If you are getting a commercial real estate loan with a bank or credit union, they will almost certainly run a global cash flow analysis. And if you do not meet their requirements, it can become major obstacle to getting the deal approved. What is Global Cash Flow? A global cash flow analysis looks at two things: All sources of income and cash flow W2 Business income Real estate income Investment income Other income sources All recurring debt obligations Real estate debt Business debt Personal debt Credit obligations Other recurring liabilities In simple terms, lenders want to determine whether you generate enough total cash flow to comfortably cover all your debt obligations. Typically, banks want to see a 1.25x Debt Service Coverage Ratio (DSCR). How is it Underwritten? This is what makes this difficult. There is no universal standard for underwriting a global cash flow analysis. Every bank has its own methodology, risk tolerance, and interpretation of borrower cash flow. Format: Some banks use a simple one-page worksheet, while others use detailed multi-page models. Expense adjustments: Some lenders make larger adjustments for personal living expenses than others. One-time items: Some assume certain income expenses are one-time adjustments, others do not. Narrative flexibility: Some are relationship-driven and will listen to the story, others are more programmatic. The primary sources used in this analysis typically include: Personal tax returns Business tax returns K-1s Personal financial statements (PFS) Schedule of Real Estate Owned (SREO) Credit reports Is This Analysis Time Consuming? Yes. Especially for active real estate investors and business owners. A 20-page tax return can usually be reviewed fairly quickly. A 200-page tax return with multiple entities, properties, and transactions will take significantly longer. The more complex your financial picture is, the more underwriting will require. This is especially true for borrowers who: own multiple investment properties frequently buy and sell assets have layered ownership structures operate multiple businesses The Best Gut Check A simple question to ask yourself is: "After paying all of my monthly debt obligations, do I consistently have meaningful excess cash flow remaining?" If you do, and your income is properly reported on your tax returns – you will often be in good shape from global cash flow perspective. If cash flow is tight, that will likely be reflected in your global cash flow. That said, numbers alone do not always tell the full story. Caution: I have seen borrowers who felt comfortable with their monthly cash flow and do not pass a global cash flow analysis. That’s where telling the story of your cash flow is extremely important. Do not just hand over documents – be prepared to provide context. Timing differences, non-recurring expenses, depreciation, and business reinvestment can all materially impact the analysis.

In most cases, my view is: YES. Why? Longer amortizations generally reduce risk and improve flexibility. Benefits include: lower monthly debt payments more cushion if property cash flow declines after acquisition improved debt service coverage the ability to make additional principal payments voluntarily (depending on lender structure and repayment terms) From a risk management standpoint, smaller required payments can materially reduce stress on both the property and the borrower. Amortization Available in the Market Generally speaking: banks can offer 20-30 years amortization older properties are more likely to receive 20-year amortizations rather than 25-30 years some private lenders, CMBS lenders, and debt funds may offer full-term interest-only structures The amortization available often depends on: Lender appetite Property age and condition Asset class Market Leverage Downside to Longer Amortizations The biggest downside to a longer amortization is slower principal paydown. you build equity more slowly through amortization loan balances remain higher for longer periods Historically, many investors relied on NOI growth and cap rate compression to build equity. Over the last several years, however, that has become more difficult because: many properties have experienced limited NOI growth cap rates have generally expanded That means principal reduction has become more important component of equity creation that it was during prior market cycles. My Preference Even with those tradeoffs, I generally prefer longer amortizations when all other loan terms are equal. Why? Because I prioritize limiting downside risks and preserving flexibility. Real estate cash flow can fluctuate unexpectedly, and lower required debt payments create more room to navigate difficult periods. That said, all loan terms are rarely equal. For example: one lender may offer full-term interest only, but at lower leverage another may require a higher interest rate The optimal structure is ultimately a balance between: Cash flow protection Cost of capital Leverage Flexibility Long-term equity creation I have created an analysis to show how longer amortizations reduce risks, all other loan terms being equal. The table below shows stress testing rents needed to hit 1.00x on different amortization schedules. Example: a 20-year amortization requires rents to be $60 more than the 25-year amortization Some observations: The difference between 25 and 30-year is only $30. The bigger moves are from 20 to 25 and 30 to IO. $60. The table below shows the assumptions used in the analysis.

