Guest Blog: "What is Value?"

A guest blog post by Dennis Dishaw, President of ACI Capital, Inc.--Los Angeles, California

“What is Value?”

Our firm recently closed an owner user loan for a medical office building.  Our borrower is a physician who has one other office but had moved into the subject a year prior.  It turns out that he had invested over $400,000 in tenant improvements prior to his offer to purchase.  The seller is an active broker and investor in the area.  The buyer was not represented and the transaction was a FSBO. (for sale by owner)

They agreed to a sale price of $3,500,000 and our review of his medical practice income supported his ability to qualify for a loan of $2,800,000 which was 80% LTV.  The loan was approved subject to the appraisal.  Which came in at $2,670,000!!!

Rule 2 in lending is value is defined as: “sale price or appraisal, whichever is lower.”  But buyer and seller had established value in the sale price.  But was that value considered with full knowledge?  Did the broker/seller know the market?  Was the physician given any alternative views?  If this had been an all cash offer the sale would have closed with the $3,500,000 price.

The buyer was cornered due to his investment into the property.  He closed the transaction with a much higher down payment.  The lender continued to offer 80% of their value (the appraisal).  

To find out what Rule 1 in lending is, you will need to ask a Loan Officer at ACI Capital (yours truly is one of them).

Dennis founded ACI Capital in 1994 and has been in the real estate industry for more than 30 years, having weathered the dramatic boom and bust cycles of the commercial real estate market very well.  He has worked at Coast Savings, Gibraltar Savings and Loan, and First Federal Bank during his long tenure in commercial real estate.   He is married for 47 years to Christine and has two daughters and four grandchildren.  He can be reached at ddishaw@acicapital.net or at 818-654-5212.