How do Commercial real estate loans work with syndications/joint ventures
Hello all. I am relatively new to the CRE space. I started a house flipping company almost 3 years ago and have done well just using hard money and and wholesaling time to time. I have gotten tired of the single family stuff and am looking to scale into larger buy n hold properties, specifically shopping centers. I have found a property off market that is a great deal. I have 1/3 the down payment needed and have commitments for the rest from two investors. I do not want a hard money loan due the high interest will eating the cash flow and risk. I want to go conventional however I have the least financial track record of the 3 (23 started at 19) but I’m looking to sponsor the joint venture. How should I go about obtaining a commercial loan. Will I need the partners financials also? Do we all submit our tax returns. I’m just wondering how that side of the process works with syndications or joint ventures specifically with CRE Any help is greatly appreciated
[{"id": "hj34xhj", "text": "There are three primary things that a lender will want to see in your sponsors. \n\n1. Overall liquidity equal to 10% ish of loan amount\n2. Net worth equal to or greater than the loan amount\n3. Experience\n\nBased upon the information you provided it is likely that you will need to have all three of the parties involved with the downpayment sign onto the loan as personal guarantor. If together you can meet the requirements they will be much more likely to give you a loan.\n\nWhat area is this shopping center in? \n\nIt could also be beneficial to bring in another partner who has the net worth or experience requirements if your group is lacking in those areas. Analyzing retail is much different than residential.", "replies": [{"id": "hj368mk", "text": "Every lender is different but in my experience everyone who signs on the loan will need to provide tax returns and a personal financial statement. \n\nEven if you don't get this loan start keeping a personal financial statement to track your monthly inflows and outflows as well as net worth. Then you can pull it out whenever you apply for a loan.", "replies": [], "depth": 2}, {"id": "hj37dqn", "text": "Thanks this helps definitely. The property is in Alabama. both have higher net worths then myself and would easily clear this requirement also having more years in RE. we all agree the deal is good and are happy to move forward. Just on my end I wasn\u2019t quite sure if I could get by with out them needing to do that but I probably should just do so to ensure we are approved and everything goes smooth.", "replies": [{"id": "hj37oxq", "text": "I would definitely start talking to a commercial banker ASAP. They will be your best resource in this deal. Just let them know it is your first time using a larger commercial loan.", "replies": [{"id": "hj386e3", "text": "Definitely will. I have already reached out to a few today. Telling them I\u2019m newer won\u2019t affect my chances?", "replies": [{"id": "hj3fhc7", "text": "Tell them about your experience in the residential market. For a loan there is really no way to get around being new to it. As a mortgage broker (formerly in CRE) I like to know upfront who is new to the loan process so I can help guide them appropriately. They want to close loans as much as you want the deal.", "replies": [], "depth": 5}, {"id": "hj5ezcz", "text": "Talk to commercial bankers in smaller local 1-3 brank banks local to where the property is.  Big banks are tough to deal with for this kind of stuff (if they'll do it at all.)", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hj6799c", "text": "As others have mentioned, start talking with lenders. Your only drawback in syndicating is there is likely more costs in dealing with a syndication attorney, having some SEC guidelines, knowing if it is going to be a 506B or C offering, doing a PPM and OM, etc. if you have the capital between you all, you could do a JV and call out the management side, and consider PM fees for it if you manage, or possibly disproportionate ownership for the operations and sweat equity part. Lots of ways to slice it.", "replies": [{"id": "hj6y2lt", "text": "I said syndication but this would be a joint venture just wanted to too know the answer to both anyways thanks for clarifying. Your suggestion was the exact route I took. Acting as property manager and part owner.", "replies": [{"id": "hmfhu8x", "text": "Find a company to be your  jv equity partner. You're the GP and they're your LP. You take an upfront one time sponsor fee of 50-150 bassis points for putting the deal together and a 2% annual management fee. You can also set the deal up so that you get addition end of year waterfall performance fee  if you meet certain irr metrics hurdles every 1-5 years.