed. And typically the deal can be closed in 45 days rather than 6 months or more.

But, this is a notary forum so I'll put a lid on it for now.

Reply by Genkichan on 12/8/06 8:27pm
Msg #164907

Sounds like a good plan for you. Wachovia closed mine in about 20 days start to finish, but then again there was no full appraisal ordered nor survey done. So, that capped the prep time considerably.

I hope you can do as good as Wachovia does, or close to it. I'll keep you in mind if I ever need another small commercial loan.

Cheers!

Reply by David Kral on 12/8/06 7:11pm
Msg #164893

I sit next a couple large title companies. Both have commercial divisions. I happend to know one of the attornies that has been doing that work for about 30 years. Theses guys do the work on skyscrapers when they trade. Files can be thick. Usually those are closed in house. Be sure you know what you are getting into. I have done a few documents for them on some transactions. They very clearly laid out with little arrow tabs what needed to be signed and where. In general, I would avoid this business. If I made a mistake, it could blow through my E&O coverage in a heart beat.