Let’s discuss how a lender looks at rent payments during a pandemic.
René Nelson, Eugene commercial real estate broker
Isaac Grant, Eugene commercial loan officer
René Nelson: Today Isaac Grant from Oregon Community Credit Union is joining me. Hey Isaac.
Isaac Grant: We’re having fun this week René.
René Nelson: Absolutely. Okay. I’m dying to know, when you look at a property and it’s a multifamily property and you’re looking at a rent roll, so we’re going to pick a 10 unit apartment complex. Three of those tenants have a financial hardship because of COVID and they haven’t paid rent since March. How do you look at that as a lender?
Isaac Grant: You know what I’m going to say, René.
René Nelson: What?
Isaac Grant: Case by case basis. We’ve used that term the past few days, but there’s so many factors that go into that question. But on a broad sense, again, we’re looking at what’s the true net operating income of that property. So for us as a credit union, we want to work with our local community. This is an outside factor that has hit the entire globe. It’s nobody’s particular fault. There are true hardships out there to where people are not able to make payments. We want to be able to continue to work with our local investors. So that’s first and foremost. But we are going to have to mitigate that risk. We’re going to have to mitigate the fact that there’s been an elongated period of time here where rent hasn’t been paid.
And so, as we’ve discussed over the past few days, maybe we’re looking at some more reserves. We’re looking at how much cash you have on hand. What’s your global cashflow looking like, which again means what do all of your income sources and all of your expenses look like?
The other thing that we may do to mitigate that circumstance is maybe a slightly lower loan to value. So if you have some equity in the property, maybe it’s okay. Maybe the seven units that are paying and we have proof of that as we talked about yesterday, we’re going to do our due diligence to say, okay, is what’s showing on this rent roll really what’s happening in reality? If that’s the case and we can say, okay, based on the income that’s being generated right now by those seven units, it would support a 50% or a 60% loan to value and our debt service coverage that we talked about the other day as well is also being met. That’s not being hindered upon. We would take a look at being able to move forward. It wouldn’t just be a straight decline.
René Nelson: Okay. Is decline` even in your vocabulary? I’ve never heard that out of your mouth. Okay. I was going to say, obviously not by that pause. I know you’re a deal maker, Isaac. That’s why I send business to you. Please give your phone number to the listeners.
Isaac Grant: It’s (541) 681-6418.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.