On this episode of The Mobile Home Park Lawyer, Ferd is joined by loan broker, Judah Aderet, to speak about finding the right lender in a hot market. Judah shares information about loan sizes, asset classes, borrower credentials, bad boy carveouts, and what you need to do to get yourself teed up for an acquisition.

 

HIGHLIGHTS:

0:00 – Intro
0:54 – Judah speaks about his background and how he got into MHP
9:36 – MHP’s are the darling of the COVID era due to the current high demand
11:35 – Judah speaks about loan sizes and how national banks tend to shy away from loans that are too low
15:49 – Judah speaks about asset classes and the borrower credentials you need to get an acquisition
19:01 – Ferd and Judah discuss the market rate for additional loan guarantors
23:06 – Ferd defines a bad boy carveout
23:48 – Judah explains how a loss, such as a foreclosure on a separate property will not count as a bad boy carveout
26:13 – Judah shares his thoughts on why people push for nonrecourse loans
29:21 – Judah speaks about the COVID reserve and how it impacts transactions
39:13 – As a borrower what do you need to do to get yourself teed up for an acquisition on a refinance?

 

FIND | JUDAH ADERET:

Phone: (848) 222-0738
Email: judah@prinstoncapgrp.com

 

FULL TRANSCRIPTION:

Ferd Niemann: Welcome back mobile home park nation. Ferd Niemann here again today. Another great episode for you. This is another one of my multi-part series on the lenders series. Today’s guest, he’s a mortgage loan originator, loan broker, financer, money finer, whatever you want to call him. He’s the guy you need to talk to, one of our number one guys here in the series that can help us find the right loan for your right mobile home park acquisition. Please help me welcome Judah Aderet. Judah Thanks for coming on.

Judah Aderet: Thank you for having me. Appreciate the, it’s an honor to be on your show, on this podcast.

Ferd Niemann: It’s an honor to have you. Our first time together on my podcast, but I met you on another webinar on another, I think it was for Riverside title abstract we put together, a nice little panel and show, so that was great. So I know from that and I know you for some other calls we’ve had, but for our audience who may or may not know you tell us a little more about yourself, your background, what you do in particular how you got into MHP.

