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.

This discussion is relevant to refinances, when there is not a looming loan maturity. 🔍 Should I postpone closing my loan, because I believe interest rates will drop?  This is a personal decision. You could be right in your rate prediction. But you could also be wrong. Here are my thoughts: 💡 The Benefits of Closing as Soon as You Can: “A bird in the hand, is worth two in the bush.” Loan sizing risk:  If you want to wait to max out loan proceeds, this could be dangerous game. What if interest rates only go up from here? Your loan amount could get noticeably smaller. We know what your loan sizes to today. If that works, don’t gamble on rate movements. Lending Market risk:  Never know when there is going to be another COVID style event, where lenders will pause or step back for whatever reason. It’s a low chance, but still a chance. If the markets are functioning now, jump on it. Execution Risk: No lender can guarantee closing at application/signed LOI. These agreements are subject to a number of things: 3rd party reports, approval by loan committee, etc. Let's say you have a 6-month window to close. If you start the loan approval process right now with a lender, and they back out due to some reason or retrade their loan terms, there's still time to jump to another lender. If you wait until 2 months before your loan maturity date, you don't have time to jump to another lender. 💡 The Benefits of Trying to Time Interest Rates: Rates could drop: This would save you money, if you are wanting to lock into a fixed rate loan. This could increase your loan proceeds. 🔍 What projection tools are available for me to time interest rates? This question is especially relevant given the time that I am writing this in late 2025. Short-Term / Floating Rates These are rates based off of Prime or SOFR: Federal Reserve News: The Fed has been talking about possibly lowering the Federal Funds Rate this year. This will lower short-term rates. If you have a loan based on Prime or SOFR, your interest rate should drop in pretty close lockstep with the Fed Funds Rate. Economic News: The Fed makes its decisions based on a number of factors, but the 2 primary factors it has historically focused on are inflation and unemployment. If inflation is getting higher or unemployment is staying constant or dropping, you can typically expect a rise in the Fed Funds Rate. FedWatch Tool: CME has a FedWatch Tool that estimates the probability of a rate reduction based on interest rate traders in the market. See snip below of the September 17, 2025 projection. Traders are projecting that the Fed will lower the Fed Funds Rate by 25bps. Not shown in the snip below, but they are also projecting another 25bps rate reduction in October, and another in December. However, a reduction in short-term rates does mean long-term rates will drop. Long-Term Rates Long term rates impact fixed rates debt options. Chatham Financial: Chatham Financial has a similar tool as CME FedWatch. Except they have market predictions of long-term rates, and it's not shown in a % probability format, but an average projection. This is the 5-year UST projection over the next 10 years. 📌 Important Note: Notice how the Federal Funds Rate is projected to go down (this impacts prime and SOFR based loans), but the market is predicting long-term rates (impacting fixed rates) will actually go up! This makes a major point: Just because the Fed is going to lower the Fed Funds Rate doesn't mean long-term rates will go down. They could go opposite of each other. 🔍 Should I trust any of these tools? My personal view is "yes a little bit" , but "mostly no" . In my view, the market has been a terrible predictor of where rates are going to go, especially over the last years. If you made any major decisions based on where the market thought rates were going to go over the last 5 years, I think there's a good chance your decision was a loss. The Hairy Chart, put together by Chatham Financial, shows how good the market has been at predicting interest rates. The solid blue line shows where interest rates actually went. The gray lines show where the market predicted rates to go at the time. 📢  Final Conclusions: A bird in the hand is worth two in the bush. If you can close now and it makes sense, don’t gamble on which way rates will go. They could go way up, and you could be filing chapter 11 because of this. We just saw a meteoric rise in rates just like this in March 2022. And there’s a lot of investors who are being foreclosed on because of this. Nobody knows which way rates are going to go. If they did, they’d be trillionaires.

