SBA Loans for Real Estate: The Best Kept Secret in America with Kamyar Rezaie

Alright guys, welcome back to another episode of How to invest in commercial real estate. Uh Man, we don't have Brayden today to open the show. He is at a wedding in Utah. Uh But man, we're always trying to find uh new people to interview to understand how they got into commercial real estate. And today we've got a great guest. His name is Kamyar Rezai and he is out of Los Angeles and he's kind of a lending expert, has a boutique operation out there called Wembley's. And uh he's gonna be telling us about how he got into commercial real estate and he's gonna be telling us about the state of the commercial lending market. Uh Cam Yar, welcome to the podcast and welcome. Thank you for having me. So uh we usually start off the show and have our guests just kind of tell the audience how they got into commercial real estate because that's really what we want people to do is to get in the industry in some form or fashion and learn this game. And so tell us a little bit about yourself maybe where you're from and how did you get into commercial real estate. Absolutely. Uh So I started in the real estate industry back in 2004, I graduated UCL A in 2002, 2 years later, I decided, you know, uh I really like to get into the real estate space.

And the reason for that is my father was refinancing a property and the gentleman that came to the, um, the law officer that came to the low doc signing, I did I, the way he was treating my dad, the customer service and everything was, you know, like not what I expected from such a deal that really triggered me to uh you know, think more and um go get my license first, I became an agent in April 2004. Then I realized I could become a broker. So like December of 2004, I became a broker and it started, you know, in the residential space up to about 2008 until we had that big, you know, meltdown in the economy. After that, uh you know, I started helping my client save their homes via lomond. And while doing low mo I was, you know, introduced to a lot of high worth individuals that helped them save their homes. So they were all in the commercial real estate aspect and they said, you know, you should really start focusing on commercial real estate because we'll become your clients. You know, you see if they're all our family has a roof speakers. You and, but, you know, that's where I started back in around 2010 11 when the market was so shaky, started doing, you know, commercial real estate lending, you know, um helping my clients who have, you know, issues with their loads and everything, refinancing them and slowly, but Shirley and I grew my, um, my network compliance and just, you know, it's kept in different industries.

Excellent. I have a couple of questions after that. Um, first of all, you, you said you helped high net worth individuals keep their homes during the housing crash in 08, maybe. Just give us a little bit of color on how, how did you go about doing that? So, you know, a lot of these homes we have, you know, they had low balances to say 2345, some up to $8 million you know, mortgages on the primary homes and because business was extremely slow or uh some had no business, you know, we negotiated with the banks. You know, it's either they could, it would have gone on their balance sheet for closed notice of default or they could have worked with a client to reduce their payments, you know, put all the uh balances that they didn't pay on the end of the loan. And, you know, just to so because, you know, they have a lot of trouble, they told a lot of the homes it was not good. For them, the federal government was on them to help people keep their homes. That's the process, we kind of like getting a loan, they were looking for particular loan ratios and just, you know, making sure that once this low month were done for the client, the client can actually pay.

Ok. And the other question I have, do you have a question? Um So you, you, you transition into commercial real estate, you have this kind of list of clients, high net worth individuals. What is kind of a, a typical, I know you may do loans across asset classes but what's your bread and butter? What is your typical uh deal look like retail, multifamily, 2 million, 20 million. It's, you know, it's roughly about 3 to 5 million owner user SB A loans or conventional loans, bread butter. Um ok. So, you know, just because uh our audience may not be familiar uh with an SB A loan, maybe you could just describe uh what the SB A loan program is and how it helps owner users get into buildings. Sure. So S PM loans are, you can buy a commercial building with uh as low as 10% down, you have to occupy 51% or more of the building for your business, the operating company. And if you look at the last three years tax returns and some banks qualify off of the one of the last three years tax returns, other banks qualified two of the last three years of tax returns for qualification purposes.

And, you know, it allows you to own your own building on the sc it's a 25 year amortization. So if you stand there for 25 years and you don't refinance, you pay off the building and you own it being clear. So you, so I don't know much about him either. So, what you're saying is you can own your own building and you have to occupy at least 51% of that and you could lease out the other 49%. Is that correct? Ok. And you get in for low money down 10% which normally would be 20 30%. Uh, so let me ask you on the, the qualification on the tax returns. So, uh, are they, uh, tell us about that? Like, let's say that I need, I want to go buy a $3 million building. Uh, what do I need to qualify for that loan? Basically, it's a $3 million bill. You look at a loan amount of 2.7 million when you, there's two types of sbas there's a SB A seven A where the, um, the whole loan is one loan where the bank gives it. There's a, uh, the other SB A loans, SB A 544 where they split it into two loans. The 1st 50% is a traditional conventional loan.