Judah Aderet: So my background has been in real estate. I would say for the last 10 years, grew up in a family where I had a few siblings, a few brothers of mine that own and operate multi-family real estate in the tri-state area, New York, New Jersey, Pennsylvania, primarily. So I grew up knowing about real estate. As soon as it was time for me to start kicking the tires, I had approached one of my brothers asking him, would he take me on as part of his operations, if there’s any room for me. He suggested me, you know, start with managing one of his properties, which I did so for successfully for a number of days, until I realized that that was not my forte and not something that I really saw myself doing Long-Term. So, you know, went on to ask him, what else is there within the industry? Obviously, I would love to stay in the real estate industry. He suggested that I explore the world of real estate finance. So I joined a great firm Eastern union. They’re a pretty large renowned shop based out in New Jersey in New York. I trained under the president. In just originating cold calling, literally just canvassing names, calling them out page Judah calling from Eastern union. I would love to take a crack at the next deal simultaneously training and learning more about the industry and watching other brokers, other senior brokers there, how they operate the deals, how they get done, which banks are, you know, the banks to go to. And it definitely helped that I had family that was involved in real estate. So I was kind of fed some deals that way and getting my feet wet alongside senior brokers watching a ton of cold calling, literally built up a database over the next five years of, you know, a nice bucket of clients. And at the same time, obviously developing relationships with lenders on the other side of the aisle, figuring out which lenders are good for which deals. Around, I would say a year and a half into Eastern union. I stumbled across my first cold call that the individual on the other line, who is now probably one of my I would say premier clients closed over 10, 15 transactions with them, but it was a pure cold call. And he was like, do you guys finance mobile home parks? And I was trained, you know, you just say yes, of course. And yeah, exactly. So he asked me, you know, what sort of amortization do you see, and it was like, I really had no idea. I was just comparing it to multi-family. I’m like, yeah, 30-year amortization, he is like 30-year amortization. That’s great. I’m getting typically for my local banks, 20-year amortization. Sorry about that. So long story short, I got them on a call with a more senior broker. We brought in the deal. We actually got him a pretty aggressive offer was not a 30-year amortization if I remember correctly, but it was a solid deal better than the bank offer that he had on the table. And throughout the process, I was intrigued by this asset class that even this other broker over at Eastern, as much as he was a senior broker, he had done one mobile home park or maybe two in his whole history. So it was like, Hey, how come there’s this asset class out there where there’s seems to be no other brokers, at least that I knew of that specialize in that asset class and what’s going on. So I learned more about it. My client had told me about a couple of these conferences and shows that I should probably attend and learn more about the industry. So I did, I, you know, learned about the industry ground up, literally found out how people buy these parks, what it costs to bring in a home, how lender is evaluated, and then spent obviously as a mortgage broker, a lot of time figuring out and calling lenders that we already had relationships with and across the nation asking them, Hey, do you guys question number one, finance mobile home parks. When was the last time you financed a mobile home park and how do you underwrite them? What type of park do you look for? Do you like parks, the park on homes, tenant-owned homes, as I was learning more, I knew questions to better home in on and figure out which lenders would be a good fit for which particular deals. And that’s kind of how I fell in. You know, I literally fell in from a cold call into the asset class and fell in love with the asset class. I fell in love with the fact that there was no one else in it competing with me first and foremost. But obviously just from the fact that I was enamored with this whole different animal within multi-family. I like to tell people Mo you know, mobile home communities are part of the multifamily class, but it’s kind of like when you go to the zoo and there was like, they have the certain types of animals on one side of the zoo, but it’s in its own cage. It’s not, you’re not visiting the same exhibit. The multi-family exhibit does not have the mobile home park asset class within it. It’s related. And a lot of the lenders, including Fannie, Freddie, CMBS will lend them mobile home parks or what they like to only lend them mobile home communities. But there’s definitely its own way of underwriting. The only you have to really understand, there’s a reason why there are so many lenders that don’t lend on mobile home communities is simply because they don’t understand it. Not because the deals don’t make sense and not because it’s not a safe asset class. I think all of them know the default rate on mobile home parks has been the lowest out of every asset class in the nation. They know this, but they can’t understand it. And to spend time educating lens there’s I didn’t have the time to do so. And I still don’t. I wish I did, but it’s more so finding the lenders that do understand that have done it. And it all really took off from there. Once I started doing deals for a couple of the bigger guys in the industry word got around, you know, I came to shows and they were introducing to me to other potential clients and you know, word of mouth really, within the mobile home park community really travels fast. And at this point I would say, I financed over 200 transactions within the mobile home park space, but maybe closer to 300 by now. I left Eastern union in, you know, let’s say the height of COVID, which was May of last year decided that that was the time for me to take the jump. I had relationships with clients, relationships with banks and kind of felt like, okay, the market might be a little bit slower right now. Let me take this opportunity to form my own company and start my own little shop here. I started together with my partner, Avi Weiss, who is my senior underwriter slash partner. So we started together in May. We have closed a number of mobile home park turns actions, I think over 20 in the last nine months. And around 60% to 70% of our deal flow today is mobile home park transactions, whether it’s purchases refinances. So definitely a sign of how popular the industry has gotten. Thank God how popular I’ve gotten within the industry. And more so I think the way that the economy was kind of affected by COVID led a lot of people to slow down on other asset classes, but as you know, good and well, mobile home parks just exploded out of the gate. It was as if COVID came injected mobile home parks with some other types of disease where everyone’s just buying like crazy. So that’s definitely helped a lot. And we are rocking and rolling with a lot of different transactions across many different states.

Ferd Niemann: That’s great. Yeah. I agree with you, lot to unpack there. So yeah, you’re absolutely right. That there’s massive demand coming out of COVID. I called mobile home parks, the darling of the COVID era, cause they seem to have been injected with new money investors, new press including new positive press to some degree. Definitely appreciate that. I want to just also clarify for our listeners to kind of your role as the mortgage brokers, your company does not make the loan, your company, brokers to transaction. I come in, I’m the borrower, I’m a different bar on the guy next to me or the gal on the other side. You place me with me, the borrower and my project and my property with the right type of lender. So with that in mind, I know you represent agency lenders. I mean, Fannie Mae and Freddie Mac, how many lenders in total, and then they have other affiliated lenders that help initiate those loans. How many different lenders do you have access to? And then tell us a little more about, you know, deal size, fee structure. And then after that, I got a couple more questions for you, but let’s start with that.

