Looking for financing? The basics still matter

James Cope

James Cope

by Dan Rafter

Midwest Real Estate News recently spoke with James Cope, executive vice president and managing director with commercial financing company Walker & Dunlop, about the steps investors, owners and developers must take when seeking commercial financing. Cope said that the basics still matter when borrowers are seeking dollars for refinances, acquisitions and construction.

Midwest Real Estate News: What are some of the factors Walker & Dunlop considers when determining whether it makes sense to provide financing to specific borrowers?
James Cope: Things haven’t changed dramatically over the last several years. The basics are still what we focus on. We review the financial wherewithal of the sponsors supporting the transaction. The first thing that we look at is whether the sponsors behind a transaction have reasonable financial strength to support what they are asking for.

We also run credit reports on the borrowers. We don’t get a credit score, per se.  Instead we run a report on the background and history of the sponsors. This gives us an idea of what issues might have come up in the past with the sponsors. Having an issue in the past doesn’t necessarily mean that we won’t approve financing. We’re interested in how the sponsors dealt with and resolved these issues.

We also ask borrowers to complete a questionnaire. That form gives borrowers a chance to tell their story. It gives them the chance to explain how they handled themselves in tough situations. Every lender has a different view of things, and the questionnaire gives them the chance to tell their story.

MREN: What do you look at when it comes to the project itself?
Cope: There are so many different variables here. Is it an acquisition? Is it a refinance? What type of property is it? There is so much to consider. Today, buyers are often putting more cash into deals. For our business today, we are spending most of our time with acquisitions and refinances. Both of these areas are very robust today. Construction lending today is a much smaller part of our business.

MREN: Which asset classes are you financing most often today?
Cope: It’s not much of a surprise, but multifamily is the most common asset class for financing requests today. We also provide financing for office, retail and industrial, but if you look at our overall business, multifamily is the majority. When it comes to asset class, we are primarily seeing financing requests for Class-A and Class-B properties, though we do provide financing for some Class-C properties.

MREN: How do you explain multifamily’s continued growth?
Cope: There was a pent-up demand for apartments following the economic downturn. There was very little multifamily construction during the recession. At the same time, the country has been moving away from what was such a high demand for homeownership. Prior to the downturn, the homeownership rate was rising steadily. There has since been a significant shift in terms of more people choosing to rent. Those two factors have been strong catalysts in the growth of the multifamily market.

MREN: Are there any concerns that we might be seeing too much apartment construction in some cities?
Cope: No question. There are concerns. Everyone is trying to asses where we are in the cycle. Where is the demand at today? Most of the product being built today is Class-A. How much depth is there for that market? How many people can really afford that level of product? People are paying attention to that. Banks are tightening on construction lending as they consider these questions.

MREN: How busy are the other three main classes with which you work: retail, industrial and office?
Cope: Industrial is considered one of the strongest asset classes right now. Industrial is very solid. In many of the markets in which we work, occupancy rates in industrial are extremely high. That asset class is doing quite well. Office is still trying to find its way a bit. Certainly there is demand for it. But given the changes in working patterns and other factors, we are not seeing the same level of demand as we see in other asset classes. Retail is kind of selective. Most lenders are very focused on grocery-anchored, need-based retail. There are some opportunities in other sectors of the retail market, but the grocery- and need-based projects are the ones that lenders consider the strongest today.

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