Two Florida Bankers Explain How to Close Deals in This Environment

As commercial real estate sales activity stays hot around the country, buyers and sellers on a tight timeline to close deals are often having challenges meeting their deadlines.

Trey Korhn and Vince Chillura of Valley Bank are seeing this trend every day in their work. They manage a department that has handled lending on such high-profile west-central Florida projects as the Epicurean Hotel, the Midtown Lofts office project and the Riverside Heights redevelopment project in Tampa, along with the Ace Hardware distribution center in Lakeland. 

They talked to GlobeSt.com about what buyers and sellers can do to help ensure they get their deals closed on schedule.

Q: What are you all seeing in the states that Valley Bank focuses on – Florida, Alabama, New York and New Jersey?

Korhn: The timeframes on closing deals are getting longer due to the ongoing tremendous activity. It used to be that 30 days for closing a deal was possible, 45 days was good and 60 days was plenty of time. Now all those numbers have extended out. There is oftentimes no realistic chance to get a deal closed in 30 days.

Q: What’s driving the delays? 

Chillura: For us, the bank’s approval process isn’t holding things up, it’s oftentimes third-party service providers like appraisers, surveyors, and environmental due diligence-related companies that now have longer lead times because they are so backed up. 

We typically send out bids to five or six qualified appraisers, for example, and we get some responses saying they do not have capacity to participate, while some give extremely high rates or very long turnaround times. Others say candidly that they won’t be able to do anything on a compressed schedule.  

It’s the environment that the real estate industry is in that we are having to live with.  We have valued partners that we know and trust, but heavy volume, staffing shortages and the regulatory environment have simply slowed things down.

Q: How are you all dealing with this problem?

Korhn: Being extremely persistent with the third-party service providers you work with is crucial. We need to stay on top of everyone and be hyper-organized. Also, all the parties involved need to be nimble, so you can react and adjust if a situation changes.

Chillura: We also have to monitor the work being done by service providers more closely than ever before. In some cases, a service provider may supply a work product that needs adjustments or revisions, perhaps because it was done in a rush. This is problematic when you are dealing with delays and tight timelines.  So, we need to jump on these types of issues right away and work with the provider to make the appraisal (or other applicable report) at the level of quality it needs to be.

Q: What are some key considerations for buyers and sellers looking to avoid problems?

Chillura: Like most things in commercial real estate, success really comes down to relationships. Work with a lender that has relationships with a number of trusted providers so the lender can get the appropriate number of bids and have real, honest conversations on timeframes for deliverables. 

Also, the better the lender knows your business, the smoother the loan process will run. And don’t forget that if there is an ongoing relationship between the lender and the third-party provider, all the parties involved will make the deal a priority.

Q: How can you avoid fire drills in getting deals closed on time? 

Korhn: Borrowers need to start the process 15 to 30 days earlier than what they would have done three or four months ago. Preferably, they should properly structure due-diligence timeframes in their purchase contracts to allow for the backlog in the industry. Remember that for lenders, our approval process is the same as always, but we can only do so much to influence the other parts of the equation, and then we will do our best to execute.

Q: How should a borrower approach deals in asset classes that are particularly competitive?  Chillura: There’s certainly a scramble for properties in niches like industrial and multifamily, to name a few hot topics. Borrowers should have a realistic view of their options from the start of a deal. Know your hot buttons and deal-breaker points and understand the competition and challenges in the industry. It doesn’t hurt to have a plan B – don’t get caught up in the noise or get too attached to one single deal. 

Q: Do you see this situation changing in 2022?

Kohrn: As everyone is well aware, interest rates are coming back up a bit, and cost of capital might cool things off in the future. And of course, it’s important to see how supply-chain challenges and supply-and-demand drivers impact the market as a whole. That said, we expect well-priced properties in good locations with solid fundamentals to continue to be in high demand in 2022, so it’s important to plan with that in mind.