Judah Aderet: So it’s tough to pinpoint exactly how many lenders we have a relationship with within the mobile home park space specifically. I would say starting with on the bank side, I typically deal with more national or regional banks, the local community banks, I might have a relationship here and there within, you know, Florida, obviously New York, New Jersey, but for the most part clients that are buying deals and the Carolinas, Georgia, Texas, I don’t necessarily have relationships with the local banks there. And sometimes there will be a deal that’s brought to me from a client and he’s buying a particular park or looking to refinance. And I’ll say this particular deal for reasons that I’ll lay out shortly might not be a good fit for the lenders that I have a relationship with, but definitely go into one of the local banks there, see what they’ll do for you. And that brings me to my next point, as far as loan size, given the fact that I am dealing with typically larger banks or national regional banks they shy away from loans that are too small for them. Now, some banks too small might be 3 million, might be already too small for them. There might be banks out there are willing to do a million-dollar deals or even you know, below that. I do have a lender that I’ve closed multiple transactions with, a national lender, loves mobile home parks. I’ve closed probably 30, 40 transactions with this bank alone. I would say five or six of them were below a million. So they’re not shy about going under a million as long as the deal makes sense. They like the park, there’ll be able to do that. So I would say around 15 banks, I have a good strong relationship with the lender mobile home parks, ranging from national regional banks. I do deal with, like you mentioned, Fannie and Freddie. I am not a DUS lender myself, even though I would love to be, DUS is basically the designated underwriter for Fannie and Freddie there’s around I think, 15 or 20 DUS lenders in the country. However, there’s only a few that again, really understand the mobile home park industry, as much as Fannie and Freddie set out their guidelines for what type of parks, which I can expand on also what type of parks they’ll lend on and what they look for. There are only a select few shops that I personally trust that know the industry, know what deals can be done and should be done with Fannie and Freddie. So I deal with probably, I would say four or five of those DUS shops on the Fannie and Freddie side. And then I have relationships with around three or four CMBS lenders, which are wall street lenders, conduit lenders that I’ve done a number of mobile home park transactions with them. So let’s say all-around 25 different lenders that I deal with on a weekly or monthly basis. And depending on your deal, like you mentioned, I’m a loan broker, a particular client would come to me with a deal. I’m buying this park. I need to know how many pads are in the park. What’s your purchase price again, purchase price doesn’t scare me if it’s small, but if it’s too small or if I feel like it’s a deal that I won’t have a lender for that size, I’ll be very upfront and say, Hey, this is a deal for a local community bank. Not that I would, not love to do this deal. I would, I just don’t have lenders to place it with. And then depending on the structure of the park, how many park-owned homes, how many tenant-owned homes, what the deal looks like, what the park looks like, I can then determine, Hey, who are we going to do for this deal? Are we going to Fannie Freddie? Does it fit the Fannie Freddie box? Cause I feel like in almost everyone’s eyes, Fannie Freddie is the vanilla cream of the crop loan that you want to get. But for the most part on acquisitions, at least I’ve found that most deals do not qualify for agency on acquisition because if you’re buying a park, you’re buying it for some value ad that you see there. And typically they’ll pick up on that value add as well and not really be that excited about the park in its current condition.

Ferd Niemann: Can you expand on that? Cause I know for example, you mentioned park-owned home, tenant-owned homes. I think in general, you know, the lender specialty agency lenders prefer less park owned homes depending on the platform. I think it’s 20% or less or 25% or less, but what other, if I misspeak by all means correct me, but what other criteria? And then those loans, I believe are also, non-recourse always with some bad boy carve-outs but you still have to have a decent balance sheet, decent liquidity and background or experience. So if I’m coming into my first mobile home park deal, I’m probably not a good client for you. Is that correct?

Judah Aderet: Probably not a good client for Fannie and Freddie. For an acquisition. Yeah. If you already own the park, it’s different. It’s obviously a whole different story, but if you’re coming to me, you’re buying your first mobile home park on Fannie and Freddie, it’s definitely not going to fly unless you had owned a lot of multi-family. Like I’ve had some clients who transitioned from multi-family to mobile home parks that since it is quote-unquote the same asset class, Fannie and Freddie will look at that as if you have experience in that industry, which will allow you to get a Fannie Freddie. But if you’re coming in and you don’t have any series, you know, previous experience, you might have managed to park in the past, you have some knowledge of the industry, but you don’t own any other parks. You definitely wouldn’t be a prime candidate for Fannie and Freddie. At that point either I’ll ask you if you have potential partner here that might have experience, it might be worth it for you as a first-time buyer, give up a little piece of your deal to have a partner that might not play a role bigger than just an advisor. As far as having a partner that has experience, preferably that has some other agency, Fannie Freddie loans, and then we can go ahead and get you a Fannie Freddie loan. Otherwise, I’ll attempt to go to some of the other relationships that I have on the bank side, balance sheet lenders tend to be less picky. They want to know that, you know, the industry they’re not interested in just lending to a guy that’s buying his first part, but doesn’t know the first thing about parks. So they’ll want to know, you know, who is this guy? What has he done? What does he know about the industry? But that definitely when they’re looking at his balance sheet, they’re not as picky as far as, like you mentioned, Fannie Freddie have net worth requirements. Do we need to have a net worth equal to the loan amount. So if you’re buying in a park that would qualify for a Fannie Freddie loan, that means it’s typically like a one and a half million dollar loan or higher, and you got to have a net worth of one and a half million dollars. And a lot of times for a guideline is first park, he’s not there yet. So that can pose another challenge in going Fannie and Freddie, banks won’t really care that much. They’ll want to know if you have the equity to close the deal.