Closing commercial bank loans is more challenging today, but not as difficult as the media suggests. Many multifamily investors have been on the sidelines since 2022 — if that's you, here's the latest. Cost Basis Considerations Nearly every lender I work with— banks and non-banks alike— is now asking about cost basis, even if the property was purchased more than two years ago. This is a shift from the years leading up to 2022, when banks would generally ignore cost basis if you had 2 years of seasoning at the property. This change makes sense given that many property values have either declined or remained flat since 2022. However, if you purchased the property in 2023 or 2024, there’s a stronger case to ignore cost basis, especially if the borrower has been able to increase rents. Why this matters: When a lender focuses on cost basis, they often limit you to the lessor of loan-to-value (LTV) and loan-to-cost (LTC), rather than just LTV. This constraint reduces your ability to recapture any equity for reinvestment in other deals. Sponsor Liquidity Banks are now expecting higher post-close liquidity from borrowers. While there’s no hard-and-fast rule, they generally want more cushion than before. The specific requirement really depends on deal size and property stabilization, but banks are now often requesting 10-20% in post-close liquidity rather than the previous 5-10% range. Deposit Requirements For the past couple of years, many banks have required 10% compensating balances. While some still maintain this expectation, I’m seeing a lot of banks lowering or eliminating their minimum compensating balance requirements. Leading up to 2022, compensating balance requirements were rare. Better Asset Quality Lenders have been more selective about asset quality. The older the asset, the more interested they are in verifying the actual condition of the property. Banks are being more conservative across the board.

