Real estate capital raising and syndication
Community Bank CEO on Commercial Real Estate Loan Criteria
Community Bank & Commercial Real Estate Lender in Kansas City - Investor Mandate Interview
Real estate sponsors and investors who want to understand how a small community bank underwrites multi-family, flex and storage loans.
The short version
John is CEO and founder of a community bank in Overland Park, Kansas, in the Kansas City area. The bank is 300 million dollars in size. It can lend up to 10 million, but its sweet spot is three or four million. Most loans are commercial real estate, including multi-family, flex space, office warehouse and storage facilities, with some retail and office.
Richard C. Wilson asks about underwriting, guarantees, relationships and the market during Covid. John describes traditional terms of 20 down and a 1 debt service coverage ratio. He shares how lower leverage on a proven project can shape the guarantee conversation. He also says deal flow slowed when staff worked from home, and that pipelines were back full by the time of the interview.
What to take from this talk
- Know the bank's size and sweet spot. John's bank is 300 million in size and can lend up to 10 million. Its sweet spot is three or four million. Borrowers should match the loan size to the lender.
- Expect traditional underwriting. The bank looks for 20 down, a 1 debt service coverage ratio and good cash flow coverage. John says his bank usually discusses guarantees because its deals are small.
- Out-of-town capital is common. John says developers often put in some of their own seed money and manage the property. They then bring in outside capital, renovate, reach occupancy and refinance to get equity back out for the investor.
- Guarantees are case by case. John says lower leverage can sometimes give a borrower more room in the guarantee conversation. He says it is decided case by case and that a vanilla, experienced project with strong cash flow is viewed most favorably.
- Relationships matter more at small banks. John says knowing the CEO helps at a small bank. At a very large bank, the borrower needs to know the person who carries the loan and has credibility inside the organization.
Worth quoting
"Generally 20 down, a 1 debt service coverage ratio, good cash flow coverage. And then usually we get guarantees because our deals are pretty small."
"It's a case-by-case deal."
"We can feed off the crumbs of the big banks and do just very, very, very well."
Facts from this talk
- John's community bank is 300 million in size and can lend up to 10 million, with a sweet spot of three or four million.
- The bank's typical terms are 20 down and a 1 debt service coverage ratio, with guarantees usually required.
- John says guarantee terms are decided case by case.
- John's bank was formed in 2001, right after 9/11.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Community Bank & Commercial Real Estate Lender in Kansas City - Investor Mandate Interview. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around loan guarantee terms, recourse and non-recourse and borrower entity structure. Do not use AI to write your own legal agreements.
Related questions
- How much should a real estate sponsor charge in fees?A common structure I see is a 6 to 8 percent preferred return, then 20 to 25 percent to the sponsor, with higher splits above a second hurdle.
- How much of my own money should a sponsor co-invest?A sponsor should put in an amount that is meaningful to them, and there is no universal number.
- How do I raise equity for a ground-up development?Size the equity check first, then decide how much you raise yourself and how much a partner covers.
Questions about this video
What loan sizes does this community bank handle?
The bank is 300 million in size and can lend up to 10 million. John says its sweet spot is three or four million.
What basic terms does the bank look for?
John says it uses traditional underwriting. That means 20 down, a 1 debt service coverage ratio and good cash flow coverage. The bank usually asks for guarantees.
How does this bank think about personal guarantees?
John says it is case by case and that an experienced, tried and true project that cash flows well is viewed most favorably. Many borrowers review guarantee terms with their lender and an attorney.
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