Ferd Niemann: Can we touch on that. If I can touch on that too, cause it’s come up in some of my projects in the past. And also some of my client’s projects is you have, even though it’s a non-recourse loan, they’re not underwriting you the same way that a recourse lender might they’re underwriting you from your experience, your net worth, your liquidity. And that experience needs to be in this asset class. So what you can do is, so for example, the guy in the next room, John Smith, his first deal, it’s a great deal. Would otherwise qualify based on size, class of the park, tenant-owned home, park-owned home mix, metro, all those other variables, but he’s got insufficient borrower credentials. He could call a guy like me. Who’s already been approved by Fannie Freddie and he’ll say, hey, Ferd do you want to be in all my deal? And I could sign the loan with him as an additional loan guarantor, and it’s going to be non-recourse to me and him, which basically means he’s paying me a fee, piece of the deal ownership in order to sign the debt. And I think the market rate that is, what do you see out there in 5% or 10%. It’s really just paying for the signature of somebody who’s really been pre-approved and I’m that guy and I’m pre-approved, I can’t just sign it and get out of Dodge. I have some obligation, some onus on me to quote, oversee and advise. So the bed we carved-out don’t come into bite me. I’d like you to talk about those carve-outs and also if they’re able to be negotiated and how, I’ve seen them negotiate a little bit, but I’ve also seen them say, you can’t negotiate. These are template docs, and you’re not allowed to attach any docs, but sometimes they’ll cave a little. So you when they cave. So I’m taking notes here as to what I can do to get away with.

Judah Aderet: To expand a little bit, obviously, you know, I don’t want anyone from Fannie and Freddie calling me after this podcast and screaming at me, they don’t like what we call what they call a straw guarantor, which is basically somebody that’s just hanging on by a straw that like we mentioned, you’re really just bringing them on to sign on the paper, but it’s not involved in the deal at all. If they know that or they pick up on that, they’ll typically say, no, this doesn’t work for us. They want this additional guarantor to be involved as a managing member officially overseeing management and making sure that this deal is running smoothly. Because even though it is a non-recourse loan and they’re not leaning heavily on you because there’s no personal guarantee, but kind of on the flip side of that, since it is a non-recourse loan, they need to make sure that, Hey, whoever we’re giving this loan to really knows what he’s doing and the way to evaluate if he knows what he’s doing is A, experience in the asset class B, does he have the net worth liquidity? If something does go wrong, you know, someone comes out and wipes out, fire comes and doesn’t have insurance, proper insurance coverage in the beginning, whatever might happen at the park, does he have what it takes to get this part back on track? So they want to know that it’s not just some straw guarantor that was paid a small fee to write a signature on the paper. But typically if you are paying that fee already, I would say to any new guy demand some sort of involvement from Ferd. If you signing on your loan, he should personally want involvement. He wants to make sure that things are going well. And you should demand that. And therefore we can relay that to the lender. As far as the bad boy, carve-outs, I would say you definitely would know more than me as far as you know, from an attorney standpoint and what, you know, what they bend on and what exactly can be pushed and pulled. What I can say is it’s typically for a repeat borrower that they’ve grown some sort of relationship with, and they feel somewhat comfortable with. When the conversation comes up and he’s says, well, as part of the bad boy, carve-outs this, you know, environmental, I’ve seen them kind of bend on where part of the bad boy carve-outs can be, they’re pretty strict when it comes to any environmental issue that might arise at the property. Which if they feel that you were negligent in addressing that can fall into a bad boy carve-out. I’ve seen them be more lenient than that and not use broad terminology and have attorneys be able to home in and say, no, no, no, what does it mean negligent? What exactly, how do you define that? And so they won’t tweak the actual docs. And I know exactly what you’re saying. Anytime you ask them, they say, Nope, these are template docs. You can download them from the internet. Like we don’t change them. So it’s not about changing the actual language of the docs. It’s more so, you know, delineating and explaining in more detail, some of the language that’s in there and they’ll allow you to put that in. But again, I’ve seen it.

Ferd Niemann: In layman’s terms. Bad boy carve-outs are basically, it’s a non-recourse loan, unless I’m a bad person, a bad boy, fraud, deceit, waste, maybe, you know, gross negligence. But if the property just, doesn’t get…

Judah Aderet: Hit by a hurricane. Yeah.

Ferd Niemann: You know, the market tanks know the employer, my town goes under and I lose my clientele, sorry, bank, but I tried. I give them the keys back. They take the property, but they can’t take my house. That’s basically what it means, so you’re just, you got to at least be a legitimate. Now, what about, this is a question I have to ask you. What about a loss on another property? Say you had a foreclosure on a different property or bankruptcy. Does that count as a bad boy failure on the subject property? Irrelevant.

Judah Aderet: No, not relevant. It has to be a bad boy. You have to be being a bad boy on this particular property.

Ferd Niemann: What about criminal activity? Like if I’m over here and I get arrested for drug distribution.

Judah Aderet: Same thing. I mean, well, I would say that get your loans in order before you do that drug distribution. But because you know, that obviously will come up on your background check and they’ll, you know, I’ve had actually a deal die at the closing table where they did the background check, a lot of times, they’ll do the background check literally a few days before closing and finish all the searches. And it came up that this guy was arrested for possession with intent to distribute. And it wasn’t exactly how it seemed, he was partying and whatever else might’ve happened, but that came up and killed the deal. So, but if that happens afterwards, if there’s criminal activity, no, but I think there is something I think you could correct me if I’m wrong, but I believe there’s something in the loan docs that say, if there’s fraud, that’s proven on other properties, not on this property.

