Specialized Services for A Complex

Personal Financial Picture

While an increase in interest rates is a sign of a healthier economy, the negative impact of increased rates is not only felt in the cost of borrowing – but as a SUBTRACTOR of value of any owned investment property. As rates increase, the capitalization rate (CAP Rate, the interest yield that an investor is seeking on a property) will increase as well. EXAMPLE: Commercial property with an NOI of $100,000 per year. At a cap rate of 5%, the value is $2,000,000 (100,000/.05) At a cap rate of 7.5%, the value is $1,333,333 The results may not only impact your overall net worth, but also present a variety of potential issues with your lender, such as: Any upcoming maturities and/or market changes will require a new appraisal, which will use the present CAP rates in the market. In the above example – if the property was acquired 5 years ago and financed with a loan of $1.5MM (75%), the present balance would approximate $1,320,000. An LTV of 75% would require a principal reduction of $320,000. Further rate increases will have a similar impact. Any loans on real estate in which you are an investor (with greater impact if you are a Guarantor) may not only require a capital call to meet principal reductions, but also place a higher reliance on the value of you as a Guarantor. This is where the need for a global cash flow (and understanding how this impacts the risk rating and ultimate borrowing cost) will better position you to be able to maximize your borrowing options. As a senior credit officer specializing in lending to high net worth individuals, families, and trusts – I rarely encountered a borrower who was as knowledgeable about both the liabilities side of the balance sheet and their sources and potential drains on cash, as they were the potential value of their assets. Without this knowledge, you are often at a disadvantage when dealing with your lender, as well as not being positioned for an unplanned need for liquidity. Working with you, I will gather information and conduct a thorough discovery session, before I can set out the requirements and cost for a detailed review and analysis. Following this discovery of the complexity of your financial life, the following is the minimal listing of information that will be required: Personal financial statement, in whatever format you have, with all schedules, particularly real estate and non-publicly held business ownership interests. Copy of most recent 2 years’ personal tax returns, together with all schedules K-1. Copies of most current brokerage/investment statements. Listing of any beneficial interests in trusts, estates, or other entities. List of contingent liabilities. Within 2 days of the receipt of this information, I will follow up with questions and/or additional information requests. Before we move to the next step, we will enter into an engagement agreement which will specify what will be provided to you, when, and at what cost. Among the reports and/or end products that I will provide are: A global cash flow, with an explanation of the sources and uses of funds. An accurate breakout of contingent liabilities. An analysis of debt to insure the most cost-efficient sourcing of capital. An analysis and tracking of all liabilities, with specificity and detail including​. • Borrowing entity • Lender(s) • Maturity date • Interest rate • Underlying collateral • Payment schedule • Guarantors • Covenants/reporting requirements Detailed listing of any and all flow-through entities or ownership in non-publicly held entities, together with grouping of related or inter-dependence among the entities. If desired, I can also prepare a 'deal' package, suitable for presentation to an institutional lender for either a new loan, refinancing, or annual review. ​