Finding Funding and Closing Commercial Real Estate Investments

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Finding, Funding and Closing Commercial Real Estate Investments

Finding, Funding and Closing Commercial Real Estate Investments

Housekeeping www. nmmlaw. com Please help yourself to food and drinks. Please let us

Housekeeping www. nmmlaw. com Please help yourself to food and drinks. Please let us know if the room temperature is too hot or cold. Bathrooms are located past the reception desk on the right. Please turn OFF your cell phones. Please complete and return surveys at the end of the seminar.

Agenda www. nmmlaw. com I. Choosing and Finding Commercial Real Estate Investments II. Commercial

Agenda www. nmmlaw. com I. Choosing and Finding Commercial Real Estate Investments II. Commercial Nuts and Bolts III. How the Deal Gets Closed!

Choosing and Finding Commercial Real Estate Investments John Levine, Licensed Real Estate Salesman Sitar

Choosing and Finding Commercial Real Estate Investments John Levine, Licensed Real Estate Salesman Sitar Company/ONCOR International 732 -283 -9000 x 2137 levine@sitarcompany. com

Types of property 1. Multifamily residential 2. Single Family Residential 3. Office 4. Industrial/Flex/Warehouse

Types of property 1. Multifamily residential 2. Single Family Residential 3. Office 4. Industrial/Flex/Warehouse 5. Retail 6. Recreation 7. Land – potential uses 8. Net Leases 9. Agricultural

Activities 1. Buy 2. Sell 3. Lease 4. Development 5. Redevelopment 6. Make improvements

Activities 1. Buy 2. Sell 3. Lease 4. Development 5. Redevelopment 6. Make improvements 7. Upgrade usage/conversions

Investment Considerations 1. Return on investment a. Cash on cash, gross income less expenses

Investment Considerations 1. Return on investment a. Cash on cash, gross income less expenses b. Refinancing c. Value appreciation d. Depreciation and recapture e. Tax deferment on sale f. Amortization 2. Management required, time and effort, Active vs. Passive 3. Leases, quality of tenants, rents, duration 4. Down payment amount 5. Financing, leverage 6. Vacancy rate 7. Use permits

Physical Features 1. Location 2. Sound construction 3. Condition 4. Utilities - electric, water,

Physical Features 1. Location 2. Sound construction 3. Condition 4. Utilities - electric, water, sewer 5. Public transportation 6. Parking

Pulling your team together: The Roles of Your Professionals l Attorney l Real Estate

Pulling your team together: The Roles of Your Professionals l Attorney l Real Estate Broker l Mortgage Broker l Lender l Title Agent l Insurance Agent l Environmental Consultant & Testing l Engineering Inspection l Other consultants

Paul Quinn, Vice-President 908 -231 -9100 810 Old York Rd, Raritan, NJ 08869 www.

Paul Quinn, Vice-President 908 -231 -9100 810 Old York Rd, Raritan, NJ 08869 www. somersetfinancial. com- website info@somersetloans. com- e-mail Licensed NJ Dept. of Banking and Insurance

Commercial Nuts and Bolts- WHAT LENDERS LOOK FOR: Debt Service Coverage Ratio (DSCR) *

Commercial Nuts and Bolts- WHAT LENDERS LOOK FOR: Debt Service Coverage Ratio (DSCR) * 1. 2 -1. 3 ratio (property monthly net operating income vs. financing expenses). Appraisal * much more expensive and in-depth than residential appraisal. * can take as long as 4 weeks to complete. Environmental Reports * In-depth report on property based on type of business and it’s potential impact on the surrounding area/site. Needed for property types such as restaurants, gas stations, bars, manufacturing, warehouse, etc. Ordered by Lender Securitization * Affects which lender application will be submitted to. Portfolio lender or sells mortgage to investment firm (Wall Street, etc. ) - Can affect time to close, exception allowances, risk tolerance, rate, etc. Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Debt Service Coverage Ratio - DSCR n Rental Income/Property Income -Vacancy & Collection Losses

Debt Service Coverage Ratio - DSCR n Rental Income/Property Income -Vacancy & Collection Losses (5%) -Operating Expenses (utilities, taxes, etc. )= Net Operating Income n DSCR = Net Operating Income minus Principal & Interest Payment Property’s Ability to repay it’s debt Let’s look at an example: Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Debt Service Coverage Ratio Scenario n 6 Unit Retail Bldg - Sale Price $375,

