Feb 12 2025 17 mins 3
How to negotiate better loan terms and manage lender relationships? We will also cover top lessons learned at the latest conference and evens, and what is the current state of the market?
Read this interview here: https://tinyurl.com/yf53zdpu
Lessons Learned
- Some of the Dollar Stores that closed are now selling in bankruptcy for a huge discount.
- There are so many ways you can partner up with people, you can do a JV (joint venture) with owners who have a lot of dark real estate (such as Dollar stores that are closing). Dark retail is a retail store that still has a lease but they have decided to close doors, they are still responsible for rent, but having a dark retail in your center isn’t good for your other tenants, so you would want to have that property filled again. What can you convert that to?
- You can partner up with cities, ask the city what do they need, offer to buy the land at $1/sf, offer to pay starting on year 3-10 when the property is ready or fully stabilized, get funds from them or breaks in fees.
- If you need a capital partner, there are capital market intermediaries that can help you find family offices or a construction loan, I spoke with a couple of people that did that a while ago and as far as I recall, their fees are around 2-2.5%.
- When you raise a fund, the real estate fund management fee is 1.5-2% of the committed capital.
- Don’t give special terms such as MFN unless an investor is committing a minimum of 25% of the deal. A “Most Favored Nation” clause gives a party the legal right to terms and benefits under the contract that are as good as or more favorable than the terms and benefits received by anyone else who enters into a similar contract with the other party.
- After webinar let them know you have the next week open for any questions they may have, this builds trust and helps them move forward.
Loans and Lenders:
You must pick up 5-6 new lenders a year.
Meet all of your lenders yearly, give them a report with your PFS (personal financial statement), show all property owned, how they have performed, share your mistakes and lessons learned, share the vision for the company, be proactive, present the business plan, how have you operated the assets.
After a loan is done, the lenders get a 2 week update, then it becomes quarterly. Send pictures, and show how are you doing vs pro forma.
Negotiate on loan unforeseen costs, stick with your needs even if you may lose that lender.
Negotiate that if you hit x percentage value increase, the lender gives the loan at x interest rate.
Agency debt is non recourse, and credit unions are great.
Don’t give any personal guarantees, the bigger you go, the less common it is for them to ask for a personal guarantee, lots of co-GP family offices can help and will show their balance sheet. You will need to have some guarantor for carve outs only.
We must negotiate debt to the ground, LTC is currently at 50%, don’t do variable rate.
We must read all pages of the loan docs and comment, edit, someone I know has made as many as 500 comments. You must have other banks lined up first they say no. Also, put a homestead exemption on all of your loan documents so they can’t take your home in case things go south, and make sure that they’re not removing any of your constitutional rights.
What topics should I cover next? Let me know at [email protected]
