We recently sat down with our resident loan expert to discuss commercial real estate loan documents and the challenges faced by real estate teams trying to organize their data. Here are the key takeaways and the questions you should be asking.
Should You Abstract Your Loans?
Loan abstracts can transform how you manage critical loan terms. Here’s why:
- Increased Organization: Abstracting your loans makes essential terms easily accessible and helps centralize information for all employees.
- Efficiency: With editable abstracts, you can quickly access critical information and run calculations as needed. For instance, you can even integrate a Forward Curve for deeper analysis.
Downsides? Abstracting loans can be time-consuming and expensive. Additionally, abstracts are static, so creating projections and calculations requires manual updates. To maximize efficiency, it’s best to abstract loans immediately after closing while the documents are still easily accessible.
Pro Tip: Don’t waste time hunting for details—focus on chasing new deals instead.
What Are Your Options for Abstracting Loans?
While abstracts are valuable, how you create them matters. Current options include:
- Hire an Attorney: Engage in-house or contracted legal counsel.
- Outsource to Loan Experts: Work with specialists in loan abstraction.
- Do It Yourself (DIY): Tackle the abstraction process internally.
Pros and Cons of Using Attorneys
Pros:
- Attorneys excel at deciphering complex legal language.
- Outsourcing to attorneys allows your team to focus on other priorities.
- In-house legal teams provide flexibility for last-minute requests.
Cons:
- Legal services are costly, and turnaround times can be lengthy.
- Attorneys may lack expertise in identifying numerical errors or critical metrics.
- Mistakes in loan agreements can significantly impact your business.
Can You Abstract Loans Yourself?
Yes, but DIY loan abstraction requires time and effort. The process involves:
- Gathering Documents: Request the necessary documents from your lender.
- Identifying Key Information:
- Start with the Note, which often contains essential terms.
- Review the Loan Agreement for interest rate details and provisions like lookback, daycount, and floors (especially for floating rate loans).
- Organizing Data: Use templates tailored to the loan type to save time.
While the process is straightforward, it’s important to consider how much time you’re willing to dedicate to it.
How Long Does It Take to Abstract a Loan?
The time required depends on the loan type:
- Agency Loans:
- Contain fewer documents.
- Approximate time: 30 minutes (+10-15 minutes for review).
- Stabilized Loans:
- Include additional documents like Cash Management and Deposit Account Agreements.
- Approximate time: Up to 2 hours.
- Construction Loans:
- The most complex, with draws, reserves, and Completion Guarantees.
- Documents can exceed 300 pages.
- Approximate time: 3 hours.
If you’re struggling with document complexity or want to avoid hefty legal fees, contact us. Our team specializes in efficiently abstracting loan details.
Ensuring Accuracy in Loan Abstracts
To maintain accuracy, involve team members responsible for financial metrics like DSCR, Debt Yield, and Prepayment Penalties. They’ll quickly spot discrepancies in the abstract data based on system outputs from platforms like Yardi, ARGUS, or RealPage.
Why Do You Need Software for Loan Management?
Abstracts are only part of the solution. Loan management software revolutionizes portfolio management by:
- Centralizing Data: A unified platform ensures all team members can access critical information.
- Transforming Static Data: Turn static abstracts into dynamic insights with real-time calculations of cashflows, DSCR, and more.
- Improving Efficiency: What used to take days can now be achieved with a single click.
Investing in the right software ensures that you’re always equipped with actionable insights to make informed decisions.
Need help abstracting your loans or choosing the right software? Contact us today and let our experts streamline your loan management process.