Debt Service Coverage Ratio Scenario n 6 Unit Retail Bldg - Sale Price $375, 000 n Income-$600/Month Per Unit n Less Vacancy 5% (-$180) n Less Expenses Paid by Owner 30% n (-$1, 080) n Remember: NOI = Income -Vcy loss –Expenses n $3600 -$1260 = $2340 (NOI) n Debt Service- $275, 000 @ 7. 125% for 25 years= $1965 P/I n DSCR = NOI / P&I pmt n $2340 / $1965 = 1. 21 DSCR n Qualifies!! Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Some Examples of Property Types Truck Stop Apartment Complexes Self-Storage Condo-Hotels Mixed-Use Somerset Financial

Some Examples of Property Types Truck Stop Apartment Complexes Self-Storage Condo-Hotels Mixed-Use Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

 • Tier Two Tier Properties - Risk/Financing • Tier One • Multi-family and

• Tier Two Tier Properties - Risk/Financing • Tier One • Multi-family and mixed use (>50% residential component) • Up to 97% LTV (O/O) • 6% - 12% depending on LTV, loan product and strength of deal • Mixed use (<50% residential), office, retail, warehouse, light industrial, self storage, bed and breakfast • Up to 97% LTV (O/O) • 6. 5% - 13% depending on LTV, loan product and strength of deal • Tier Three • Tier Four • Industrial, automotive, funeral home, rooming home, flagged hospitality • Up to 90% LTV • 7% - 13% depending on LTV, loan product and strength of deal • Health care, day care, RV park, un-flagged hospitality, restaurant, special purpose • Up to 90% LTV • 7. 5% - 13% depending on LTV, loan product and strength of deal Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

Financing Options n n n • Credit Scoring • A: 680+ • A-: 640+

Financing Options n n n • Credit Scoring • A: 680+ • A-: 640+ • B: 580+ • Terms: • 15, 20 & 30 Years • Fully Amortizing, interest-only • Loan Types: • 6 -Month Adjustable • 2, 3, 5 & 7 and 10 -year Fixed • 30 -Year Declining Fixed Rate Somerset Financial Inc. 908 -231 -9100 www. somersetloans. com licensed NJ DOBI

How the Deal Gets Closed!

How the Deal Gets Closed!

www. nmmlaw. com Jesse P. Nash New Jersey: 721 Route 202 -206 Bridgewater, NJ

www. nmmlaw. com Jesse P. Nash New Jersey: 721 Route 202 -206 Bridgewater, NJ 08807 Phone: (908) 722 -0700 Fax: (908) 722 -0755 Picture New York: 875 Third Avenue 18 th Floor New York, NY 10022 Phone: (212) 808 -0700 Fax: (212) 808 -0844 Areas of Practice: Real Estate, Finance, Corporate Admitted to Practice in: New Jersey, New York Education: Seton Hall University School of Law, J. D. , 2003 Liberty University, B. S

Investment Considerations: www. nmmlaw. com Same Issues as with Most Other Investments: v Return

Investment Considerations: www. nmmlaw. com Same Issues as with Most Other Investments: v Return on Investment v Risk Tolerance v Importance of Developing Bargaining Strategy Early in the Process

Assembling and Managing Your Team: The Roles of Your Professionals www. nmmlaw. com v

Assembling and Managing Your Team: The Roles of Your Professionals www. nmmlaw. com v Getting The Right Person for the Job § Reputation § Making Sure Work is in Professional’s Field v Understanding the Roles of your Professionals v Responsiveness v Cost Control

Investment Vehicle - Choice of Entity and Entity Management www. nmmlaw. com v Tax

Investment Vehicle - Choice of Entity and Entity Management www. nmmlaw. com v Tax Treatment v Liability Protection v Flexibility/Ease of Use v Management Structure Alternatives § Management § Whether Investors Should Have Management Prerogatives § Transfer Restrictions § Distribution of Profit and Losses v Avoiding Sales of “Securities”

An Agreement of Sale and A Typical Commercial Real Estate Purchase Transaction Timeline www.

An Agreement of Sale and A Typical Commercial Real Estate Purchase Transaction Timeline www. nmmlaw. com v The Parties v The Property Confirm that property interests to be acquired are adequately described in the contract, including, to the extent applicable: § Real property, including land, improvements, fixtures and appurtenances § Personal property (equipment, spare parts, tools and other items used in the operation of the property)

An Agreement of Sale and A Typical Commercial Real Estate Purchase Transaction Timeline (cont’d)

An Agreement of Sale and A Typical Commercial Real Estate Purchase Transaction Timeline (cont’d) www. nmmlaw. com § Leases and Related Agreements § Other Contracts (commission agreements, management contracts, service contracts, etc. ) § Permits, Approvals, Licenses, Warranties, Guaranties, etc.

