Skip navigation

Securing a CRE Loan: A Field Guide

Navigating the new regulatory environment can be difficult. The rules have changed, and so have lenders’ expectations.

There’s a popular misconception that it’s more difficult to get a commercial real estate loan today than it was 10 years ago. While it’s true that in the post-recession environment lenders have narrowed their loan criteria dramatically, the past two years have been among the three strongest on record for commercial loan originations—proof that capital is readily available to strong borrowers who do their homework.

As commercial real estate lenders continue to grow more diversified, ranging from big banks to less heavily regulated online lending platforms, community banks can offer borrowers numerous advantages. As local players, we enjoy a unique perspective rooted in strong ties to the community and an unmatched knowledge of the regional market. With decisions made locally by analysts intimately familiar with the local market dynamics, our customers can expect greater flexibility and a quicker turnaround time on loan applications.

Navigating the new regulatory environment, however, can be difficult. The rules have changed, and so have lenders’ expectations. Sponsors who are most likely to succeed are those who approach lenders with a clear vision and a structured plan to deliver the project with a lower loan-to-value ratio.

With seven branches across the strong South Florida real estate market, we at Apollo Bank review hundreds of loan applications, and we lend across all asset classes. Our first question is always, “Will we be working with a good sponsor?” Our bank favors borrowers who have a clear understanding of their projects and a proven ability to execute that vision.

Are they long-term players? Successful sponsors have realistic expectations. The recession still casts a long shadow, and the survivors––both lenders and borrowers––learned valuable lessons. In general, we find that developers who survived the tough years are wiser and more cautious. They don’t want to be over-leveraged and left with no viable options should there be a slowdown in the market.

Do they have a proven track record? Banks are not speculators. We need assurance not only that the plan is realistic, but that the developer has the qualifications and resources to follow through, as well as a proven ability to execute. Sponsors can help themselves by presenting a straightforward, well-organized business plan, one in which any questions that might raise the proverbial red flag are answered and one which immediately addresses any credit issues.

The traditional fundamentals need to be in place. While in general banks have become less risk-averse, equity is key to sealing a deal. We like to see some existing equity in a project. It shows that the sponsors and equity investors also have some skin in the game. Location remains a very important factor. As lenders, we want to be sure we’re backing a well-positioned property in a strong market. We also look at pre-sales for the project and the sponsor’s past performance to evaluate their track record.

Banking, like any other business, goes through cycles, and lending criteria are subject to fluctuations depending on any number of issues––the state of the economy, consumer confidence, local demand.

Right now, our market continues to see robust activity, no doubt buoyed by low interest rates––but there’s also evidence that, with confusing signals from Washington, some investors are sitting on the bench.

Looking ahead, continued uncertainty regarding foreign trade, tax reform and the current administration’s ability to execute policy changes could put a damper on commercial real estate investment.

But the greatest challenge comes from short-term players and speculators who have not taken to heart the lessons of the recession. History tells us that disregard for the fundamentals of sound real estate investment will sooner or later initiate another market crash.

The good news is that, more and more, potential borrowers we meet with have realistic expectations. They have learned prudence over the past decade. These are the sponsors the commercial real estate industry and lenders are banking on. We’re confident their prudent investments will continue to thrive.

Eduardo “Eddy” Arriola serves as CEO and chairman of Apollo Bank, a community bank that operates a network of seven branches located throughout Miami. Eddy is currently serving his first term as a director of the Federal Reserve Bank of Atlanta, Miami Branch.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.