I see a new trend where brokers want either a letter of intent or a pre-approval letter from a bank prior to releasing any financials.
This seems kind of backwards to me as I don’t know what the park is worth without looking at the financials.
Is this a new trend other people are seeing?
Thanks!
Depends on the bank and the buyer. If you are a new buyer and never owned a park, then the broker is probably trying to qualify you as best as possible. Keep in mind that you may be competing with cash buyers who have bought multiple parks in the past. Also, this is not like buying a residential house where you can get a pre approval. Commercial loans are underwritten on the value of the property, not the buyer. Banks generally do not provide pre approval letters on commercial deals. If you can swing it, provide some other proof of funds.
The LOI before seeing financials is backwards, but since it is not binding, you could comply. Once you see the financials you may have to adjust your price or retract your offer.
An LOI before financials is absolutely backwards. With that said, you could send an LOI in, and make it contingent upon review of financials prior to moving forward to creating the PSA and the remainder of DD. Give yourself 1-2 business weeks to give approval to the financials so that you have ample time to review, think about them, and talk to people in the market so that you can determine if you can cut expenses, raise rents, etc.
Doing this, you will get to review the financials without spending the money to do a PSA and DD. Once you approve the financials, you can begin the PSA and than move to DD. If you aren’t happy with the financials, you can cancel the deal.
It is backwards but I know of one brokerage outfit that does this as part of their SOP - likely because they are trying to get the listing.
What brokerage is that, sir?