01 Oct Property brokers need to get hands-on to get deals across the finish line
Property brokers need to get hands-on to get deals across the finish line
Despite investors still showing appetite for industrial and commercial property, insight from Paragon’s broker network has shown that deals are taking longer to conclude. For a sector where time is literally money, it makes sense for property brokers to take a more proactive role in assisting clients secure their deal finance.
Gary Palmer, CEO or Paragon Lending Solutions, shares his insight on how securing finance is not as simple (or quick) as many think.
Banks are tightening up
Banks are tightening their lending criteria as they become more risk averse. Not only are they taking much longer to reach a decision (sometimes two to three months), they are also taking a much harder look at the details of the deal.
If your client is buying commercial property they should expect to provide a detailed statement of assets and liabilities; details on the leases on that property; expenses associated with the property; and details of the tenant.
If they are looking to buy the property through their business or via an overdraft, they should expect to be asked for additional documentation, which will include: detailed forecasts; three years of audited financial statements; up to date management accounts; an explanation of the business’ financial performance, and this is just for starters. Banks will take a very close look at the client’s asset sheet, including conducting their own valuation of their existing properties.
Staying on valuation, banks are taking a very conservative line when it comes to valuing both existing property and that which is up for sale. We have seen a commercial property with an agreed sale price of R55 million which was then valued at R32 million. This had a significant impact on the financing of the deal.
It’s all about the tenants
Lenders today are making the distinction between owner-occupied sales and rental investments.
Clients should make sure they have a rock-solid tenant with iron-clad leases in place. The quality of the leases, the length of the leases and their serviceability, are all important considerations. A few years ago banks were only giving out 70% loans and focussing on loan to value, now they are lending at up to 90%, but focussing on serviceability. The quality of the tenant will influence this decision.
When preparing forecasts, clients need to temper their enthusiasm. We advise our clients take at least 25% off the expected monthly income generated by the property for expenses. Then, they should factor in additional interest rate hikes, and reduce their forecasts accordingly.
Expect to put more skin in the game
Lenders are looking for more equity in deals today. Many a client assumes they will only need a 10% capital investment when in reality lenders are expecting around 25%. Again, clients need to understand that the lending criteria is tightening up. Before the hammer falls at the auction, and they are beholden to the auctioneer’s fees, your clients need to have done some solid homework about what they can reasonably hope to finance.
Get the professionals in early
Given the lengthy and arduous process of securing finance these days, it makes good sense for the astute property broker to intervene early in the process. Introduce your clients to a property finance specialist, like Paragon, which can work with the client to prepare their pitch to various lenders. Working with a specialist will not only ensure the buyer has the best chance possible of securing their finance, but it will eliminate unnecessary delays. Most importantly, our network of more than 117 lenders means we can work with your client to structure a multifaceted deal which takes into account their unique requirements. After all, the faster we can close a deal for them, the closer you are to securing your commission.