Rental comps for similar properties may play into the appraiser’s income approach and will also be used by the underwriter to ensure rents for your property are not overmarket. If the appraiser determines that your property’s rents are higher than current market rates, the underwriter will base the NOI (and thus DSCR) on current market rents only. This can drop the DSCR and leave you with a lower-than-expected loan amount.

Cap rates
The cap rate is often misunderstood. Cap rate equals NOI divided by property value or sales price (whichever is less). There is no minimum number for the cap rate; it will vary depending on property type, condition and location. While it is typical in today’s market to see a cap rate of 6 percent to 7 percent in many California markets, a similar property in a rural Iowa market may have a cap rate of 14 percent or more.

The appraiser will determine what the market cap rate is and apply it to the NOI of the property. You can do a similar calculation yourself before valuable time is lost. Just use the cap rate for the property’s market and apply it to your NOI. If you see a big discrepancy between the sales price and the value you determined by using the cap rate, ask the real estate agents how they arrived at the sales price.

These various factors can greatly impact the chances of closing loans for your clients. Closing a commercial loan doesn’t have to be difficult, but it doesn’t solely start — or end — by shopping for the lowest rate or fastest close time.

By analyzing these factors, your account executive should be able to quickly determine if your loan has a high chance of closing. And by checking each of these factors yourself, you can head off the many pitfalls a commercial loan can fall into on its way to funding.

Just knowing how to check these factors will aid you in finding out if lenders really think they can close your loan, so don’t be afraid to ask if they don’t ask you.

Taking the first step by properly prequalifying increases the chances of taking the final step — closing.

Kim Daugherty is the wholesale account executive (eastern United States) for KC Capital, a commercial lender specializing  in mid-range to smaller multifamily and commercial properties  nationwide. She has been with KC Capital for more than eight years and has been instrumental in closing hundreds of commercial transactions. She can be reached at (512) 794-1999, ext. 201, or  daugherty@kccapital.com. More information is available on the company’s Web site at www.kccapital.com.

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