Ferd Niemann: White collar crimes is verboten. Irrespective of which properties from a lender perspective.

Judah Aderet: Then you’re really a bad boy. And even though it might not be in particular on this property, they’ll still be able to enforce the recourse.

Ferd Niemann: You mentioned 200 to 300 transactions. Have you seen the bad boy provisions come into play on any of those?

Judah Aderet: Thank God. No.

Ferd Niemann: Yeah. I had a another buddy, who’s a lender. He mostly does multi-family, but I asked him that question or 15 years and he’s like, no, but his career started in 2005 and it’s been kind of hot for a while. So he’s like, basically, like if the payments get paid, nobody looks around. It’s when all of a sudden, they’re like, let’s start looking under the hood to see if there’s some recourse here. But yeah, I’ve never met anybody that happened either, but knock on wood, but it’s like, we make such a big deal out of it. And it’s important obviously, but it’s pretty rare.

Judah Aderet: Yeah. It’s definitely rare. And I think that that’s why people push for the non-recourse loans because on a, you know, as much as there are bad boy carve-outs, but that is so rare for them to actually be in-acted then people love obviously the agency loans and just that, you know, for the audience to know there are bank options out there with non-recourse. There are some banks that have slowed down tremendously, but due to COVID that even when they’re restarting their lower leverage, 65%, 70% leverage, as opposed to agencies that are, you know, known for going to 75% leverage 80% leverage buying a deal. A lot of times that can mean all the difference in the world getting instead of 65% LTV, or getting 80% LTV. But there are lenders out there doing a deal now with a lender based out of, it’s a bank out of Midwest that has a non-recourse option at 65% leverage. And at 75% leverage, only 25% recourse. And I know as an attorney, you’re going to tell me, well, that’s the only part that matters is that 25%, but it definitely, it sounds better for sure. And I think it could come into play also where if someone’s not nervous that his property is going to go totally under you know, it might ease them going into only 20%, 25% recourse loan.

Ferd Niemann: I wouldn’t be worried about that. I mean, you’d have to really screw up your deal to lose 76% of the value. I mean, you flush your equity real quick, but 25% isn’t that painful. It’s, I mean, I’ve never had 25, It seems like a dream. But I want to talk about COVID for a minute. Cause I called you probably two months ago to look at that deal in St. Louis. And it was 2.8 million. So it was a good size deal for Fannie Mae or, you know, small balance sheet stuff. But the reason I went with a local lender instead one of your agency lenders in that instance was because of the COVID reserve. So to me, that’s a game-changer. It’s getting, it’s going away to some degree, but I personally chose the recourse over non-recourse because I was able to get no COVID reserve in that instance on a local lender. And I’m going to push the rent a little bit and I’ll go agency here in about two, three years. Hopefully, the rates will go up too high. But tell us about that COVID reserve and how it impacts, you know, the transaction. In my case, it impacted my capital rates by a couple hundred thousand dollars extra. So I was like, that was the other reason, like recourse. I got to raise how much I had to raise plus another 250,000. Like I only got so much time. I want to make sure I get that done. So it was a deal decision point in my deal hopper.

Judah Aderet: So that’s a great point. There is COVID reserves came into playback when, you know, a month probably into COVID when everyone started to realize that it’s not going to be just a few people getting sick, it’s really going to affect our economy in a way which caused mostly the agency lenders, some banks as well, obviously put in their COVID reserve, but there’s, depending on the leverage and depending on the size of the deal, those COVID reserves were pretty hefty, which basically means out of your loan proceeds, you’re going to get a, you know, you are buying a park for $3 million, you’re getting a $2.5 million loan. You know your payment, your monthly payments on that loan, I don’t have my mortgage calculator pulled up in front of me, but they’re going to take your monthly payments. And depending on the size of loan on that size loan in particular, in the beginning, it was 18 months held back of principal and interest payments. So in your instance, and in many, many other instances, when people are looking at a deal and I’m like, yep, I can get you 75%, 80% leverage from Fannie Mae on this deal. And people were like, great, awesome. All right, but once you factor in the COVID reserves, you’re not anymore at 80%, you’re at 72%. You’re not anymore at 75%, you’re at 68%.

Ferd Niemann: And you got to pay If you’re doing a syndication, like I was 8% preferred return on money sitting in a piggy bank at COVID-19 for 18 months. And then to get it released, I got to go through the machinations or the process, which, you know, it shouldn’t be too onerous, but it’s not a guarantee. So it’s definitely, it’s kind of like when you look at a car commercial and they say 2%, 2.3 APR, wherever it’s like, wait a second, what is the real number? It feels like 80 LTV. Well, not really, you know, what it was.

