We are all feeling the impacts of COVID-19, and lenders and borrowers alike are allocating a significant portion of their time and energy towards assessing properties in their existing portfolios, evaluating current and potential risk exposure, and doing their best to handle day-to-day tasks in this everchanging environment. This sudden shock to the commercial real estate industry has reduced deal activity in the market, both from an acquisitions and financing perspective. While many borrowers have decided to wait to secure financing for their property until the market volatility subsides, there are many occasions in which a buyer or owner needs to transact during these times. If you find yourself needing to close a loan or arrange financing right now, here are some key considerations to help work towards a successful outcome:



For those borrowers that already have an executed term sheet or loan commitment and are progressing towards closing, we recommend the following:


Income and Occupancy Thresholds Required to Fund – Many lenders have income or occupancy verification tests in order to close and fund a loan. Be aware of these metrics and read the fine print as to how they are calculated. If there is a chance you may not achieve one of these hurdles due to COVID-19 related challenges, engage in conversations early with your lender. Ideally, no adjustments will have to be made, but we have seen the following proposed as potential mitigants to temporary shortfalls (note: these are provided as examples; these are very deal and lender specific):

  • Debt Service Escrow – debt service payments can be escrowed at closing to allow the lender to temporarily draw down on guaranteed payments. We have seen escrows ranging from 3-12 months.
  • Holdback – the loan amount funded at closing can be adjusted so that limited funds are held back. These funds then get released upon meeting specific income or occupancy thresholds in the future.
  • Personal Guarantees – a temporary personal guarantee can be made by the borrower until certain thresholds are met. Most commonly, we have seen partial personal guarantees that burn off upon achieving income and occupancy metrics.


Document Signing – Build in extra time to get documents into the hands of the signatories. Be aware of documents that need to be notarized and be proactive in finding alternative solutions, if needed. For example, some title companies are offering notary services via video-conferencing and mobile notaries that practice social distancing.


Municipality Office Closures – Allow for more response time for deliverables from municipalities (Zoning Letters, Certificates of Good Standing, Recorded Documents, etc.) and be proactive in finding alternative solutions, if needed. Documents executed within a certain time frame prior to the loan process may be acceptable or certain documents may be re-categorized as post-closing obligations.


3rd Party Reports – Allow for a longer lead time on 3rd Party reports, as coordinating site visits continues to become more difficult.


Lender Site Visits – If a lender cannot travel to inspect the property prior to closing, be proactive in finding alternative solutions. The lender may allow a local correspondent (such as Essex Financial Group) or another individual to perform an approved site visit on behalf of the lender.


Changes to Appraised Value – Be proactive in discussing with your lender the possible effects that the coronavirus shutdown will have on the appraiser’s underwriting and opinion of value. Evaluate these potential changes in the context of any previously negotiated LTV stipulations.




If you are in the process of procuring financing or negotiating terms with your lender, we recommend the following:


Tenant Documentation (Estoppels/SNDAs) - Each tenant is responding differently to the pandemic. Understand the current status of each tenant and the realistic probabilities and timelines for receiving tenant documentation. Negotiate required estoppel and SNDA thresholds up front with your lender and discuss potential modifications to the language of tenant documentation as it relates to the COVID-19 pandemic.


Lease Modification Flexibility – Given the uncertainty regarding the future of COVID-19, it is possible that tenants will continue to experience hardship over the subsequent months. Negotiating higher thresholds for lender consent on lease modifications can allow you to be more responsive and accommodating to your tenants without requiring lender approval.


Be Aware of More Conservative Underwriting – Many lenders are adjusting their underwriting parameters to be more conservative during this time. If you receive quoted terms that are less attractive than what you initially anticipated, it is likely due to internal adjustments by the lender. Some lenders are incorporating instruments such as escrows, holdbacks, or personal recourse into quoted terms in efforts to obtain additional risk mitigation during this time. Additionally, lenders are approaching cash-out refinances with more scrutiny. It’s important to be aware of some of these near-term impacts as you evaluate varying options within your business plan.


Buffer Time in Deadlines – Plan your various hurdles and, ultimately, your closing date with significant buffer time before the expiration of the rate lock agreement, term sheet, or loan commitment, to allow for unforeseen delays in the closing process.



As always, please don’t hesitate to reach out if we can be of assistance. Essex prides itself on being a trusted advisor; we care about you and are available as a resource to help you in any way that we can.