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COMMERCIALBANC,
REAL ESTATE CAPITAL MARKETS/MULTIFAMILY FINANCE GROUP
(“CommercialBanc’), focuses on apartment financing for small apartment properties - where
the apartment loan amount does not exceed $5,000,000 with regional,
state and county limitations, as determined by CommercialBanc’s
management. The program is designed for uncomplicated apartment
loan activity on existing property where repayment is to be
supported by cash flow from ongoing normal rental operations and
where the expected productive physical life of the property and its
systems will sustain tenancy occupancy over the term of the
apartment loan with normal management and maintenance.
CommercialBanc will
consider making a
small balance apartment loan for multifamily housing properties that have characteristics typical of the market,
such as electrical master-metering, Section 8 Tenants, furnished
units and studio units. CommercialBanc will provide apartment
financing for buildings that
are classified as “A” and “B”, as well as “C” and “D” as long as
acceptable to CommercialBanc in both physical condition and market
attributes. The building classification is as follows, and may vary
from market to market:
Class “A”:
·
Generally, garden product built within the last 10
years.
·
High-rise product in select Central Business District
may be over 20 years old.
·
Commands rents within the range of Class “A” rents in
the submarket.
·
Well merchandised with landscaping, attractive rental
office and/or club building.
·
High-end exterior and interior amenities as dictated
by other Class “A” products in the market.
·
High quality construction with highest quality
materials.
Class “B”:
·
Generally, product built within the last 20 years.
·
Exterior and interior amenity package is dated and
less than what is offered by properties in the high end of the
market.
·
Good quality construction with little deferred
maintenance.
·
Commands rents within the range of Class “B” rents in
the submarket.
Class “C”:
·
Generally, product built within the last 30 years.
·
Limited, dated exterior and interior amenity package.
·
Improvements show some age and deferred maintenance.
·
Commands rents below Class “B” rents in submarket.
·
Majority of appliances are “original”.
Class “D”:
·
Generally, product over 30 years old, worn properties,
operationally more transient, situated in fringe or mediocre
locations.
·
Shorter remaining economic lives for the system
components.
·
No amenity package offered.
·
Marginal construction quality and condition.
·
Lower side of the market unit rent range, coupled with
intensive use of the property (turnover and density of use) combine
to constrain budget for operations.
The
small balance apartment loan program is not
designed for properties requiring significant rehabilitation,
renovation, repair, or reconstruction. Neither is the program
established (under published extended amortization terms and maximum
loan to value ratios) to provide apartment financing for properties exhibiting high risk
attributes including:
-
Apartment Buildings that have significant portions of their exterior,
structure, electro-mechanical systems and functional serviceability
that are near the end of their physical lives;
- Apartment Buildings converted from original use,
unless an approved exception is made. For a conversion to be
considered, each unit will have to comply with local codes, must
have separate entrances, bathrooms and kitchens.
-
Apartment Buildings with extensive code violations; and
-
Properties where there is an expectancy or requirement for ongoing
intensive management related to operations exhibiting or including;
·
High vacancy projections,
·
Abnormal turnover,
·
Transient tenancy characteristics (quite often related
to the composition or design of the building),
·
Buildings with extraordinary expectance of repairs due
to advanced age or use and abuse,
·
Properties that exhibit operational risk requiring an
extensive level of management and expertise, and
·
Properties that represent non-traditional housing.
The
Banc-Series Apartment Loan Program is not designed for
multifamily housing properties requiring significant rehabilitation, renovation, repair,
or reconstruction. Neither is the program established (under
published extended amortization terms and maximum apartment loan
program to value ratios) to provide apartment financing for properties
that exhibiting high risk
attributes including:
-
Apartment Buildings that have significant portions of their exterior,
structure, electro-mechanical systems and functional serviceability
that are near the end of their physical lives;
- Apartment Buildings converted from original
use, unless an approved exception is made. For a conversion to be
considered, each unit will have to comply with local codes, must
have separate entrances, bathrooms and kitchens.
