Community/Recourse Bank Debt

Any of you with small/local community bank debt should reach out to your bankers. Was able to shave off 0.35% off this latest move (to 4.4%) without doing anything… Just a signature for terms revision. No fees, nonsense, etc. Obviously make them aware of competitive dynamic and several other banks looking to refi/recap property/portfolio. This is a good example of some of the benefits of recourse debt. You continue to be fixed (cap) but have a free option on the floating side in the event things move in your favor.

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Good to know. Is this something you do when rates decrease?

Thank you for sharing your experience!

So if I’m understanding correctly you went to your bank and suggested/stated that other banks were looking to refinance your debt, asked for a rate reduction from your current bank, and got it?

Do you mind if I ask how much far you were into the term of your loan?

I have some loans that are 1-2 years into the 5 year term and doing this seems gutsy. Even if I were to refinance with another bank at a much lower rate I likely wouldn’t come out ahead after paying prepayment penalties, which I’d assume my current bank would know.

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Both sub 1.5 years into 5 year lock. No prepayment penalties.

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What state or part of the country?

Upper midwest

Some like to use this FHLB 5 year +200-250

I always put my foot down and refused to be tied to prime

https://www.fhlbdm.com/products-services/advances/

I don’t think I’ve ever even gotten a loan offer that had a zero prepayment penalty. Is this a regular thing that other investors have on their loans?

I regularly get banks to waive the prepayment. I put together a loan proposal, with my requested terms, rather than ask what I can get. I make the terms super favorable so the bank can counter offer and then I can cave to some of their demands. I also request quotes for 5, 7, and 10 year fixed rates. Sometimes they only give me the 5 year option but then they shave the points or other criteria.

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Augustine - would you mind sharing the terms you request (or have requested in the past) or suggest some options? I am in that process right now and that would be extremely helpful. Thanks in advance!

FINANCING QUOTE

TO BE FINALIZED AFTER RECEIPT OF APPRAISAL AND LOAN COMMITMENT

TERM SHEET

FOR DISCUSSION PURPOSES ONLY

Date : May 7, 2019

Lender : XY Bank

Borrower : X and Y, and a to-be formed LLC or similar entity

Loan Type : Commercial Real Estate Loan

Amount : $1,200,000.00

Term : 60 months

Interest : 5-year fixed rate equal to the 5-year U.S. Treasury + 250 bps at the time of closing.

Repayment : Monthly principal and interest payments based on a 20-year amortization.

Collateral : 1st Deed of Trust and Assignment of Leases/Rents on property located at ___________.

Prepayment

Penalty: No prepayment penalty.

Fees: ¼% origination fee plus all third-party fees

Underwriting

Requirements : In addition to the general terms set forth above, the Commercial Real Estate Loan will be conditioned upon Lender’s receipt and approval of the following items (list of items may be modified based on the Lender’s due diligence review and understanding of title and underwriting issues):

Appraisal of the subject property certified to Lender

Title insurance commitment and final policy

ALTA Survey

Evidence satisfactory to Lender that the property does not include environmental conditions (Copy of a Phase I report, if available)

Evidence satisfactory to Lender that the property does not lie within a flood plain or an area designated as wetlands

Borrower will provide Certificate of Insurance coverage listing the collateral property address of Lender, as mortgagee.

Fees : The Lender will require the following fees be paid by Borrower:

Third-Party Appraisal

¼% Origination Fee

Recording fees related to recording the Deed of Trust and Assignment of Leases/Rents

Title Insurance commitment and final title policy

Loan processing fees including, but not limited to, flood determination fee, tax tracking fee, etc.

Reporting: The Lender will require the following information on an on-going basis:

Annual tax returns from Borrower

Annual financial statements from Borrower

Annual rent rolls from Borrower on subject property

Annual debt summary from Borrower

Annual tax returns on guarantors

Annual personal financial statements on guarantors

Loan Documents: The credit facility will be established and governed by a loan agreement and other loan documents (including a promissory note, Deed of Trust, commercial guaranty, etc.) that will contain terms and conditions of the credit facility, representations, warranties, covenants, and default provisions in addition to those matters highlighted in this Term Sheet (collectively, referred to as “Loan Documents”).

Lender appreciates the opportunity to propose this financing arrangement and hopes that the terms and conditions outlined above meet your approval. Please note that this term sheet is confidential and the proprietary property of Lender. As such, it may not be disclosed to any other person or entity without the prior written consent of Lender.

THIS TERM SHEET IS NEITHER A COMMITMENT, NOR AN AGREEMENT TO ISSUE A COMMITMENT, ON THESE OR ANY OTHER TERMS; BUT IS OFFERED FOR DISCUSSION PURPOSES ONLY AND IS NOT INCLUSIVE OF ALL TERMS AND CONDITIONS WHICH MAY BE INCLUDED IN AN ACTUAL LOAN COMMITMENT OR LOAN DOCUMENTATION.

IF AN ACTUAL LOAN COMMITMENT IS TO BE ISSUED, IT WOULD BE DESIGNATED AS SUCH AND WOULD BE ISSUED ONLY AFTER REVIEW AND APPROVAL, IF GRANTED, BY THE LENDER’S BANK LOAN COMMITTEE.

THIS TERM SHEET IS CONFIDENTIAL AND THE PROPRIETARY PROPERTY OF LENDER AND MAY NOT BE DISCLOSED TO ANY OTHER PERSON OR ENTITY WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER.

The “Amount” is 80% of the Purchase Price of $1,500,000.00, however it is anticipated that Borrower/s will be purchasing the Property via a 1031 exchange and will thereby be bringing more than 80% - and perhaps as much as 35% to Closing. In the event Borrower provides more than 20% down payment, Borrower would like release prices for selling off portions of the collateral to reflect a bank requirement of 80% LTV.

Borrower requests interest rate locks for 7 and 10 year periods as well. In the event Borrower and Lender agree to a rate lock greater than 5 years, Borrower will agree to a 1% prepayment penalty if refinanced with a different lender.

I’ll share it here, and send you an invoice for $300 (my hourly rate) :wink:

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LOL - thanks for sharing it! Much appreciated.