FAQS

1. How has the economic downturn affected Commercial Real Estate?
2. Where do you Lend?
3. How long will it take for my loan to close?
4. What criteria will I need to meet in order to be eligible for a loan?

1. How has the economic downturn affected Commercial Real Estate?

Impact of Capital Markets on Commercial Real Estate Values

The economic downturn is reducing demand for commercial real estate, and vacancies are expected to rise moderately, though they will remain in a healthy range. Nonetheless, investors are facing higher borrowing costs and have access to less leverage, which negatively impacts values. Leverage is one of the prime motivators for investors to purchase real estate for a few reasons. To start, it allows investors to control a larger property than they otherwise could if they had to pay all cash, thus increasing their return on equity. Leverage also allows investors to spread their equity across multiple properties, minimizing their risk through diversification.

When there is uncertainty in the markets, lenders hedge their risk by building in greater cushion in their underwriting, including increasing (A.) Debt Service Coverage Ratio (DSCR) requirements, (B.) wider loan spreads, (C.) and decreasing Loan-to-Values (LTVs).

A.	Rising DSCR - Prior to the capital markets shakeup, DSCR was at an average of 1.1:1, which means lenders required $1.10 in NOI for each $1 in debt service. Lenders today are mitigating risk by requiring NOIs are 1.25:1 greater than debt service.
B.	Wider Loan Spreads - Competition among lenders forced spreads to historically low levels in 2006 and early 2007, with the average falling to 100 to 110 basis points over the 10-year Treasury, which at the time was around 4.65 percent. The 10-year Treasury has retreated to the mid-3 percent range, but lenders are pricing in more risk, pushing loan spreads to an average of 275 basis points of the 10-year Treasury.
C.	Lower LTVs - Approximately one year ago, LTVs were 75 to 80 percent. The rapid price appreciation cycle has ended, and tighter credit markets are encouraging lenders to become more cautions. As a result, LTVs have decreased to the 65 to 70 percent range.

2. Where do you Lend?

Apartment Bank a division of BofI Federal Bank is a nationwide lender targeting medium to larger MSA’s and relatively stable markets. That is of course a more challenge in light of today’s volatile nature of the markets today. We will look at all attributes of the area and property to insure we meet your lending needs.

3. How long will it take for my loan to close?

Loans typically close in 30-60 days. However, several factors can affect the amount of time it takes for your loan to close. The ease of which we can order an appraisal on your building will play a major role. Typically, buildings in more suburban areas will be much easier to obtain an appraisal for than on buildings in more rural areas.

Making sure to return the documentation we require from you in a timely fashion will also assist in speeding up the loan process.

4. What criteria will I need to meet in order to be eligible for a loan?

Credit score:

Your credit score will play an important role in determining the rates and terms that are available to you. Our minimum mid credit score requirement is a 680+.

Building type:

We are capable of financing an array of different building types. Typically, a lender looks for a structure that could have several uses. Please see our list of eligible properties to determine if your building meets our criteria.

Down payment:

If you are making a new purchase, it will be necessary to provide us with proof of funds for the down payment. We will also require a copy of your most recent bank statement, as well as a copy of your purchase agreement.

Appraisal:

The largest factor is determining if the property can support the loan amount you are requesting. This is determined by ordering appraisal, which will assess the actual current value of the property.