The Apartment Loan Process
The first step of the apartment/multifamily financing process is to begin a feasibility study to determine marketability and to market rents and operating expenses. Also required may include a project description or summary, that includes amenities, building and unit plans, preliminary site; rough estimated project cost; and environmental reports. At the end of this initial processing period you may be issued an "Invitation Letter" or written commitment acknowledging that the project is both feasible and setting NOI to be used for underwriting. This agreement will set the maximum mortgage amount based on the debt service coverage ratio, and it finalizes borrower equity requirements.
The next step is determining the costs of the project. During this second phase of the loan process, the borrower is analyzed, along with the property manager and general contractor, as well as the finalized architectural plans, construction costs and specifications. Additional due diligence items include site control and other typical commercial loan requirements. A Cost and Architectural/Engineering review is required to determine acceptability of final design and cost estimates. At the conclusion of this phase, you will be issued a firm commitment from an interested investor to finance the project, along with the interest rate for both the construction and permanent mortgage may be locked.
The final step in the loan process is the closing. The interest rate is locked for both mortgages so developers do not have to worry about permanent loan interest rate risk. To some extent, closings for your apartment loan may be anti-climactic, depending on the selected investor. Some programs that are not traditional bank programs, include an issued commitment in which all relevant items have been finalized and approved, including final design approval, cost approval, general contractor approval, etc.
Mark Hasegawa is a manager at Ocean Pacific Capital, a 30 year old commercial real estate finance company, specializing in apartment financing. You can find out more about Ocean Pacific Capital at http://www.oceanpacificcapital.com
Source: http://ezinearticles.com/
Added: March 21, 2008
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