It typically takes 30 to 60 days to close a loan. However, just because you went under application doesn't mean your loan will be approved at the quoted loan terms. An unfortunate part of this business is that there are many lenders who will retrade on the loan terms they originally offered. Some of these retrades are unacceptable and a bait-and-switch tactic. Other retrades are not really retrades at all in the malicious sense. The loan terms were adjusted based on doing full due diligence, which is an acceptable and understandable part of the closing process. Knowing the loan closing process below will help prevent both types of retrades on your next loan. This is the process we follow after managing loan closings for 15 years, both as a banker (inside the belly of the beast) and as a commercial mortgage broker. This process increases execution certainty. Step 1: Initial Deal Review Before completing a loan application, savvy borrowers connect with a mortgage broker to conduct a comprehensive deal review. This first conversation covers: Property details and current condition Project timeline and key milestones Financial performance and operating history Long-term investment goals and strategy During this phase, mortgage brokers assess the project and determine the most suitable lending channel and outline the most realistic structure and leverage. Bank Financing Bridge Loans Agency Debt CMBS Critical Points Commercial real estate analysis happens in stages. Before you commit months working on a loan approval, only to be declined, have a professional review. An experienced broker provides candid feedback on your debt options and positions your application for success from day one. Step 2: Deal Packaging Once the initial assessment confirms deal viability, we prepare a complete, polished package that clearly communicates the property details, borrower's business plan, the viability of that business plan, and borrower's qualifications. Critical Points Putting together a realistic business plan makes you shine with professional lenders who are trained to identify inexperience and unsophisticated borrowers. Having underwritten over a thousand deals, experienced brokers see things in deals that others don't. These little things can turn a lender’s declination into an approval. Having an expert review the property and your business plan will give you more information about the property you are about to commit to for several years of your life and significant capital. This due diligence protects you beyond just securing financing. Step 3: Lender Outreach With a polished package in hand, we present your deal exclusively to lenders whose criteria, loan terms, and timelines align with your objectives. This targeted approach involves: Negotiating terms on your behalf to secure the most favorable rate and structure Presenting term sheets and guiding you through lender selection Once executed, the lender proceeds with the formal underwriting. Critical Points The best loan terms can save you hundreds of thousands over the life of the loan. The lender you choose can either be the best or worst decision you make for your property. The right lender partnership provides loan terms that lower execution risk, is responsive to borrower inquiries, and is honest throughout the process. Step 4: Underwriting, Third-Party Report & Document Management We coordinate: Document Collection & Submission – Financial statements, entity documents, tax returns, insurance certificates, leases, and any additional lender requests Third-Party Report Management – Ordering, tracking, and reviewing appraisals, Phase I environmental assessments, property condition reports, and surveys Underwriting Communication – Responding to lender questions and supplemental requests promptly to keep the process moving Critical Points A professionally run closing process ensures the borrower closes on time as contractually required in your purchase and sale agreement (PSA). Closing late could result in losing earnest money or the seller trying to increase the selling price to compensate for a late close, which can be very costly to the borrower. Third-party reports routinely take 4-6 weeks. Without proactive management, report delays become the critical path that blows your closing timeline. Step 5: Loan Committee Review & Final Approval After underwriting and due diligence are complete, the lender’s loan committee gives the final thumbs-up. Upon approval, the lender issues a formal commitment letter outlining all final terms and conditions precedent to closing. Critical Points You want the commitment letter upon approval to match the lender’s initial soft quote. This rarely happens by accident and most often requires careful execution from a trained professional. Surprises at the commitment stage—such as increased reserves, higher rates, or reduced proceeds—can derail a transaction. An experienced broker anticipates and mitigates these risks early in the process. Step 6: Closing During the closing phase, attorneys, title escrow, and lender's closing team must align. By this point, the mortgage broker has: Maximized your chances of approval through strategic lender selection and deal positioning Tracked all critical closing steps and deliverables Resolved issues proactively to prevent last-minute delays Critical Points You don't get to this point without close monitoring of the closing process. Closings don't go smoothly or on time if you aren't tracking the process well. Step 7: Funding & Post-Closing Support Once all conditions are satisfied, the lender releases funds and escrow officially closes. We remain available for: Future Financing Strategies – whether for the sale and acquisition of additional properties or future financing of the existing loan Portfolio Planning – optimizing your capital structure across multiple assets Market Intelligence – keeping you informed of trends in interest rates and other terms that can change throughout the year Critical Points Commercial loans typically mature in 3, 5, or 10 years. The time to plan for a refinance is at acquisition — not 90 days before maturity. If you don’t, you could find yourself with a significant “cash-in” refinance, costly extension fees, or in need of capital you don’t have, resulting in you becoming a distressed seller. The best brokers think in terms of your long-term portfolio strategy, not just the immediate transaction. This forward-looking approach protects your equity and maximizes your return on investment over time. A disciplined, well-managed process is the key to every successful commercial transaction. The difference between a smooth closing and a decline application—or also negative, a missed opportunity—often comes down to the expertise and attention to detail brought by an experienced professional. Hire an expert who knows all the details. hholt@abelrc.com 979-255-4024

When you’re underwriting a mixed-use property, it is good practice to break out each income stream and evaluate it on its own. Not all revenue is created equal, and it shouldn’t be valued that way. Take a property with apartments, retail, and a parking garage. Instead of blending everything together, underwrite each component separately and assign risk accordingly. Let’s analyze a hypothetical property and business plan. Apartments: The units have not been upgraded in 20 years. There’s a significant value-add opportunity. You want to take these units to the top of the market. That creates upside, but also execution risk. We will classify this as High Risk. Retail: The property is 100% occupied with three tenants who have been at the property for 10 years. They have just extended their leases for another 3 years. Their rents are slightly below market. While lease terms could be longer, the tenants are established at this location. If they were to leave, you should be able to re-lease at least at current rents.   Medium Risk. Parking Garage: Income comes from a diversified group of nearby companies leasing spaces, along with public parking. The revenue has been stable for the past 3 years. Let’s call this Low Risk. If your business plan plays out, you might project that in 5 years 60% of the property’s value comes from the apartments, 30% from retail, and 10% from the garage. But those income streams don’t carry the same probability of success. By separating and valuing each revenue source independently, you can stress test them based on their specific risk profiles. That gives you a clearer picture of how realistic your projections are — and how likely the investment is to achieve its target returns.

