Guide to a successful application for real estate financing

At HIC we assist our clients with successfully obtaining financing solutions, especially ones designed to support commercial real estate transactions. In this process, finding the right funding partner is just the first step.

The second step, which takes significantly longer, is the due diligence process that the funding partner will undertake in order to take the proposal from indicative term sheet to successful drawdown. During each transaction we guide our clients through the process and work with both sides of the transaction to ensure speedy and hassle-free closing.

We believe that the best approach to any financing application is spending a little bit more time at the beginning on putting together all relevant information and documents.This allows the application process to move quicker once things are in full swing.

In this guide we wanted to highlight some of the key elements that every application for real estate financing should include.

Executive summary

The executive summary is where all financing applications should start. This document typically consists of 2 – 3 pages and covers high level information such as:

Details on the project – including type of asset, details on location, income and valuation assumptions, and funding request.
High level Financial summary – including historical financials (if available), pro-forma statement and summary of cashflow during the project.
Management team / sponsor – details on the sponsor, specifically focusing on previous experience within the sector and / or location.
Timeline of the transaction

A lot of our clients have their own executive summaries ready when they start the process but, for those who don’t, we will work with you to create one that has all relevant information.

Financial model

Going beyond high-level financial summary, each project should be submitted with a detailed financial model. A financial model outlines items as such:

Sources and uses of capital,
Detailed cashflow statement
Project budget
Return metrics
Unit mix
Construction timeline.

Naturally no project is the same as some of these items might appear on one project while not being present on another one – the bottom line is that a financial model should allow for detailed analysis of the transaction from start (assumptions) to finish (return metrics).

Comparables

Comparables are a key consideration when underwriting a real estate transaction. The aim of analyzing comparable properties is to understand what the market value and / or market income for our subject property is. Comparable properties should be similar in size, and located in a similar market. Most real estate transactions are supplemented by independent valuation carried out by a property surveyor whose job is to determine market value based on recently completed transactions.

Details of wider portfolio and assets & liabilities statement

The final element of the transaction focuses on the sponsor – specifically their experience within the sector. A lot of our clients are successful real estate professionals with an existing portfolio of properties and that has a beneficial impact on the application. Even if existing properties are not directly linked to the new financing transaction, it is still worthwhile to present the client’s portfolio. Successfully completed and sold transactions and other assets can help strengthen a client’s application.

How can we help?

Successful application for financing is a process that nowadays takes 2 – 3 months and requires constant communication between the sponsor, funding partner and relevant third parties (such as surveyors, lawyers and equity LPs). We work with our clients not only to find the missing capital but also to manage the entire process, as a single point of contact for our clients.

Do you have requirements for real estate financing? Get in touch with us and we will be delighted to present our full offering and explain how HIC can make the process more efficient.