Lenders Need to Re-Examine Real Estate
Having applied for a commercial mortgage, Allen Cymrot recently spent two hours discussing arrangements with a lender and came away convinced that much of that time _ his and the lender's _ was wasted.
Cymrot, who has bought and sold billions of dollars of real estate, says his encounter convinced him that rather than change, many lenders prefer to continue with the same routine that got them into trouble.
"They are more comfortable that way," he said.
Imagine, he said, they are comfortable while creating more disasters for themselves, blindly happy in the perpetuation of errors that created the big real estate mess of the past few years.
One hour and fifty-five minutes of Cymrot's interview was concerned with his personal financial background, and some of that time, he said, was consumed by questions about a small late payment on a department store credit card.
Exasperated, he reminded the lender that his application was for a non-recourse loan, meaning repayment depended on the property's cash flow rather than his credit record, and that the lender's security was the property itself.
Lenders still don't view real estate as a business, he said later. Too often, he said, they still deal in irrelevancies rather than business information.
In loans to other businesses, he continued, lenders make a due diligence study. They look to the bottom line, evaluate management, have effective checks and balances in place, and receive reports with meaningful information.
But not very often in real estate lending.
Cymrot is a real estate author and publisher, president of Cymrot Realty Advisers, Mountain View, Calif., and past president of the National Multihousing Council. He has been an adviser to many large firms.
Rather than protecting themselves with proper due diligence, he said: "The vast majority of lenders' efforts are directed toward paperwork and evaluating the borrower," then asked:
"Why are these methods still in place? …