The following second lead of 40% is the SB A loan? Ok and um depending what rate you were getting, you know that interest, payment of your uh m mortgage which is the principal interest plus your property tax, plus your insurance that you look at your cash flow of your business, they add back you know the rents that you paid for you where you are and they add back the depreciation and then you know if you uh and then based on the ratio they see you talk or not? Ok. So uh did you understand that you know, let's say they're paying rent over here for their space? Uh they're gonna add that back to their income to help them qualify for the new payment on the new building. Is it a is it like a one point sorry they're not gonna have that rent anymore once they go to the new building? That's why to add that, right? And then is it like a 1.2 debt coverage ratio on the new payment or somewhere? 1.1 somewhere, 1.25 every bank is different? Ok, so, but but if uh let's say that there's another tenant in the building occupying the other 40 to 49% can that income be included as well to help cover the payment?

Majority of the banks do not include that uh that rental income upfront when you buy the building to make sure you qualify for 100% of the payment on your own? Ok. That's interesting. What about uh uh interest rates amortization? Is it a fixed rate? How do they compare to maybe a more conventional commercial loan? So, on a SB a loan amortization is a 25 year fix on a conventional loan, they're typically 20 year fix. So they're higher payments on the S A. You can have, you know, a five year fixed seven year fixed, 10 year fix and you can actually have a 25 year fixed amate over 25 years, which a lot of people are not aware of. And I have placed about 95% of my clients on 25 year fixed advertised over 25 years. And, and uh the rates, the actual interest rate is it similar to what you can get uh on a commercial, on a typical commercial loan? Um No, they are typically less because it gets an owner user building versus an investment property. You know, you're more likely to make the investment on commercial property versus a owner user where you're opening your company out of.

So they are typically less like in our business when we're buying, you know, multifamily or retail, we're, we're typically getting uh a spread over the five year or the 10 year treasury, like they'll say, you know, 280 over the five year treasury and that's my rate. Uh what, what benchmark is the interest rate uh for the SB a loan? Like what would be a typical rate today if let's say one of our listeners, uh, is thinking, hey, I might, I might be able to use this product. What would the interest rate be? Roughly, would be about 6.5 to 7% on a 25 year fixed advertising for 25 years? Is it based on an index or is it just whatever the vendor quotes, you know, typically they go based off of their 10 year gone. Ok. So spread over the 10 year, correct? And what, what is it, what's the spread today again? It depends on the client. There's different factors. You know, if the client starts a banking relationship with the bank, they give a little spread. If they're very strong client and that, uh, they bring over over the opening accounts to the new bank, it's a different spread. So it's very hard to say the one, right, the different factors that go into the rate.

All right. Well, good. I mean, we have some other questions but just for our listeners, you know, we have a lot of business owners, uh, listening to the podcast. Um, this might be a great product if you're paying rent right now and you want to get into owning your own building or your own, owning real estate. Uh, you only have to occupy at least 51% of it. You can get in for 10% down. Uh, both are huge wins. So uh maybe this is a product that you guys can check out. Uh So Kamyar, uh because you're in the Los Angeles area, we'll ask you some specific questions. How is uh the general uh real estate market and lending market uh in southern California these days? You know, southern California right now, it's mainly uh you know, buyers are buying owner occupied properties right now. There's not a lot of um, you know, uh money going into investments in terms of commercial properties. You do have several of that. You know, you know, the bigger people who are in the, like the multifamily states, you want to pick it up other multifamily um buildings, but, you know, the smaller people who have one or two multifamily buildings and it's not in a good spot. You know, they might be hurting, you know, when they come to, because on those pro on those buildings, you never have a fully amortized fixed product.

So you might have a 57 or 10 year fix, you know, averts over 30 years and a lot of those loans are becoming due this year or next year. So those people, um, you know, when they go to refinance, they most likely have to come money out of pocket to get the refinance that otherwise they will lose the building. Yeah. Good point. We've been talking about that over the last six months or so. Rates have stayed higher longer than we thought, and a lot of people during COVID and even before got into rates that were 34 5% fixed. But as you say, in commercial real estate, not very many self amortised loans. So you have uh these 5, 10 year fixed terms that are coming due. Now, I mean, if you've got a loan in 2015, 10 years is, is next year, now you're gonna go from a four or 5% rate and if rates stay high till through next year, we're talking 7, 7.5, 8. And so, uh, do you see or is it your view that, that maybe if rates stay longer for our stay higher for longer, that we're gonna see some distressed properties on the market, maybe some foreclosure pressure, things like that.

