MARKET UPDATE BLOG

Foreign National Loans: What You Need to Know

August 19, 2015

In the first installment of our multi-part series, we discuss the important elements essential to understanding foreign national loans.

With the real estate market in the U.S making a strong recovery and volatility in global markets—China’s stock market roller coaster, the impact of Greece’s debt crisis and upheaval—foreign national investors are increasingly looking at American real estate as solid investments despite seemingly modest yields. This influx has gained critical mass over the past few years, now representing significant percentages of overall commercial transactions in many domestic metropolitan markets. Over the past 5 years Barry Slatt Mortgage has closed many foreign national loans with our correspondent lenders.

Preparation for Foreign National Loans

Be sure to present the borrowing structure up front so the lender fully understands the parties involved in the transaction.
The borrower, which is also the entity holding the real estate, should be an entity formed in the U.S
For tax purposes, it is fairly common for foreign nationals to create non-U.S entities to hold the borrowing entity and it is important to disclose all entities involved upfront to the lender

Providing a resume and short narrative of the foreign national(s) will go a long way. Lenders want to know their background, occupation, and experience in commercial real estate. In some cases a net worth statement may be necessary, even if the assets are foreign.

Be sure to have a clear explanation when lender asks about the source of funding if it is an acquisition. Lenders are very sensitive to money laundering and other illegal financial activities. Background and credit checks will likely be required.

Seek out a mortgage banking company with a bilingual team well-versed in these kinds of transactions.

Expectations of Foreign National Loans

Given that the lender is making a non-recourse loan with limited or no warm body guarantee, the deal becomes more real estate oriented. Lenders will be looking at:

  • Longer lease terms
  • Investment grade tenant (BBB- or better)
  • Primary / Secondary markets

Due to the non-recourse nature of the loan the LTV may be more conservative than usual (sub 60% LTV)

Process & Closing of Foreign National Loans

Expect lenders to perform international credit searches and background checks on the foreign nationals, which may take up to 3 weeks.

Because several of the loan documents need to be notarized, individuals signing out of the U.S would need to schedule an appointment with the U.S embassy. This may take 2-3 weeks in advance to set up. One way around this would be to have the individual come to the U.S and sign.

While foreign national loans typically require more experience and expertise, they can certainly be done with the right team. Please contact us with any questions you might have about foreign national loans.