Hard Money – Cash-Credit-Character


Mixed signals are being sent to the COMMERCIAL REAL ESTATE FINANCING MARKET, whether it is for commercial properties to be-built or existing refinancing or acquisition. The confusion comes from whether or not you are one of the “Big Boys” who have large nests of cash equity capital and debt capital, OR are you are a medium or small developer. The “Big Boys” have access to the large funding institutions, i.e. pension funds, REITS, banks, etc., that the medium/small developers have a hard time tapping into. Consequently, the “Big Boys” go into the prime markets first thus hindering the smaller developers even further. We hear everyday about the build-up of investment capital, but it is available primarily to only the “Big Boys” who have the “THREE C’s”!

In view of these circumstances it is IMPERITIVE that medium and small developers consider “THE THREE C’S” when seeking financing in today’s commercial real estate market.

“CASH RULES”! Due to the current and perhaps extended credit crisis, whether it is a bank for construction/ interim financing or institutional permanent financing, cash rules. On construction loans, expect to put up 25% to 30% hard “cash” (land equity is not included). On permanent loans expect to invest up to 20% to 30% of the property’s cost OR value, the lower of. HERE IS THE DIFFERENCE FROM THE “LONG-GONE” OLD DAYS. “You must prove you have the cash before lenders will consider your loan request”! The reason for this is due to the large number of request lenders are receiving that do not have the cash to close. This is clogging up the loan process system. Also, lenders are cherry picking loans. Those with any discrepancies are being declined immediately.

It is very important to have your CAPITAL STACK clear and verifiable. If you are using other people’s money, you must prove it is available. As a result of this, a very clear narrative from the applicant explaining the ownership structure is necessary, along with financial statements indicating the availability of the necessary cash investment. This will assist in getting the quickest and very best loan terms. Lenders like to see developers personally having a minimum of 10% of the cost in the property. If the balance of the cash requirement comes from others, the availability must be verified.

Sam Tayloe
President – Texas Commercial Mortgage

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