I, I believe so. Yes. And one thing we, uh, you know, when you're getting a little and if you're not, so, you know, if it's your first or 2nd, 3rd time when you get a commercial loan, let's say on a multifamily product, you know, you have to really look at it and see if it's a blue payment after when the arm adjusts or becomes variable because if it becomes variable, you don't necessarily have to go refinance. But if you have a balloon payment, you have no other choice and people are typically not aware of that when they're getting the loan upfront. Yeah, we, we, I think uh have a I mean, the five year fixed deals, I think those loans just come due. And so we've got to go and take what the market, uh, gives us. Hopefully by the time they, they come due in 57 years or whatever, uh, most don't, well, at least for properties we've, you know, we've negotiated higher, higher lease rates, uh, we've paid down some debt and so when it does come time to refinance, hopefully the, the amount we have to refinance is less um or to at least what we owe, the value of the property is higher, have it reappraised. So, well, uh another thing we wrote down that we wanted to ask you because your website kind of indicated it.

Um Are there any creative strategies that you're using today? Uh in order to get people in commercial real estate? Uh I, I don't know if there is, but if you have any that you want to share with people because it is a little bit of a tougher environment in terms of creative strategies, what um it would again be on the SB a side because there, there are SB a 78 products which are projection based. So you don't necessarily have to qualify off the tax returns. They qualify you based on projections, but those are typically, you know, prime plus 1.5 of prime plus 2.75 rates and the variable rates up front projections of what the, the income that their business. The what of the operating company? Ok. Ok. So if you don't have the tax returns, but let's say you're forecasting a lot stronger sales this year because you've grown, uh, you can, you can still maybe qualify to get in your building. But the rate is not gonna be 6.5. It's gonna be prime plus one, which is like 9.5. It would be probably 9.5 all the way up to like 4.25 because the max they can do is prime plus 2.75 on those prime plus 2.7.

So that's getting pretty, pretty expensive. But I guess if that's your only option. Yeah. Well, so, um, Kamo, you're probably more in tune with, uh, since you're sort of an expert in the lending. What, what do you think, what's your forecast for, say, the next 1218, 24 months on, on rates? Um, based on what I saw, uh, everybody's thought process was a lot different beginning of the year. We were all, you know, hoping or expecting rates to, you know, come down maybe two or three times. But, you know, with the meetings that came up, you know, and uh the inflation factors, it has not. And, you know, uh typically in an election year rates do come down the last, let's say, 4050 years that we've seen rates come down during the election year. But we are, this time around, we are in a stagnant inflation and in terms of what's gonna happen to rates in the next 12 months, it's very hard to say. There might be a reduction, there might not be a reduction. Do I see it going higher? I doubt it. But there's always a possibility but overall, I think it's gonna, um, it might not come down for a unit.

Yeah, certainly. History says that, that the rates come down a whole lot slower than they, than they increased, which is the opposite of the market. Right. The market goes down fast. Uh, like a, like a lead brick and up, like a balloon. And, uh, but interest rates come down hard and go up, uh, they go up fast and come down very slowly. Uh, I, I think I tend to agree with you. Uh, we'll kind of wrap up on this point. Uh, everybody thought we were gonna have rates started coming down. Inflation isn't what it was got up to almost 9%. It's like at three now, but it still isn't to the 2% target that the feds want. And I think they see the, the negative impacts of, uh, inflation being worse than whatever pain the economy is gonna see with keeping interest rates higher for longer. So it's a game they're, they're playing well and the economy is still, still doing pretty well right over the, the company is doing, doing well. E even though individually, sometimes people think I'm not doing as well as I want, but the data is, the data, unemployment is really low.

Uh And, you know, businesses are generally doing pretty well and occupancies are, you know, are high so well. Uh, go ahead. Do you have a thought on that? Yeah, I mean, look, uh we, I don't, after, you know, during COVID, the amount of money that we printed, that created all this inflation, we've never had a history of printing so much money, even in 2008, they did not print so much money like they did for COVID. So, you know, no one has ever experienced how to control this. It was a ma, I mean, I think between Trump and Biden administrations, uh it was like $7 trillion or just something ridiculous. 30 trillion, 30 trillion in the world in the world. Yeah, that's right. That's right. Well, um OK. Uh we'll wrap it up there. We really appreciate your time. Uh I think bringing up SB a loans to our audience in case they ever want to get into a building, it's a great option if you're gonna be an owner occupant of at least 51%. So, uh how do, how do uh are people watching the podcast?

Get a hold of you? How do you want them to be, reach out? And I think you have a podcast as well if you want to plug it. Yeah, I have my own podcast. It's called Mind of Commercial Real Estate. We have a youtube channel that you call here at the office, you know, 8187039337. Or they can contact me via my email, Krezaie at Wembley's inc.com. So Wembley's Inc uh, Wembley's inc.com is the website. We will post, uh, his email address and information in the link. And uh, Kamyar really appreciate your expertise on SB A loans and uh guys, we'll catch you next time on how to invest in commercial real estate. Thank you for having me.