Judah Aderet: And I always, from the beginning, made sure to write that in bold in my email. Like when I’m sending a quote out to our client, getting great quote rates then were ridiculously low. You’re talking about, you know, three and a quarter rates or less. And I would write, you know, loan amount is 80% LTV, whatever that number was. But keep in mind, here are your COVID reserves based on where the rate is today, based on that loan amount, your COVID 18 months is going to be X. There is also been on larger loans, it was 12 months you know, loans above 6 million, but it was still pretty crazy because if you think about it, the larger, the loan, the larger the payment, so it’s 12 months. I had a client that bought a deal. We did not have any bank options for him. He’s strictly a non-recourse guy. It was a multifamily deal, not a mobile home park transaction, but he was buying a deal for $27 million, $27 million loan, sorry, his COVID-19 reserve was over $3 million, just sitting there with nothing, you can’t touch that money. So his way that he looked at it was, Hey, I have capex that I plan on doing on this property. I plan on doing around two and a half million dollars in capex. I’ll hold off from that whole project until I get back that money, I’ll use that money once I get it. So he raised the same amount of money because he plan on raising that two and a half million in capex, he used the quote-unquote capex raise money to actually close and his capex money he’s waiting for which I think is around two or three months away from getting that. So I think what happened was they saw that A, you know, not much, not as bad of an effect as they thought it would have, did it actually have in our economy and on our properties. There are some areas that got hit harder than others with collections, but for the most part, there were, you know, properties are performing well. Obviously, we know within the mobile home park community collections, if anything got better for the most part, because a lot of these stimulus packages and stimulus money came in, you’ll have a park here and there that show not so strong collections and a lot of people, a lot of tenants just taking advantage of the fact that they know that it’s, you know, COVID out there and there are some those that are really struggling and definitely are having a harder time paying. But I think overall the effect that it had on collections was not as great as they thought catastrophe was coming, properties are going to be going underwater. So it’s that together with the fact that with the vaccine and people getting back to work and slowly getting back to the pre-COVID days, they’re definitely lightening up on those COVID restrictions. They’d lighten up across the board as general rule that they’re not doing 18 months anymore. It’s 12 months of P and I on deals above 3 million, it used to be between 3 and 6 million was 18 months. It’s just 12 months above 6 million, It’s down to nine months and potentially six months. And then as of last week or two weeks ago, I posted on LinkedIn. They came out with, you know, they’re not screaming this out to the public, but in particular cases. And I actually just had an instance yesterday where we got approved for six months of interest only on a deal. So it was a nice-sized transaction. It was with a strong borrower in strong MSA, property is cash flowing nicely, showing strong collections. We went in and said, Hey, we would like to request one of those waivers that you guys said are available. And in that case, it was six months of interest only, which is a far cry from 12 months of principal and interest.

Ferd Niemann: That is the, I want to clarify, that’s the COVID reserve portion because, six months IO is not uncommon. I just got caught on IO, right? Six-month IO COVID-19 reserve in lieu of a 12 to 18-month principal and interest go on reserve.

Judah Aderet: Yeah. This deal happened to, it’s a loan, a ten-year loan, which carries with it five years of interest only. So that was part of the argument also is, it’s interest only payments, which I’ve made that argument from when they started, you know, you were having, you had deals that were full-term interest only, and they were still taking a COVID reserve of principal and interest, which just, it was kind of ludicrous. But and I have another buddy of mine, another mortgage broker who told me he just got approved on a deal for at 70% leverage. The deal that I just spoke about was at full 80% leverage. He had a deal just now at 70% leverage where they waived the COVID-19 reserves entirely.

Ferd Niemann: When you say full to clarify too, the maximum one acquisitions with agencies at 80% LTV on refinanced at 75, but sometimes it gets down to 65 or even 50. Is that accurate?

Judah Aderet: On refinances though, it really depends where, and it depends on the story. I’ve gotten to 80 on refinances as well. Yeah.

Ferd Niemann: I’ve been lied to recently. How about 75? Is it okay if that’s the max and apparently not.

Judah Aderet: No. We’ve got an 80. It’s really about the story that you tell. It’s really, if you have a park that you bought two years ago, you haven’t done much to it. And all that happened was, you know, COVID, cap rate compression, then they’ll say, Hey, no, no, no, we’re not doing more than 75, but if there’s a story there, you increased occupancy, you brought up your NOI a nice amount. There’s a story to be told. There’s definitely instances where they’ll go to 80 on a refinance. So that’s great news about the COVID reserves. They’re definitely lightening up. They are definitely open to giving waivers on select deals, which will make it a lot more attractive. If you weren’t the only guy that came to me for a loan. And, you know, once I quoted a Fannie loan, you know, they turned it down to go with a recourse option. There were plenty of instances where I would say pre-COVID, I was doing 70% agency, 30% bank, or maybe 75 you know, probably around 70/30. And now it’s probably 50/50 due to the fact that there’s, you know, a lot of banks out there they didn’t have the COVID reserves, didn’t scrutinize collections as much as the agency have been doing recently. There was instances that, you know, there are cases agencies will ask for bank statements, which they’ve never historically done, but now when you’re presenting a deal, especially a refinance, they’ll say, Hey, can we see the collections and a bank statement? Which a lot of banks will be fine without, they know the collections might not be as strong as they should be, but they trust in the asset class and they trust in you. And they know that things will turn around. So definitely a nice amount of deals have been going bank because of a variety of reasons, but largely in impact to the COVID reserves.