What is the most important (and rarely discussed) part of your commercial banking relationship?     Be your bank’s favorite customer.   PART 3: Financial Covenants I. THE SETUP The Closing: You spent months looking for the right property to buy. You finally get one under contract! Your find out your commercial loan request is approved by the bank! The appraisal and environmental reports come in – all good! Your bank sends you the loan documents. You want to be careful, so you hire an attorney to review. You get the green light! You close on the property!   Time to call all your friends and tell them you have the best banker in the world!   (At least this is what we hope you do)   12-24 months have passed…   Then… your banker calls you to set up a meeting. II. THE PROBLEM Operations: Your value-add plan is going well. You hit your projected rents. But expenses are higher than expected. Taxes and insurance went up significantly. You aren't quite hitting your NOI projections, but you can make your monthly payments with a little bit of room. Your Covenant: Per the loan documents, you have a financial covenant that requires you to exceed a 1.25x DSCR every year. Put another way, the cash flow (before making your loan payment) needs to be 125% of your principal and interest payment. For example: Your annual P&I payment is $100,000, your cash flow before making payment needs to be $125,000. Actual: You cash flow is only 110% of the loan payment. You have a 1.10x DSCR. You're required to have a 1.25x DSCR. You're in default of your loan documents. This puts your bank in a bad spot. The risk of your loan just went up, and they are now required to hold more in reserves for your loan. This makes your loan a lot less profitable. The bank now must decide on the next steps: require a loan paydown to get you back into compliance with your DSCR covenant start charging you fees/increasing your interest rate to let you know they are serious about getting back into compliance ask you to sell the property refinance your loan to get it off their books foreclosure give you a grace period to become compliant III. THE SOLUTION Before you are in default: Build cushion into your pro-forma. If the bank requires a 1.25x DSCR by the end of Year 2, request a loan amount that results in a Year 2 DSCR of 1.40x. Now you have 0.15x cushion in the event everything doesn’t go exactly as planned. On a monthly basis, track your cash flow and calculate your DSCR.  What you don't track, you can’t manage. By tracking your DSCR, you’ll have time to make adjustments at the property to hit the required DSCR. After you are in default: Put together a plan that will result in your DSCR going from 1.10x to 1.25x over the next 12 months. Example: reduce payroll, shop for less expensive insurance plans that still meet the lender's requirements, do more grassroots marketing to drive traffic to your property check-in with your property management company weekly instead of monthly Update your loan officer monthly on how things are going with this plan. Use excess cash to pay down the loan. Successfully getting back into compliance with your DSCR covenant will go a long way in solidifying the relationship you have with your bank.  Banker – “When things get tough, this borrower gets it done.” ▶️ Upcoming This is Part 3 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.

Want better loan terms and faster approvals?   Be your bank's favorite customer.   📢  PART 2: REPORTING. This is very important to banks.   BACKGROUND What is Reporting? When you close a commercial loan with a bank, they will require you to submit business and personal financial statements on a periodic basis.   What reports do banks want? It depends on the type of loan, but here are a few: rent roll, trailing 12-month income statement, balance sheet, personal financial statement and tax returns, etc.   Why do banks ask for this? They want to track the probability of you continuing to make loan payments. This probability is called a Risk Rating. A risk rating is like their own in-house credit score.   WHY IS THIS IMPORTANT TO YOU? Because this could impact: (1) your existing loan and (2) your next loan request 1️⃣  EXISTING LOAN   Profitability: Your existing loan has a risk rating. At some point if you don't submit your statements on time, the risk rating of your loan could be lowered- making your loan less profitable to the bank. Don't hurt your bank's profitability on your loan by not submitting your financial statements on time. That makes you a less profitable customer to them.   Time : A lot of time gets wasted chasing down late financial statements. It's a headache for everyone on the team.   2️⃣  FUTURE LOANS   If you want a second loan from your bank, your reputation matters. If you are showing up on PAST DUE REPORTS on a regular basis, it damages your reputation.   What's a past due report? Each week/month, there is a report that is produced that shows all the customers who have not submitted their financial statements on time. Key decision-makers - like the commercial sales manager and credit officer - see this report. At some banks, these are the only 2 people that need to approve your next loan request.   When your loan officer goes to bat for you in credit committee on your next loan request, they can have an uphill battle because you are always late on your reporting.   The credit officer could see you as someone who doesn't keep their promises to the bank. If the credit officer has this doubt, your next loan request can be harder to get approved or have stricter requirements. ➡️  WHAT SHOULD YOU DO?   Submit your financial statements on time . Best way to be on time? Plan to submit early. Organize your bookkeeper and accountant . Make sure they know what your bank wants and when. Give them what they need to do their job – and then hold everyone accountable. Be accurate.  Trust is the most important currency you have with your bank. Accurate reporting is important.   ▶️  Upcoming This is Part 2 of the series: "Be your bank's favorite customer."   This will help you: Get you better loan terms Exceptions that other customers at the bank don't get.