Lending can often be the most difficult part of a deal. And finding a GOOD lender can be even more difficult! The difference between a good lender and a bad lender can make or break your deal and has consequences for years to come. That can be especially true when it comes to commercial real estate. Today I’m sitting down with Adam Aluise, a local commercial real estate broker who’s here to tell us what to look for when trying to secure a loan and answer some common questions he gets from clients when trying to secure financing and analyze commercial deals.
- Listen to the podcast “#434: Inside Look: Colorado Commercial RE Market Update with Adam Aluise” Denver Real Estate Investing Podcast
- Watch the YouTube video.
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Why Commercial Real Estate?
Adam is a 15-year CRE professional as an investor, developer, and loan broker. He founded Pine and Peak Capital to provide borrowers access to their best financing option plus he offers CRE investment opportunities. We sat down to discuss commercial real estate market trends and deals.
Adam’s background is in commercial banking and real estate. He got his training at a large top 5 national bank, then was hired by a smaller bank into a commercial real estate underwriting team. That was the real reason Adam focused on commercial real estate. He worked as an underwriter for a few years, then leveraged that into origination for about 10 years. Adam’s background launched his own personal investing interests, which he found to be more fulfilling than his corporate gig. That was when he decided to start Pine and Peak Capital, which is now part of Slatt Capital.
Prior to sourcing debt or sharing an opportunity, Adam completes a detailed analysis. This knowledge was gained as a commercial real estate loan underwriter. Adam’s expertise includes equity and debt sourcing, relationship and project management, risk management, real estate development, credit approval, restructuring, and business support.
Holding a degree in finance and a career in banking and investment, Adam has spent significant time building models specific to the commercial real estate market. These specialized tools evaluate loan optimization, long- and short-term investment opportunities, as well as assess the local financing market.
Common Questions Adam Gets from Commercial Real Estate Clients
- What loan amount do I (the property) qualify for?
- If I have equity in my property how much can I take it out?
- We need more cash flow from our property. How do we make that happen?
- Do lenders look at the property or my personal financial statement for repayment?
- What if the property doesn’t cash flow right now?
Adam has an easy way for people to remember how lenders score a loan application–the 5 Cs—Capacity, Capital, Collateral, Conditions and Character.
What About the Current Market?
One action Adam recommends our audience start doing immediately is to call your current lender and ask them about current loan terms, then call Slatt Capital to discuss their terms. The difference can be significant. Think of Adam’s service as a more creative way to finance your commercial real estate deal. They have different products available than a national or even local bank.
Analyzing Deals in 2023
The market has certainly changed from the 3-4% rates of early 2022. Rates peaked around 7%, and that changed everything. But, rates are starting to drop again, and we can expect them to drop again at the end of this year. However, Adam reminds us all that 5-6% is still cheap debt. When analyzing a deal you have to look at more than interest rates though.
Adam says there will likely be a 5-10% correction in cap rates across commercial real estate asset classes and multifamily properties. But, since we’re in desirable Colorado, we are protected a bit from these changes. Adam believes that Colorado will be more insulated from these changes, so the correction in Colorado will be closer to 5%.
Return rates are not as pretty now as they’ve been in the past. While many investors enjoyed a 20% return on their investment, now Adam says mid to low teens is a more accurate return rate. All of this is to say there are always deals to be had, but in the short term, it’s wise to take your time, do your due diligence, and don’t jump the gun.
Recent Deal Analysis
With recent commercial real estate deals, the focus has been on debt coverage. Rising interest rates have made it more difficult for lenders to approve deals because the debt coverage isn’t there. For example, a deal that may have had a 1:1.25 debt coverage ratio 3 years ago is now possibly at a 1:1 because of a 7% interest rate. So, deals that would have had no problem getting approved in the past are facing that hurdle. Is covering the asset debt alone enough for the investor or the lender? If the asset in question is a value-add property then you might have a better outlook because rents should increase. So if you buy a value-add property with a 1:1 debt coverage ratio, but you land between 1.35 and 1.4 times what you bought it for, you might have a more desirable outcome. The trick these days is finding an asset that you can buy for low enough that will allow you to achieve those numbers.
Why Choose Slatt Capital to Do a Deal?
In short: relationships matter. Adam recently did a commercial real estate deal that was a 1031 exchange. The down property was a multi-family home, and the up property was retail space in Colorado Springs. The client wanted something more stable and passive. They identified an asset that was good, and with the 1031 exchange had 180 days to secure it. It was down to 10 days left to go, but they got it. The retail space was brand new with a cap rate of 6%. Adam was able to lock in a rate between 5 and 6% before rates really went through the roof. It was a 10-year deal with a 25-year amortization. This was one of those cases that it really helped the client working with Adam to have those relationships in place with lenders that could lock in that rate.
Connect with Adam
With over 15 years of commercial real estate, finance, and lending experience, Adam’s skill set leverages sound financial analysis, loan negotiation, and strong knowledge of the real estate market. Throughout his career, this expertise has positioned Adam to continue to successfully execute commercial loans through financing terms tailored to achieve his client’s goals. Prior to joining Slatt Capital, Adam was Founder and President of Pine and Peak Capital, a leading commercial mortgage banking firm serving local Colorado communities as well as clients across the nation. Connect with Adam by calling him at (303) 587-7518, emailing [email protected] or through LinkedIn.