Low pre-sale is no bar to co-op financing.

Despite an upbeat residential real estate market, loans for co-ops in buildings with low pre-sales pose a challenge to buyers, and even the most sea-sorted real estate professionals. Most banks have never recovered from the disappointments they encountered m buildings with low owner-occupancy in the early 90's. Consequently they insist on pre-sale thresholds as high as 50 to 70 percent, an insurmountable hurdle for many buildings. Other bank requirements concerning owner occupancy ratios and investor concentrations pose additional obstacles for potential purchasers.

Fortunately many lenders do fund loans in buildings with low pre-sales. Each lender has its own requirements which preclude generalizations. Some lenders charge interest rate premiums or limit the size of the loan relative to the purchase price. Nevertheless, the determined buyer, broker or owner can arrange financing for these challenging properties, and close deals which the less astute professional might overlook.

Several savings banks have official pre-sale thresholds as low as 30 or 35 percent. Persist if your pre-sale is slightly lower, as underwriters will consider exceptions to the general rule where strong compensating factors exist. These typically include the strength of the applicant's income or assets; the sponsor or investor's positive cash-flow on the unsold units; and the size of the building's reserve fund.

Two prominent private banking sources have no pre-sale requirements at all. These lenders rely entirely on the strength of the borrower. Unlike most savings or commercial banks, these two do not typically sell their loans in the secondary market. Thus with respect to the subject building their lending criteria do not reflect the more rigid limitations of FNMA or other secondary market players. Each imposes minimum loan requirements that will exceed the needs of many borrowers, but exceptions may be available on a case by case basis.

There are also private mortgage bankers who have no formal pre-sale limits. These are lenders licensed by the State of New York to make mortgage loans. Although not well known to the public, these lenders are familiar to the mortgage brokerage community. They offer borrowers competitive loan-to-value ratios and interest rates.

Many non-institutional lenders have no pre-sale requirements, and liberal credit and income qualifications. Colloquially known as street lenders, they typically lend up to 50 percent of the appraised value of a coop unit. These lenders rarely impose any limits on either minimum or maximum dollar amounts, but they do require recognition agreements to protect their interests. Many co-op boards refuse to recognize such non-institutional lenders.

The absence of financing opportunities cripples the value of residential apartments in a building. Consequently, everyone with a common interest must work together to overcome this burden. Co-op boards, sponsors, managing agents and attorneys can take affirmative steps to facilitate financing in specific buildings. Review all recognition agreements on file for the co-op. Contact those lenders who have made loans in your building. Invite a loan officer or a mortgage broker to attend a board meeting where you can showcase your building and explain it's compensating strengths.

Publicize the name of a willing mortgage broker or lender to all of your shareholders and encourage the managing agent to advise prospective purchasers of those resources. Keep in touch with these sources, because lending guidelines change, and new lenders may become available to your building.

Individual borrowers can also employ credit enhancements to convince a skeptical lender to make a difficult loan, or to increase the loan amount. Offer the lender additional collateral to secure the loan. Collateral reduces a lender's risks, and induces a willingness to lend. Your collateral might consist of cash, or other liquid assets such as stocks and bonds.

Considering all of the financing options available, the determined buyer or concerned professional will rarely allow a low pre-sale to derail a sale!