The Purchase Price www. nmmlaw. com v The Deposit § When does the deposit

The Purchase Price www. nmmlaw. com v The Deposit § When does the deposit “go hard”? v Escrow Issues § Who should act as Escrow Agent? § When should monies be released from Escrow? v Balance of Purchase Price

Closing Contingencies www. nmmlaw. com v No Attorney Review in Commercial Deals! v Financing

Closing Contingencies www. nmmlaw. com v No Attorney Review in Commercial Deals! v Financing Contingency v Approvals Contingency v Representations and Warranties Contingency

Title Considerations www. nmmlaw. com v Marketable Title § “Good and marketable title, insurable

Title Considerations www. nmmlaw. com v Marketable Title § “Good and marketable title, insurable by a reputable title insurance company at regular rates, and subject only to exceptions to title that will not impair Buyer’s intended operations on the Property. ” v Title Review § § Right to Raise Title Objections Right to Terminate if Objections are not Eliminated Judgment Searches The Lender’s Position on Title Issues

Due Diligence www. nmmlaw. com v Reserve Right to Investigate All Aspects of the

Due Diligence www. nmmlaw. com v Reserve Right to Investigate All Aspects of the Property v Types of Due Diligence Review: § § Property Condition Approvals/Permitting Environmental Lease Review v Hiring Right Due Diligence Professionals v The Lender’s Stake in the Due Diligence Process

Representations and Warranties www. nmmlaw. com v Make Sure All Necessary Representations and Warranties

Representations and Warranties www. nmmlaw. com v Make Sure All Necessary Representations and Warranties are Obtained § § § § Authority Physical Condition of the Property Leases and Other Contracts Title Matters Compliance with Laws Environmental Matters Litigation Anti-terrorism Laws

Pre-Closing Obligations www. nmmlaw. com v Seller Obligated to Deliver the Property in “Broom

Pre-Closing Obligations www. nmmlaw. com v Seller Obligated to Deliver the Property in “Broom Clean” Condition v Seller Obligated to Correct Code or Other Violations v Seller’s Obligations Under Existing Leases

Closing www. nmmlaw. com v Date/Time/Place v The Mechanics of Closing v “Time of

Closing www. nmmlaw. com v Date/Time/Place v The Mechanics of Closing v “Time of the Essence” Issues

Default and Remedies www. nmmlaw. com v Notice and Cure Periods v Limitation on

Default and Remedies www. nmmlaw. com v Notice and Cure Periods v Limitation on Seller’s Pre-Closing Remedies – ideally, terminate the contract and damages limited to keeping the deposit v Buyer’s Remedies – Specific performance, terminate and receive damages v Prevailing Party Entitled to Attorney’s Fees (disincentive to litigate) v Indemnification § Generally, the obligation to defend and hold harmless another from liabilities incurred

Closing Adjustments www. nmmlaw. com v Real Estate Taxes v Assessments v Rents v

Closing Adjustments www. nmmlaw. com v Real Estate Taxes v Assessments v Rents v Association Fees v Utility, Sewer and Water Charges v Payments Under Service Contracts or Other Agreements v Realty Transfer Tax/Mansion Tax

Specialized Legal Considerations that Arise with Different Types of Real Estate Investment www. nmmlaw.

Specialized Legal Considerations that Arise with Different Types of Real Estate Investment www. nmmlaw. com v Purchasing Leased Properties § Lease Review § Estoppels/SNDA’s v Purchasing Property to Develop/Redevelop § Approval Review § Surveys and Site Plans § Brief Comment on Land Use Approval Process

Specialized Legal Considerations that Arise with Different Types of Real Estate Investment (cont’d) www.

Specialized Legal Considerations that Arise with Different Types of Real Estate Investment (cont’d) www. nmmlaw. com v Environmental Contamination Issues § Proper Environmental Due Diligence • Goal is to undertake site assessment and investigation as necessary to take advantage of available statutory defenses § Proper Contract Provisions • Who is responsible for cleanup obligations and costs • Representations • Indemnification § ISRA • Compliance is Seller’s obligation • Is Property ISRA subject? • If so, must have DEP approval to close

www. nmmlaw. com Questions & Answers

www. nmmlaw. com Questions & Answers