Q&A with Portfolio Lender Dan Morris, Atlantic Business Capital
Thank you for taking this interview Dan. Are you a portfolio lender?
Atlantic Business Capital is a national commercial real estate lender. We underwrite and fund loans for our own portfolio as well syndicate loans that do not meet our internal risk or underwriting guidelines.
You offer pretty competitive owner-occupied loans as well as investment real estate loans. Can you tell us about your programs?
Our standard program is for owner-occupied commercial real estate. We currently are offering a 5 year fixed rate at 4.95% and a 10 year fixed at 5.95%. Both are amortized at 20 years. We can lend up to 80% LTV and we allow cash out. Our investment programs are typically up to 70% LTV on retail, office, industrial and other stabilized rent-roll properties. Rates for investment properties are 50 to 100 basis points higher than owner-occupied and we like at least a 1.25 DSCR.
How does your owner-occupied financing compare to SBA loans?
It’s a great alternative to the SBA. We can lend up to 80% LTV and provide cash out. Many clients use us to refinance their existing SBA loan in order to get their eligibility back or to simplify the loan process.
Is your target borrower a business owner?
We are comfortable with both owner-occupied and investment real estate. Our target borrower is experienced with good personal credit and liquidity/net worth.
You have a global debt service requirement. What is global debt service? How do you underwrite it?
We are a full recourse lender so we underwrite both the business/property and the borrower’s personal living expenses. Global debt service simply means that the borrower can support his/her fixed personal expenses from outside income sources or disposable income from the business/property. We require that the property support a 1.25 DSCR and the borrower maintain a max 50% DTI for both owner-occupied and investment loans.
Let’s take an investment loan case study – $1.8MM multifamily acquisition, secondary market in CA, 12 units at 92% occupancy, NOI = $106k, 20k/mo joint W2 income, 3k monthly investment real estate income, 800 credit, decent liquidity, only P&L and leases available from seller – how would you underwrite this for a borrower seeking the maximum loan amount? Rates?
When underwriting multifamily we start with confirming the NOI provided. We review the operating statements and make adjustments to standard guidelines. We underwrite to market vacancy and require a minimum 5% for management fees. The example provided looks reasonable with 5 to 8% vacancy. If the NOI is $106k the max payment this NOI can support at 1.25 DSCR is $7,066 monthly. Our rate would be 5.34% fixed for 10 years with a 30 year amortization. The max loan this NOI could support would be $1,265,000. We could lend up to 80% LTV but the stabilized NOI only supports a 70% LTV. In California and other major MSA markets with low CAP rates it is difficult to get the high leverage most investor’s request. We are doing a lot of multifamily lending in Texas where investors can get better cash-on-cash returns.
You arrange bridge financing if loans don’t qualify for your conventional programs. What is the benefit to the borrower of having a prospective permanent end-lender arrange this? Terms?
The key to most bridge lenders is the exit strategy. By working directly with the bridge lender and clearly outlining the terms/conditions that need to be satisfied in order to convert to a permanent take-out loan, Atlantic helps streamline the process. Standard terms provided by our bridge lender syndication partners range from 9.99% to 12.99% with 2 to 3 points depending on the borrower’s experience and complexity of the value-added plan to achieve stability.
What properties will you NOT lend on?
We will not lend on property with UST’s (under-ground storage tanks), adult entertainment property, non-profits, residential real estate or highly special purpose property such as car washes.
How did you end up at Atlantic Business Capital? What is your background?
I graduated in 1988 from Furman University in South Carolina and moved to Atlanta. I worked for a few large lenders and was fortunate to work in most departments and saw the entire business from origination, underwriting, servicing and management. The firm I was working with was purchased by Atlantic in 2004 and I have been with them ever since.
What changes in lending are you seeing post-financial crisis as compared to before?
Lower leverage is the main change. Our underwriting guidelines have not changed much during the past 5 years. Most of our competition and many that are out of business focused on high LTV lending. We always required at least 20% down payment from an experienced borrower with a property or business that had 2+ years of stabilized operating history. Since the banking crisis we have seen better quality deals. Borrowers that would have gone conduit or to life insurance companies have been more interested in our traditional lending programs.
What do you do when you’re not lending money?
I’m lucky to have a great wife and live in Florida where we enjoy golfing, tennis and boating.
Dan thanks for your time. Do you have any final words for prospective borrowers?
Stay positive. Every lender’s situation is different. Some are in survival mode while others are looking to grow market share. There is money available today for borrowers that can show the lender they are a good investment.
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