One last note on timing – lenders do not respond well to
last-minute surprises. If a borrower anticipates property-specific
challenges or loan-specific complications that may threaten the
ability to refinance at loan maturity, it is generally advisable to
notify the existing lender early on in the process. Early lender
involvement tends to build good will and trust, leading to
better, more rational outcomes.
3. Recourse redux
CRE development is not for the faint of heart, and the risk
of property-level losses is part and parcel to owning real estate
through economic cycles. However, the risk of losing personal
assets through recourse provisions should be avoided when possible, and all borrowers refinancing a completed construction
project should place a high priority on obtaining non-recourse
financing. While partial or full recourse has been a standard
provision for construction loans originated since the start of
the recession, non-recourse financing is often available upon
project stabilization. For situations where partial recourse is
unavoidable upon refinancing, developer-owners should work
to negotiate “burn-off” provisions that scale back the recourse
requirements as the property achieves performance thresholds.
These are just a handful of the most common mistakes
borrowers make, regardless of whether there is EB-5 capital in
the project. On occasion, even seasoned CRE developers and
owners fall victim to the missteps highlighted above. Situational
specifics may vary, but lack of capital markets awareness is
almost always a contributing factor. Many borrowers simply
do not have the time and expertise to assess the full range of
financing options available when it is time to refinance. The
following market overview is intended to broaden borrower
awareness of common features of CRE debt capital markets.
Overview of CRE Lending Markets
This capital markets overview is a generalization of terms
and conditions observed in each lending market. Not every
description characterized herein is true of every lender in each
category. It is always a good idea to solicit feedback from lenders
in multiple lending markets to confirm current market features
and achieve optimal execution.
This summary covers the three traditional CRE mortgage lending markets, commercial banks, CMBS and insurance companies,
as well as agency lenders and non-traditional high yield options.
Commercial Banks
Commercial banks come in all shapes and sizes, from local
community banks to multinational conglomerates. Most
co