Simple RE

Assumption Update

Let me first say that the head of the Transactions Group at Key Bank, Peggy S., is a gem.  Since getting involved with our file she has been extremely responsive and is a very reasonable person.  I sincerely enjoy working with her. 

She clarified with me today that they don't have an issue with our Buyer assuming the loan. They are happy to recommend him.  They only have an issue with him self-managing the property. 

So, here's the learning point.  When dealing with a Conduit Loan/CMBS loan, the Special Servicer is looking for an experienced third party management company or a self-managing buyer who has experience operating the same type of property, preferably in the same market area. It doesn't really matter if they have other relevant experience if it doesn't fit into their narrowly defined box.

They are willing to reconsider their position in 18-24 months after the buyer has some experience with the property.  She commented that if the DSCR stays strong and the property continues to perform well, a request to self-manage at that time would likely be approved.

As you can tell, my tone is a lot less frustrated today. I have renewed hope that we will get this deal done.

Conduit Loan Assumption - The Ongoing Saga With Key Bank

In a previous post I talked about the challenges I was having with Key Bank in getting an assumption approved so we could sell a portfolio property.  My dealings with Key improved briefly, and then they got much worse. 

Let me explain.

My original frustration was that they were moving so slowly.  On 8/15/07, the day after my last post about this matter, I started calling around to see if I could get an ally within Key Bank to exert some pressure.  To my pleasant surprise that same day I received a call from the head of the Transactions Group in Dallas before any of my acquaintances within Key had a chance to call or email them.  It turns out that the management is competent and had, on their own, realized that my file was languishing and reached out to me to assure me that they were prioritizing it.  They told me that it would soon be passed from their hands into the hands of the Special Servicer.  In fact, they said it should all be written up and passed along by Monday, August 20th.

So far so good.  I had a smile on my face.  I couldn't believe my good fortune. 

But then things took a turn for the worse.  On Monday the 20th both the Buyer and I get a last minute request for some additional information.  I was perturbed because it was information that they could have requested weeks ago if only they had reviewed the file more carefully at some point in the first 14, 21, or even 30 days. 

Now today, a week later, our underwriter calls the Buyer to tell him she is not inclined to approve the assumption.  I'm blown away.  Her reason is that the Buyer doesn't have the experience needed to make her comfortable with him doing his own property management. 

Did I mention that they have had the Buyer's resume and a description of his professional experience for about two months now?  How is it that they are just now concluding that the Buyer is not sufficiently qualified to operate a small commercial property? 

What does an unqualified buyer look like you might ask.  In this case our unqualified buyer is in his late fifties or early sixties.  He has been a real estate investor most of his career.  He has made most of his money in single family homes, and although not commercial property, he has had the organizational ability and professional savvy to buy and sell hundreds of homes and most recently maintained a portfolio of 42 homes in two states, CA and TX.  He mastered the landlord/tenant laws in two states sufficiently to stay out of trouble with his tenants and keep his properties rented.   He has fee managed other peoples SFR investment properties. He has amassed enough personal wealth that he would qualify as an accredited investor.  He is also a real estate broker in California and Texas.  He manages a staff of several employees while running his own brokerage and investment business. 

Not only that, but should the deal close, he will have nearly five times the cash equity in the deal than our current partnership. 

If I were the lender I would be rejoicing.  Key Bank has a performing loan on a property that has gone up in value improving their LTV position.  Rents have been substantially increased so the property's DSCR is much higher now than when they underwrote it.  And they have a person of substantial means and good credit who wants to step in and replace our paper gains with his own real cash equity in the deal. 

I just don't get it. I pray that reason will prevail.

If you're reading this and think I'm missing something, please email me or comment and let me know. I'll take all the help I can get.

"Ideas And"

Ideas, even really great ideas, don't add a lot of value.  Its the "idea and" that really matters.  The idea and the execution.  Or the idea and the persuasion.  Or the idea and a the expert communication that leads to  a new perspective. Or the idea and the data and analysis

A few days ago I listened to a free "teleseminar" put on by a self storage marketing consultant, Derek Naylor. He did a decent job sharing some ideas.  Most of them I've heard before, but there were a couple of good nuggets.  Did I mention that the call was free (except my time)?

I've also read a few good books lately: Word of Mouth Marketing by Andy Sernovitz, Go Put Your Strengths to Work by Marcus Buckingham, and the classic Influence: The Psychology of Persuasion by Robert Cialdini.  These three books are packed with good ideas.  Total cost: less than $50. 

Seth Godin's Blog is free.

The ideas are everywhere and they are not that expensive.  Mounds of really good ones can be had for a bargain.  What we are striving for at Crescendo is the And.  We have a super-bright people.  We have lots of ideas for how to improve the performance of our properties, how to find more and better deals, and how to make our work more fun and meaningful.

Figuring out how to implement and test the ideas we already have is where the real value lies.  For me at least, this is the low-hanging fruit.  My guess is it is likely the same for you. 

Conduit Loan Assumption Nightmares

Like I mentioned in a previous post, when dealing with a conduit loan assumption you should expect it to be more hassle and take longer than you think it should.  I felt prepared for that.  However, dealing with Key Bank on our current deal is maddening.  We originated the loan with Column Financial, and Key Bank is the Master Servicer. The deal calls for our buyer to assume our existing financing.

When we first submitted the application for the assumption we planned on closing the deal by the end of August.  Thankfully our buyer (the assumptor) is very motivated to close the deal and has been very prompt in providing all of the requested documentation about himself and his entity. 

After several phone calls and emails looking for confirmation that we were on track for an end-of-August close, I finally received an email saying that closing in August will be impossible.  I called again this morning to find out what the new timing would be (of course Key Bank didn't include that vital bit of information in the original email response).  I looks like we are more likely close around the end of September.  The explanation for the delay... there are other borrowers with looming exchange deadlines.  Pam, the rep I've been working with hasn't been able to get our package together to submit to the Special Servicer who is the second step in the assumption process.  AAAARRrrrrggggg! 

OK, so lets assume you are in my shoes someday.  What should you do?  Here's some suggestions.  I'll let you know how they work.

1. Create urgency.  Since I don't have a looming exchange deadline, I'm going to tell them that my buyer's resolve is wavering and they better not make me lose the deal.   
2. I'm going to contact our rep at Key Bank who works in origination (not servicing) and see if he can exert some pressure. 
3. I'm going to contact the head of Key's Conduit Lending group here in the West, Louis Weisman, and see if he can help me.  Key originated a $5M loan on a self storage property we acquired in 2005 and Louis wants to put the permanent financing in place now that the property is leased up. Hopefully he'll see helping me as getting a leg up on the competition. 
4. I'm going to talk to the correspondent lenders who originated the loan and see if they can exert any influence even though they are not with Key Bank.

I wondered out loud in a previous post if there is room in the market for "premium servicing".  I'm not sure I would pay for it up front when it was so uncertain whether I was going to need the "premium" part.  However, in the present circumstances I would gladly pay an addition $1-5K to get some speedier service and a guarantee that we would close by a reasonable date. 

I also wonder if a lot more assumptions are in the pipeline because the spread on conduit loans have increased to around 200+ bps over the treasury with lower LTV and higher DSCR thresholds.  The current conditions in the lending market  certainly make assuming a loan a lot more attractive these days.