The first meeting between lender and borrower is critical. This is an opportunity not only for the two parties to get to know one another, but also for the borrower to demonstrate competence and the ability to identify and manage any difficulties facing the building. The borrower’s goal is for the lender to walk away from the meeting with an understanding of the problems and the knowledge that the owner recognizes those issues and want to works with the lender to resolve them favorably for the benefit of both parties.
Here are some steps to follow:
- Come prepared with handouts explaining how well the building performed when times were better, and show why the building’s performance has tailed off.
- Prepare a sophisticated, yet brief, description of the local marketplace similar to the flyers that local brokers provide from time to time. Let the lender know where vacancies are in the neighborhood. Tell the lender exactly what the vacancy rate in the building is today and what it has been in the past. Project current and upcoming leases in a realistic manner. Never assume that the lender understands the local marketplace, but do not talk down to the lender either.
- Address operating costs and explain what can and cannot be done to cut them. Be frank, realistic, and humble—but also be convincing and forthright. If you truly believe that you can manage the building through this crisis, make certain that the lender gets that message.
- Avoid confrontation, even if inappropriate remarks are made in frustration by either side. Assume that both the lender and the borrower had the same information available before the loan was made: the mistake that has resulted is mutual, if it is a mistake at all. No one could have foreseen the sharp downturn in the real estate market in the past two years.
- Invite the lender to tour the facility and to review any books and records he or she has not already seen. Ask the lender to suggest areas of improvement or change that might not be apparent.
- Explain that you want to find a way to repay the lender, but that the constraints of the marketplace will have to be taken into account. Show the sacrifices that you and your team have made to keep the building operational and explain what further sacrifices you are willing to make in order to preserve your investment and their loan.