One of the questions I'm regularly being asked by lenders for multifamily refinances is, "What's the cost basis?" ⚙️ FORMULA (1) Purchase price + (2) Capital improvements made since purchasing the property = Cost Basis While closing costs (soft costs) are part of your total costs at acquisition, many lenders will exclude closing costs from their cost basis calculation, as they are more interested in hard costs. WHAT'S CHANGED In 2022, many lenders would ignore cost basis if you owned the property for at least 2 years. In 2025, I'm getting asked what the cost basis is from many more lenders, even if the property was purchased more than 2 years ago. From their perspective, valuations for most properties haven't gone up over the last several years, making them more interested in what you actually paid for and put into the property. WHY IT MATTERS If a lender is asking what your cost basis is, this could be an indication they'll be limiting your loan amount to the lessor of: X% Loan to Cost and X% Loan to Value. I put X there, as lenders have different requirements. Example: Let's say your cost basis is $900,000, but the property appraised for $1,000,000. The lender says they will lend you the lessor of 75% LTC and 75% LTV. 75% LTC x $900,000 = $675,000 75% LTV x $1,000,000 = $750,000 The Lessor of the above = $675,000 💡 HOW THIS IMPACTS YOUR INVESTMENT STRATEGY A great way to recycle your equity is to purchase a property, improve it, and do a cash-out refinance. However, a cash-out might not be available if the lender limits you based on your cost basis. 💡  POSSIBLE SOLUTIONS The most obvious solution is to proceed with a lender that doesn't care about cost basis. These lenders are typically more expensive in today's market. The second solution is to show the lender how much value you added to the property, making your cost basis less relevant. Example: We increased rents by X%, reduced bad debt, added several other income streams, and reduced expenses, resulting in an annual NOI increase of $50,000. Occupancy was 80% at acquisition, and now we're hovering above 90% year-round. Hang onto the property longer. The more time that's passed since acquisition, the less lenders will care about your cost basis. Sell the property. Depending on your outlook for future real estate valuations, now might not be the best time to sell. But if you need liquidity or see a better opportunity that requires cash, selling might be your best option.

I have learned a few things about interest rates after 15 years in lending. Nobody knows what’s going to happen to rates. 📉 2012-2017: The year 2012 was when I started in banking. The expectation was that long term interest rates (specifically 5 year fixed rates) were going up.  They stayed pretty stagnant.  📈 2018: Rates finally go up, and many thought that trend would continue.  📉 2019-2020: Rates dropped dramatically.  📊 2020-2021: Expectation was for rates to be low for a long time.  📈 2022: Rates rose dramatically.  📊 2023-Today: Rates have been fluctuating between 3.50-5.00%.  🔹 Future: Expectations right now are pretty mixed. I don’t hear a lot of people saying long term rates will rise, but if you look at Chatham Financials' 5-year UST forward curve, it’s projecting a 1.00% increase over the next 5 years. What’s going to happen, who knows? If you're in real estate, don't bet on interest rate movements if you don't have to. 🔹 You’re already betting on your business plan, which you have a lot of control over. But you don’t have complete control over everything. A few examples include costs of taxes, insurance, supply and demand for rentals, etc.  You have some control, but not complete control over these items 🔹 Why introduce interest rate movements as an additional variable needed for you to succeed? Set yourself up for success in both rising and declining rate environments. 🔹 Long term fixed rates protect you from rising rate environments. 🔹 Limited prepayment penalties allow you to benefit from declining rate environments; you can refinance or sell if cap rates decline without significant prepay costs. 🔹 There are debt products that give you both long term fixed rates with a limited prepayment penalty.  🔹 Of course, getting the best of both worlds typically comes at a cost. Typically, you’ll have a slightly higher interest rate or need to sign recourse, depending on the loan option.  📝 Notes: There's a lot of confusion created from people not being clear about whether they are talking about short-term rates or long-term rates. My history of interest rate movements were specifically about the 5-year UST. The expectation of rate movements over the last 15 years that I referenced above were based on my experience talking with lenders and investors during those times. That said, not everyone might have heard the same things that I heard during those years.

