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Getting your loan refinanced in this market can be very difficult. Now is the time to be creative, resourceful, and flexible. Here is a guide on how we have seen loans successfully getting refinanced:
- Get started early so you have plenty of runway. A good rule of thumb in this market is at least 6 months. Time gives time to make very sound decisions
- Be willing to go back to your lender and find out their motivation points. Focus on asking questions about what is their pressure and stress. Remember that they are feeling as much stress as you. Make it first about them and create a partnership, not an adversarial relationship. Brainstorm with them to find out what would work and provide options so they can chew on them.
- Go back to your equity capital and ask them if they would be willing to change the capital stack structure. Is it possible for them to create a hope note or have everyone pitch in to get a longer extension? Once you have spoken to the lender, you have ideas on how to make this work. Remember they are in this with you, and your goal is to make this project successful, so approach them with clarity and humility.
- See if your existing lender will provide an A and B note. The lender might not take a discount, but they might subordinate a portion of the note to get the majority of their principal back.
- Slide in a pref or mezz piece behind you and negotiate the terms so you can pay it off early. Remember, not all pref/mezz lenders are equal. You don’t have to pay crazy back end fees, but might find someone who is more flexible and will let you take them out early. This gives you time to find other options for a few years.
- Go with CMBS interest-only underwriting. The CMBS market will underwrite to interest only and allow you to buy down the rate. That's right, you can pay more points and buy down the rate. Typically, it is 1 point for every 25 bps of rate buy-down. This might be the make or break for your refinance proceeds.
- Bring in a temporary Joint Venture partner. Believe it or not, there are people who might be open to jumping in temporarily and taking some of the upside. The nice part is you can negotiate with them to take them out a certain strike price in the future.
- Use a leasehold option to take 15 to 25% of the capital stack. There are lenders who will put a long-term 99-year lease on your property for very inexpensive. Yes, they take the first position rights, but your lender might be open knowing they get a lot of their capital back.
- Leverage tax credit programs with your local state or federal government. Many times, there are ways to get your taxes down; henceforth, the net income goes up, and the loan proceeds. Check with your local jurisdiction to see if there are any tax abatement programs or options that might provide for a lower rate.
- Look at C Pace loans. C Pace loans are designed to give you a better cost of capital but, more importantly, more loan proceeds. There are some restrictions in certain states, but this can be a great program to get you over the finish line.
For further questions or want to dive deeper into any of these concepts, please contact Dan Zlaket at 602.349.8373 or dan.zlaket@integrity-capital.com.