When to walk

searcher profile

November 16, 2023

by a searcher from Columbia University in New York, NY, USA

Interested in reactions or guidance from the more experienced in this group.

I am working on closing my 3rd sponsor transaction. In this case, there's a difference between the terms i initially underwrote the LOI to, and what I'm actually getting with appraisals and data in hand. The resulting terms create post-acquisition cashflows that are tighter than I'd like. Plus a PG on the debt.

On what basis would members of this group walk from the deal, vs protect yourself structurally as best you can and just go to work to create upside?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Great question. From a lending perspective where I have seen many deals go the way people have wanted and some where it has not, I usually tell people to trust their gut. If you gut is telling you there is a problem, then there likely is one. Sometimes the best deal you do is the one you do not do. However, if the numbers are not working out rather than walk away you have other options. You can go try to renegotiate the deal, especially if data is coming back differently then what was originally represented. You may end up losing the deal trying to renegotiate but even if they will not renegotiate it does not mean you still cannot close based on the original terms if you really still want the deal. But without more specific financial information, it is hard to tell you more on your specific situation. Happy to take a look and provide some advice if interested. You can reach me here or directly at redacted Good luck with your decision.
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Reply by a searcher
from Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, VA, USA
If I’m not comfortable with the post-debt service cash flow, I will renegotiate or walk away. Typically a lender will help establish good guardrails. If you’re buying don’t even consider something with a DSCR < 1.5. I don’t care what your pro forma looks like.
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