INTERVIEW: Presenting financing package to “Borrower” — quick question
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[{"id": "hnvkzks", "text": "Size the loan with a going in DY that is \u201cacceptable\u201d to credit and propose structuring an Earnout based on performance.", "replies": [{"id": "hnvv3qy", "text": "The earnout provision is great advice. I\u2019ve dealt with a few of those in my current role.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hnvnfg6", "text": "\u201cBased on a qualifying interest rate of __% on a __ year amortization schedule, $____ is the maximum loan amount assuming __% vacancy and a ___% operating expense assumption to achieve a ___DSCR.", "replies": [], "depth": 1}, {"id": "hnvqfv7", "text": "Don\u2019t worry about the borrower\u2019s feelings. They are giving you a platform to prove you understand the basics and that you can accurately reflect the bank\u2019s position in a manner that won\u2019t totally offend the borrower. I guarantee you that a borrower looking for a $15m loan knows the answer already", "replies": [], "depth": 1}, {"id": "hnvqz19", "text": "Can you provide the hypothetical property's location, actual LTV, NOI, term and IO? Deal with this a lot for work. Feel free to message me as well.", "replies": [], "depth": 1}, {"id": "hnwodah", "text": "Wow, this is an amazing interview process. My first few thoughts on the interest rate stuff:\n\nWhere are you located? The 1.05 ratio could be with SONYMA insurance all in if it\u2019s in NY, for example. \n\nYou mentioned that it\u2019s a big bank - is it a CDFI by chance or a conventional lender? For example, most CDFIs that service agency debt can\u2019t go lower than 1.15. \n\nAs a former lender, two pieces of advice for an interview like this:\n\nUnderstand the borrower better and ask them questions. Are they a repeat client? Have they ever had issues with paying debt service? What do their financials look like in light of the pandemic? Always be conservative with your assumptions at first.\n\nLook at deal making as art rather than science. The numbers only tell part of a story.", "replies": [], "depth": 1}, {"id": "ho3d8pz", "text": "Size the debt to max leverage at a 1.25x dscr for both upside and downside scenarios and present the strengths and risks &amp; mitigates to your interviewers. They don\u2019t expect you to know how to go to a borrower with a loan cut, but want to see your ability to underwrite and understand a real estate deal. This isn\u2019t a debt fund where your sizing debt based on the potential of the asset and scrutinizing the investors business plan- it\u2019s a bank with pretty rigid credit policy. Keep it simple and explain your findings to why the hypothetical borrower can\u2019t get to proceeds and the path their NOI needs to get there", "replies": [{"id": "ho3e6at", "text": "Basically, show your ability to know how to crunch numbers on a deal in excel and present a sources and uses table, proforma, asset description, sub market write up and rent/sale comparables in a 6-10 slide PowerPoint saved as a pdf", "replies": [{"id": "ho6ch7k", "text": "Thanks for the reply. The interest rate is not set, therefore, it is up for me to determine what is appropriate. They are asking for a fixed rate with a 10-year term. With interest rates set to rise in the coming years, should I be concerned with locking in a 4.5% rate for 10 years? The Borrower is also open to interest rate swaps, though I have no experience dealing with that. Thanks!", "replies": [{"id": "ho7tckh", "text": "What property sector is this? If a multifamily deal go 300 and 350 bps for an all in rate. Regardless, you can research spreads for different asset types, apply 10 bps servicing, and whatever the current treasury is to back into a good estimate of an all in rate.", "replies": [{"id": "ho7tqtg", "text": "For some form of rate swap scenario a good resource is Chatham financial for forward curves: https://www.chathamfinancial.com/technology/us-forward-curves", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]