- Apartment Buildings with extensive code
violations; and
- Properties where there is an
expectancy or requirement for ongoing intensive management related
to operations exhibiting or including;
- High vacancy
projections,
- Abnormal
turnover,
- Transient
tenancy characteristics (quite often related to the composition or
design of the building),
- Apartment Buildings
with extraordinary expectance of repairs due to advanced age or use
and abuse,
- Properties
that exhibit operational risk requiring an extensive level of
management and expertise, and
- Properties that represent non-traditional
housing. Also while our
apartment loan program
may provide an avenue for apartment financing aggregated clustered holdings in
given specific locations, the division of a property or development
into smaller increments just to meet the maximum apartment financing limit may require underwriting approval at Committee level because of complexity issues.
Where properties have been submitted
for consideration that Apartment Lender’s Underwriting believe do not fit the
spirit or intent of our
small balance apartment loan program, these will only be considered as
exceptions and run the risk of being rejected as an unacceptable fit
with the program. At Lender’s option, risk mitigating alternatives
of lower apartment loan program to value ratios, reduced
amortization terms, and/or mandatory escrows for repair and
replacement may be offered as the result of the underwriting
process.
Value is determined using a direct
capitalization of the net operating income based on the appraiser’s
data. However, in an apartment financing purchase
transaction, the lower of the sales price or appraiser’s value will
be used. Furthermore, if the apartment loan is a refinance
transaction and the subject property has been owned by the borrower(s) less than two years; then the value will be based on the
lower of the appraiser’s value or the original purchase price plus
verified documented capital improvements, See Section U320.21.
The appraiser’s value must support the appropriate apartment loan
program to value parameters as set forth starting with
Section U320.00. While Apartment Lender will accept the values as stated in preceding
sentences, Underwriting will place heavy emphasis on the Debt
Coverage Ratio for also determining the amount of apartment
financing that will be offered, see
Section U310.20. Lender reserves the right to adjust appraisal values.
Rate/term and cash-out refinance
activity may be underwritten at slightly lower LTV ratios when
compared to initial purchase transaction apartment financing. However,
regardless of the appraised value file documentation or our
published general
small balance apartment loan program guidelines, underwriting retains the
prerogative in all cases to change or reduce the offered terms based
on the considered attributes and merits of each file. Underwriting
elements may include any or all of the following:
1. Original equity vs. appraised
equity;
2. Original purchase price;
3. Date of purchase;
4. Reinvestment by the owner during
the term of ownership;
5. History of revenue and expenses;
6. Cap Rates / GIM’s vs. Debt
Service Constants;
7. Current business plan / rent
patterns;
8. Strength of borrower;
9. Additional collateral;
10. Collateral & component age/
condition/ deferred maintenance/ past care practices;
11. Stability of tenancy/ vacancy
rates & turnover/ collection loss exposure; and
12. Appraiser Forecasted NOI vs.
Current NOI (for example, a large increase in the appraiser’s
forecasted rent roll vs. the current rent roll and/or a large
decrease in appraiser’s forecasted expenses vs. current expenses)
which may necessitate additional collateral.
APARTMENT LOAN PROGRAM UNDERWRITING INTRODUCTION
The purpose of the Apartment Lending
Underwriting Guidelines is to set forth a foundation from which all
underwriting decisions will be made by
Apartment Lender. Primary consideration
will be given to:
SECTION I - PROPERTY
The property is analyzed in order to
determine the level and sustainability of the net operating income
stream from the property, the property’s financial capacity to repay
the loan, and the collateral value of the property securing the
apartment loan. An underlying assumption is that the property is for
an investment purpose, even when the Borrower(s) may occupy one of
the apartment units.
SECTION II - BORROWER(S)
The overall creditworthiness of the
Borrower(s) is analyzed in order to determine personal
debt-to-income ratios, credit history, real estate ownership,
management experience, cash reserves, and related information.
SECTION III -
APARTMENT FINANCING PARAMETERS
The overall apartment loan request is
reviewed in order to insure it complies with the loan parameters of
a particular loan plan.
SECTION I -
APARTMENT LENDING PROPERTY
U100.00 LOCATION OF PROPERTY
Apartment Lender originates apartment loans in
locations within market areas as approved by Lender’s
Product/Pricing Committee. Questions regarding a property’s
location, when determining eligibility, may be directed to Lender’s
Underwriting Department.
U100.10
Apartment Lending Markets
Apartment Lender makes apartment loans in selected markets
of the United States of America and the District of Columbia.