Ferd Niemann: You would have told me before we part with as a borrower what do I need to do to get myself teed up and ready for both an acquisition? Obviously, we talked about not your first deal or get a good co-guarantor, but what do I need to do to acquisition on a refinance to make sure I go through this process and get approved, frankly, but go through a good prudence and executed smoothly as broad as possible.

Judah Aderet: So as far as what you need to prepare for me.

Ferd Niemann: In general, I mean, so for example, having clued books and having, you know, rent manager equipment is better than having loose-leaf or a checkbook, right? That’s one thing I know you need, if you’re going to get going through this process, what are some other things you need to do to success?

Judah Aderet: Yeah. So I would say both on a purchase and a refinance, obviously easier to do this on a refinance since you own the park, but even on a purchase, as much as it might seem silly, put some lipstick on that park, make sure that there’s no trash laying around, make sure that the, you know, the leaves are blown, make sure there’s some new bushes planted, make sure that there’s nice signage at the front of the property. All of that can make a world of a difference, especially when it comes to mobile home parks. Because I didn’t expound on this earlier, but agencies, one of the things that they love to say is they’ll lend them mobile home communities, but not a mobile home parks. They want to see a community. They want to see a nice place to live. That’s why they have kind of their checklist of paved roads, curbs, you know, driveways, skirted homes. They want to see a community. They don’t want to see the old stigma of the trailer parks. So as much as it might seem like lipstick, but putting a park into a different light for when a lender is going to drive through there can make the world of a difference. I’ve had, I can’t even count how many times that we went through a whole process bank came to do an inspection. And I always try to make sure to be down there at every inspection. I try to go down a day before to scout out the park and tell the owner, Hey, you got to do X, Y, and Z before the lender shows up in the morning. But there are times that I’m not able to get there or like got there too late. And I’m driving through with the lender and I’m like biting my lip because there’s just trash all over and one tenant and it’s not really your fault because it’s the tenant owned homes and he can possibly do whatever he wants and not follow the exact park rules and regulations. But if you warn the tenants like, hey, I have a bank inspection in two days, let’s work together. I’ll help you clean up some of this stuff. Let’s get some of the trash out of here even, you know, go to Home Depot, and cover some of those hitches with some little contraption. Every little thing that you can do to a park can make the difference of getting an agency loan or not getting an agency loan in a bank world, sometimes it can affect rate. Bank decided they’re going to give you a 4% rate because we portrayed this park as being a very nice park. They drive through it and they’re like, this place is a, you know, without using the terminology, they’re going to then say, we’ll do this deal. But you know, it’s going to be at a four and a half percent, all because someone didn’t spend the time putting lipstick on this park, it costs you $2,000. Get a landscape that you’re going for, I’ve had so many times that a client is cashing out half a million dollars on this park, take 2000 of those dollars and get a landscaper to come down, put bushes at the entrance, put a nice little sign, clean up the trash, have your tenants send the notice, tenants please park in your driveways. It can make the world of a difference. So yes, having your books in order obviously is first and foremost, they want to see clean books. They want to see a nice P and L, they want to see a rent roll that has the tenant names and the lease dates and everything that all does very well for you. But there’s so many times that I’ve been frustrated where I’ve told clients, Hey, we have an inspection in a week next week, Monday, then inspection, try to make sure everything is in order. And I’ll show up on Sunday and have to call them and say, Hey, you know, we got to get someone down here, you know, pronto to clean up this, even just a pile of garbage that’s sitting outside of tenant’s home.

Ferd Niemann: What about road repairs? Significant. If you got $25,000 or $30,000 of road work, do you, that’s going to, I think typically it makes sense to do it because it just going to impact the cap rate and appraisal let alone the interest rate. But that’s a bigger expense, obviously. How much does that move the needle? It doesn’t impact the NOI, you know, one bit or something, but it definitely changes the atmosphere. When you do the park inspection, would you recommend doing that or is it not worth it?

Judah Aderet: I would say depending on the scope of the work a lot of times, if it’s really that bad, you have to figure that most of the agency loans are going come along with an immediate repair. And they’re going to say within six months, we needed to repair these roads and they’re going to hold back $20,000 from your loan proceeds. So what did you gain by not doing it now? You’re not getting that $20,000. They’re going to hold it for you paying an interest now on that $20,000. And you have now to go out and do that without the money in your pockets. I mean, go do the work, make sure that that’s done because like you said more so not see the rate, not to the LTV. More so just on an appraisal, you know, that can bump down your cap rate from a six cap to a five and a three quarter cap, If the appraiser is able to drive through it without his coffee spilling all over.

