Due to the high level of commercial real estate sales activity, sellers and buyers are often faced with challenges meeting their deadlines.
Valley Bank’s Trey Korhn, and Vince Chillura are witnessing this trend in their daily work. They manage a branch that lends to high-profile west Florida projects such as the Epicurean Hotel, Midtown Lofts office project, and Riverside Heights redevelopment project.
GlobeSt.com spoke to them about what buyers can do to ensure that their deals are completed on time.
Q: What are your observations in the states where Valley Bank focuses on Florida and Alabama?
Korhn, Due to the constant high level of activity, closing deals is taking longer. It used to take 30 days to close a deal. 45 days was sufficient, 60 days was enough. All of those numbers are now out of date. It is not common for a deal to be closed within 30 days.
Q: What causes the delays?
Chillura – For us, the banks approval isn’t holding up, but it’s often third-party service provider like appraisers and surveyors or environmental due diligence-related businesses that have longer lead time because they are so backed-up.
We send out bids to five to six qualified appraisers. We get responses saying that they are unable to participate. Others offer very high rates and take a long time to respond. Others admit that they won’t be able do any work on a tight schedule.
It is the environment that the realty industry is operating in that we have to deal with. We are fortunate to have trusted partners whom we trust. However, the regulatory environment, heavy volume and staffing shortages have slowed down things.
Q: How are you all dealing?
Korhn – It is essential to be persistent with third party service providers. We must be able to keep tabs on everyone and be extremely organized. All parties must be agile so they can respond and adjust to any changes.
Chillura. We have to be more vigilant about the work of service providers. In some cases, service providers may provide work products that need revisions or adjustments because they were rushed to complete. This is problematic when dealing with tight timelines and delays. This is why we must immediately address these issues and work with providers to ensure that the appraisal (or other relevant report) is completed to the highest quality.
Q: What are some key considerations that buyers and sellers need to keep in mind when trying to avoid problems?
Chillura. Like many things in commercial realty it comes down to relationships. To ensure that the lender has the best possible relationships with trusted providers, and to have open, honest conversations about deliverables and timeframes with the provider, it is important to work with a lender who has established good relationships.
The loan process will be smoother if the lender is familiar with your business. Don’t forget to mention that if there are ongoing relationships between the lender, third-party provider, and all parties involved, the deal will be a priority.
Q: How do you avoid having to fire drills to close deals on time?
Korhn: Borrowers must start the process 15-30days earlier than they would have done a few months ago. They should ensure that they have adequate due-diligence timeframes built into their purchase contracts in order to accommodate the industry backlog. Keep in mind that while our approval process for lenders is the same as before, we can only influence the rest of the equation. Once we do, we will execute.
Q: How should a borrower approach asset classes that are particularly competitive when negotiating loans? Chillura: There is a lot of competition for properties in niches such as multifamily and industrial. From the beginning of a deal, borrowers should have a realistic view about their options. Know your deal-breaker points and hot buttons. Also, understand the industry’s challenges and competition. It’s a good idea to have a plan B. Don’t get too attached to one deal or get lost in the noise.
Q: Do you see this scenario changing in 2022?
Kohrn – As everyone knows, interest rates are rising a bit and the cost of capital may cool things down in the future. It is important to understand how supply-chain challenges, supply-and-demand drivers affect the market overall. However, we expect high-quality properties in great locations with solid foundations to continue being in high demand in 2022. So it is important to plan accordingly.