Commercial R. E. - Financial State.
| Since cash flow is one of the most important factors in the underwriting process, property Operating Statements must be complete and accurate. We'll review your property's statements to assure all relevant information is included. Lenders usually require three years of Operating Statements and a year-to-date, or twelve month rolling Statement. When you submit your Operating Statements, we do the following: |
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- Spreadsheet line item incomes and expenses to determine fluctuations from one year to the next
- Determine debt service coverage
We look for line items that were much higher or lower than previous years. Once we identify those line items, we'll ask you to explain the deviations. Typically, there are reasonable explanations. When we prepare your loan package, we find it's conducive to identify large fluctuations and provide an explanation. It helps the underwriter understand the cash flow better. The underwriting process moves along more quickly as we don't have to field questions from the lender, and then obtain explanations form you. We also "normalize" the property's net operating income by deducting debt service, depreciation, capital improvements, large one time leasing commissions and non-cash expenses. We'll adjust management fees and the property's vacancy to the market, and deduct non property expenses. The aformentioned process is presented in an understandable format and rationale that the lender can follow. We'll then determine the debt service coverage. Lenders love our analysis as it make their job that much easier.
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