Ferd Niemann: Exactly. And just for our listeners that it’s typically called a PCA or a property condition assessment, which is basically a home inspection on steroids. And the lender will say, you’ve got ABC problems. It’s a $1 or $2 and $3 for a total of six for the whole six-pack. If, and when you do it, we’ll give you the $6 back kind of like construction draw. I just got one back two weeks ago and I took your advice in advance, cause I knew you’d say that. And I did the road work. Guess how much my PCA was for a 54-bed park, total value?

Judah Aderet: $1200 bucks.

Ferd Niemann: Zero.

Judah Aderet: No way.

Ferd Niemann: First one I’ve ever seen, zero. I painted all 52 houses. I cut all the times off. I put in 52 driveways. We paved the streets. We put in a playground, we painted a fence, that came through and he said, he said, it’s going to come back clean. It was preliminary. I said, how clean? He said, I don’t want to commit, but it’s a zero. But he said, good. That’s what I was going for. But I got another park, I got some of poor significant road work done, I’m like, well, I’ll do it.

Judah Aderet: That’s amazing. Yeah. That’s how I was going to say like, if you did all that chopped off all the tongues and all the homes are skirted and like, you know, the $1,200 I was going to say it was like for skirting some of the homes, repainting some of the homes, but that’s amazing. Yeah. I’ve seen as low as I think $1200, $800 I had at one park, but yeah, typically they’ll ping you for repairing some roads. If they see a water leak, they’ll assume there’s some pipes that have to be replaced, they’ll ping you for that.

Ferd Niemann: I saw 75,000 on one, you’ve probably seen more. I saw 75,000 on one, I was the seller, and it wasn’t in the road was, I thought the road was okay and I sold it and the buyer thought it was okay, well the lender made them fix it. It was like 75,000 bucks.

Judah Aderet: I mean, that’s another thing where I believe I bring value. When clients ask me, Hey, I can go to, you know, hunt mortgage or one of these dust shops myself, what do I need you for? That’s a common question that I get. And the answer is, it is A, the handholding and knowing the process, knowing the bumps in the road, knowing how to present a deal and what to push for. But sometimes more importantly, you know, showing up at an appraisal and showing up with the PCA engineer can make, it’s not about buttering them up or buying them a drink. Part of that is, but part of it is, they trust me to a certain extent where I’ll come through there and the guy’s like, oh my God, these roads looked like, I almost can. And be like, it’s only one little part. Like, look at that part. It’s just this one little part. And you know, it probably just happened now for the winter and I’ll see the results in the report. Like you’ll literally see where a whole note, you know, one part of the road seems to be in bad condition. Might’ve been due to winter conditions like they were looking to help you, but they’re not going to make up stuff by themselves. That’s not what they’re looking to do. So a lot of times that can make a world of a difference. An appraiser, you know, drove through a park one time. And as we are driving through together, I was asking him, what cap rate do you think this is? Are you thinking? And he’s like, I think probably like a six cap. I’m like really? And then I took him across the street to another park, right across the street, which I know had sold for like a five and a half cap. It was a much nicer park, but just doing that and driving him across the street and saying, Hey, this is the park that you’ll have anyway on your comps might as well get a feel for it. And I said, this is, you know, we are their competition. So we are going to be able to raise rents, we’re going to make this park nicer. And we got that cap rate slightly down. So that’s definitely a big part of whereas a mortgage broker will bring value to your table is making sure that different things along the process, which can be massaged. You know, there are some brokers out there that I’m now sitting in jail for massaging the numbers. That’s not something that we’ll do. We’re not going to sit there and massage your numbers, but I’ll massage every other part of the deal. And I’ll present the deals in the best possible light for lenders to then get hungry for the deal and start bidding on deals. That’s the best. If you have a couple of banks and they know about each other and they know, Hey, you know, they trust me. Well, I’ll tell them, Hey, I have a bank that’s offering me a 4% rate on a 30 year. You’re not winning this deal with what you offered and suddenly they get more aggressive. So that’s obviously, if you have banks bidding on your park to kind of get the loan on there, you know, you’ve done a great job.

Ferd Niemann: Sounds great. This is lots of great information. Where can people reach you? How can they contact you after this episode?

Judah Aderet: Sure. So easiest is on my cell. I have a work phone. It almost doesn’t ring. So it’s, I would say people should reach out directly on my cell. It’s 848-222-7038 is my cell. Or they can email me at Judah@PrincetonCapGrp.com. So short for Princeton Capital Group, www.PrincetonCapGrp.com. And we can always take a look at anything anyone is looking at and let you know our thoughts.

Ferd Niemann: All right, sounds good. Thanks Judah. Thanks for coming on.

Judah Aderet: I appreciate you having me on. Thanks Ferd.