Wrapping Multiple Parks for CMBS Purposes

Will CMBS lenders ever consider 2 smaller parks together? I’m looking at two parks that are 5 minutes from one another, each with about 40 lots. Same owner selling both. Each does about $55k of NOI, with significant upside possible from rent raises, submetering, and new trash contract. My question is - if I can get each to about $60-65k of NOI, the two parks together could merit a $1mm loan at a 10 cap - any chance of that?

@mhp Call Pierce Redmond at Security Mortgage Group.

http://www.securitymortgagegroup.net

They will be able to tell you right off the bat if this can be done or not.

-Brandon

@mhp A mortgage broker (Pierce being one of the best in the business) would be the best person to advise you but keep in mind that the market for CMBS loans is extremely thin at loan amounts less than $2MM, and at $1MM it is possible that you will not find anyone who will do a loan, let alone a blanket loan, unless it is a very strong market. Most blanket loans require a minimum loan size of $2MM or more.

Keep in mind as well that interest rates on CMBS less than $2MM are usually significantly higher because there are fewer lenders in that space and the loans are more difficult to securitize. Furthermore, the costs of simply getting a CMBS will be at least $35,000, and possibly significantly more if the lender is doing diligence on two separate properties, so it begs the question whether a CMBS would even make sense from a financial perspective given the up front closing costs. It may may more sense to simply go with conventional bank loans.

Go to the local banks and see who can offer the best deal. Dealing with local banks that know the LOCAL market are key to making a deal manageable and reasonable. Some of the LAGRE leanders dealing with small loans will put up with small loans but the last company I worked was dealing only between 2-99 million loans. Really there needs to be some more discussion on using other people’s money such as having having investors lined up and selling them on the investment not needed to usw ANY of your money. Research the ELEVATION GROUP

the same ones that operate this site. The real way for wealth in this business is USING other people’s money. You just look for parks with good roi and tell investors why and keep on buying more parks without worring about leandes or banks

You would not want to do two smaller parks in a conduit as you will have twice the cost in Phase I, property condition report, survey and legal. To do a $1 million conduit, you would need a clean, single property. Although most conduit lenders prefer larger properties, they also like to build relationships and will do a million dollar loan if they feel that it will lead to further business, just like any other business person.

Before you can get people to invest with you on a large scale, you have to earn that right by successfully buying and selling a lot of parks. That being said, there are people who have bought parks using friends and family Self-Directed IRAs (SDIRA) and that has proven to be a win/win formula for everyone involved.

Not sure what Carl is talking about, but the only way to obtain a high yield in any form of real estate is using sensible leverage. Regardless of how much money you have to invest, if you pay all cash, you will have a cash-on-cash return no higher than your cap rate. Even ELS and SUN, at 160,000 and 92,000 lots respectively, use bank debt extensively.

One more item on conduit debt. Yes, the up-front costs are much higher than a traditional bank (although not always, depending on the traditional bank you’re using) but you end up with an interest rate significantly lower than a bank, and a 10 year fixed rate, which is nearly twice the length of most bank loans. So if you take into account the cost to get a regular bank loan (appraisal, reports, legal, points) and multiply that times two (for the cost of two 5 year loans instead of one conduit 10 year loan) the conduit is actually cheaper.