U110.00 ELIGIBLE PROPERTY TYPES
Apartment Lender offers first lien adjustable
rate and fixed rate mortgages for Apartment properties having 5 or
more total residential units and
Mixed-Use properties provided there
are at least 5 residential units, the overall percentage of current
gross potential annual income from the commercial units does not
exceed 25%, the number of commercial units does not exceed 25% of
the total legal units, all commercial units have leases, and the
real property ownership interest is held in a fee simple estate.
In
Apartment Lender’s opinion:
A. Property shall generate
enough gross income to support the proposed apartment mortgage loan
debt service, operating expenses, reserves, and a sufficient return
on investment to Borrower(s);
B. Property shall be in
overall good condition, without excessive deferred maintenance, and
without building code violations. Any properties where the appraiser
has rated the “Condition of Improvements” as “Fair” will be
considered, subject to underwriter’s review of a Property Condition
Assessment completed by Lender’s approved consultant at Borrower’s
expense (see Section
U140.00);
C. Property shall provide the
tenants with acceptable living conditions, lacking in functional
obsolescence;
D. Property shall be free of
non-abatable environmental hazards;
E. Property shall conform to
the zoning of the site. Property that does not conform may be
acceptable (legal non-conforming), provided Lender’s Property and
Liability Insurance Requirements (See
Section U160.00)
are met;
F. Proposed apartment loans
that collateralize multiple apartment buildings must have the
buildings contiguous and adjacent to each other, forming an
apartment complex. Multiple lots and multiple assessor property
numbers are acceptable. Non-contiguous buildings will be considered
if all buildings are secured under a blanket apartment mortgage with no
partial releases being honored during the life of the apartment
loan, within a half a mile radius from each other, each separate
complex must have at least 5 residential units, and each separate
complex that are not contiguous must have sufficient value to meet
the minimum apartment loan amount requirements and sufficient income
to meet the DCR requirements. See
Section U300.30
for minimum loan size and starting at
Section U310.21
for DCR parameters. Apartment Lender must be provided with separate rent
rolls and income and expense operating statements for each separate
complex;
G. Condominiums or Planned Unit
Developments (PUD) where the borrower owns 100% of the units
contained in the separate structure(s) defined as the collateral
property even though the structure(s) may be only a portion of the
condominium association or PUD;
H. Properties with seasonal
occupancy where the market area does support year-around occupancy
and/or year-around employment;
I. Properties with a
studio/efficiency (i.e. units not containing any bedrooms) unit mix,
as long as they are typical of the subject’s market;
J. Properties with
concessions and/or concessions in the property’s submarket will be
considered based on the final adjusted Debt Coverage Ratio (DCR) as
determined by underwriting. See
Section U310.20
for further explanation;
K.  Properties
where the electrical is master metered wherein the landlord pays one
utility bill to the public utility company provided that this is
typical of the market;
L. Properties where tenants
are “doubling-up” (i.e. the units have more occupants than intended
for the unit, which is generally more than two occupants per
bedroom) will require a 10% reduction to the applicable LTV;
M. Properties with furnished
housing, as long as they are typical in the subject’s market.
Apartment Lender will not include any premiums or excess rent above market in
the underwriting analysis. Lender must be provided with sufficient
information in order to be able to isolate the excess rent from
furnished housing units;
N. Properties that do not
have public-provided water and sewer (e.g. a private well and/or
private septic or sewage treatment system). A satisfactory well
inspection (performed by local authority) and a septic inspection
(performed by a licensed contractor) reflecting that there are no
life/safety issues will be required;
O. Properties with master
leased elements will be considered under the following
requirements: Up to 10% of the units in the subject may be leased
by corporations, partnerships, trusts, or other entities. No more
than 5% of the total units in the subject may be leased to any
single corporation, partnership, trust, other entity or individual;
P. Properties with up to
100% of the tenants receiving rent subsidies (i.e. Section 8 only).
Apartment Lender will utilize the lower of the market or contract rents for
underwriting purposes. Lender will not consider a building with a
HAP contract (entire building under contract); and
Q. Properties with
convenient stores where liquor, including beer and wine is sold and
is not consumed by customers on-site.
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