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hj3g9io", "text": "Personal guaranties.", "replies": [], "depth": 1}, {"id": "hj3vxdv", "text": "You need a partnership agreement, and you may need multiple guarantors from the bank to obtain the financing needed. You can still be the managing partner that gets to make the real estate decisions, but how you structure it is really up to you and your partners.", "replies": [], "depth": 1}, {"id": "hj53dr1", "text": "Syndication is when you have multiple lenders to come together on a deal.  You'll see them on big deals.  They don't take lender positions like first, second, third; they all have a group lien and get paid as per their agreement with each other.  That way risk can be managed.  \n\nDo you hold other properties with equity?  Now is the time for you to either get a credit line from a local bank or credit union, and or do a blanket deal to tap the equity.  PM if you want to chat.\n\nA JV like you're talking about is nothing more than multiple borrowers on a deal with an agreement.  They can be persons, entities, or both.  Usually anyone with &gt;25% ownership is going to need more detailed underwriting.", "replies": [{"id": "hj66q4u", "text": "I think referencing syndication is meaning syndicating the deal where the operator is the GP and the investor side is the LP in it, not multiple lenders aspect.", "replies": [{"id": "hmfi0s4", "text": "Correct", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hj58py8", "text": "What\u2019s the purchase price? Occupancy? Tenant strength? The property is half the equation and the borrower profile is the other half. So weakness is one can compensate for the other. \n\nYou need to be sure your partnership agreement is clear on liability and operational decisions.", "replies": [{"id": "hj5b5gv", "text": "$1.8MM 100% occupancy with the market standard 4.8% vacant rate factored into financials and we still are at an 8 cap with lease rates avg $8.5 a SqFt with market rates at $16. The deal is solid we are getting in at a good price. The partners are top notch i really just wanted to know how the loan application process worked with a joint venture like this", "replies": [{"id": "hj5khd4", "text": "I\u2019m guessing unanchored/neighborhood center based on the price.  This definitely feels like a community bank deal, as said above banks under $500MM in assets.  \n\nThis loan size they will also likely need PG\u2019s from all principal owners.  You all will want to cross-indemnify within your operating agreement.", "replies": [{"id": "hj5z9wn", "text": "Principal owners, usually defined as owners above 20%", "replies": [{"id": "hj6647t", "text": "I presumed they would each be 33.33% owners, didn\u2019t see him say otherwise", "replies": [{"id": "hj6xrud", "text": "Correct. So this helps I mean over all this confirms what I was expected. I\u2019m already on the right side of the matter now. Have all partners financials and will be moving forward with a few lender referrals. Thanks to everyone\u2019s help", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hj68nv3", "text": "Alabaster Market Center? Unless you are buying off-market this is the only center i see that fits this description in AL. The following assumes this is the center you're looking at. Getting a good loan may be difficult given 1. your lack of experience as a sponsor 2. credit of the tenants isnt great (outside of walgreens) 3. short remaining lease term for most of the tenants. Be wary of Walgreen's, their rent is below market but they are tough negotiators nonetheless. It does look like it used to be a Rite Aid and was converted during Walgreens acquisition, which is a good sign and probably means its a decent location for them. Make sure there arent any competing walgreens nearby or they may be on their way out. Any decent landlord would have approached walgreens for a lease extension prior to putting this on the market, i'd ask them about it and see how forthcoming they are in their response. \n\nGood luck!", "replies": [{"id": "hj6xg11", "text": "Off market", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hj681k0", "text": "R/syndications", "replies": [], "depth": 1}, {"id": "hj7ggnq", "text": "I\u2019m a Los Angeles CRE direct lender and equity investor. We help handle Co GP and LP partnerships, filling up holes in capital stacks. Would love to talk see if we could provide value. Our site is Forbix.com. Send me message in here.", "replies": [], "depth": 1}]