If you are ever getting a commercial real estate loan with a bank or credit union, they will almost certainly run a global cash flow analysis. And if you don't meet their requirement, this is a showstopper. What is it? A global cash flow analysis looks at: All of the cash flow you are generating (W2, business income, real estate income, etc.) All of your debt payments. Typically, banks wants to see a 1.25x DSCR. How is it underwritten? This is what makes this difficult. There's not a single way that everyone does it. Banks have different approaches to underwriting your global cash flow. Some banks do it on 1 pager, other banks have multi-page forms. Some will make larger personal expense adjustments than others. Some are more understanding to one-time adjustments, others aren't. Some will listen to the story, others are more programmatic. The primary sources for this analysis are your personal tax return, business tax returns, K-1s, personal financial statement, SREO, and credit report. Is this analysis time-consuming? Yes. Best way to estimate the time it takes to do this: If you have a 200-page tax return, it's going to take a while. If you have a 20-page tax return, it is much faster, but still takes time. Typically speaking, if you are active in real estate, own a lot of properties, and are regularly buying and selling, the underwriting can take a while. The Best Gut Check "Do you have a lot of excess cash flow each month after paying your debts?" If you do (and your report all your income to the IRS) then more often than not, you'll be fine. If cash flow is tight, that will likely be reflected in your global cash flow. Caution: I've seen it where a client is comfortable with their monthly cash flow, and doesn't pass a global cash flow analysis. That's where telling the story of your cash flow is really important. Special Message to Banks and Credit Unions Almost all of the banks and credit unions I have spoken with over the years run global cash flows.

How can you apply Warren Buffett's "Margin of Safety" to lending?   Be your bank’s favorite customer.   📢 PART 4: Margin of Safety THE NEED When you are projecting future cash flows for your real estate investment, you will be wrong somewhere. The only question is: by how much? That's where "Margin of Safety" comes in. M.O.S. = giving yourself cushion  when you are wrong . APPLIED TO LENDING The lending world applies this idea already. Which is why you'll get: 65-80% LTV instead of a 100% LTV. 1.25x DSCR instead of 1.00x DSCR ➡️   But is this enough cushion? It depends on the deal. Stabilized Properties - for multifamily in most instances, YES . Value-Add Properties - NO . ➡️   Why NO  for Value-Add Properties? The cushion you have is misleading! If you are projecting a year 3 DSCR of 1.25x, then you have...NO CUSHION. Why? Because most stabilized lenders require a 1.25x DSCR . If you miss, and your cash flow in year 3 results in a 1.20x DSCR, you'll have to pay down your loan to get to 1.25x, also known as a "Cash-In" refinance. THE MATH 1.25x DSCR (requirement) - 1.25x DSCR (actual) = 0.00x DSCR (cushion) What you should really be aiming for is greater than the requirement , not equal to the requirement. By how much? Depends on your risk appetite. I like deals that have at minimum 1.35x DSCR, but prefer 1.40x DSRC and above . That gives the borrower 0.10x-0.15x DSCR cushion. 📌   BOTTOM LINE The more "Margin of Safety", the better. In practice, if you build too much M.O.S. into the deal, you probably won't win the bidding process, because your offer will be too low. 💡   OTHER CONSIDERATIONS Of course there are a lot of other variables that would warrant a deep dive when analyzing your "Margin of Safety" . To name a few: how conservative your cash flow assumptions are exit valuation assumptions interest rates and general lending environment at time of stabilization, etc.   ▶️ Upcoming This is Part 4 of the series: "Be your bank's favorite customer." This will help you: 1.  Get you better loan terms 2. Exceptions that other customers at the bank don't get.

When I was a commercial banker, I only had a handful of experiences working with commercial mortgage brokers. It was not a primary source of business for me. But the experiences I did have ranged from "good" to "I'll never do this again." My biggest issues came down to... poor communication. 📢 Whether you're a broker or a borrower, do these things to improve your relationship with lenders : Transparency. Let them know you are talking to other lenders and the level of due diligence you are expecting at the stage you are in. If you are needing high level of numbers, let them know. Don't have them go through a full underwrite when their quote was never going to be competitive. Close the Loop . If you don't proceed with that lender, tell them that you have proceeded with another lender and why. That way they can close the deal in their pipeline and have some market feedback. Be Targeted and Take Notes. If you don't take notes on the lender, you won't be able to be targeted in your outreach. There's no reason to exercise a lender whenever they were never going to win the deal in the first place. ✔ Doing these things will help keep the relationship strong for the long term.