INSIDE THE DEAL: How a Loan is Done in the Nation’s Worst Economy

By Keat Foong, Executive EditorAnn Arbor, Mich.—Given its location in Michigan—the state with the troubled automobile industry and the highest unemployment rate in the country—how did a 44-unit property here obtain financing recently? The answer is that Ann Arbor is one of the “pockets of stability” in the state, according to Aaron Klein, president of the Ann Arbor-based Commercial Mortgage Capital Inc. (CMC).   “Getting deals done in Michigan is very, very difficult,” says Klein. “However, Ann Arbor remains one of the few markets perceived by institutional lenders as being viable.” The community is in fact a “very good property,” says Klein. It is located in the University of Michigan market and has a long history of full occupancy, of 95 percent-plus for many years. Enrollment is still continuing to increase at the University of Michigan, says Klein. “Because it is integrated with the University of Michigan, Ann Arbor has a diverse enough economic base and can still have a measure of immunity from the economy.” Working through one of CMC’s correspondent lenders, Klein arranged the 10-year loan at an interest rate of 6.32 percent. Underwriting approval for the non-recourse loan took relatively longer, and all lenders are applying more conservative underwriting assumptions on the deals. As a representative for the borrower, CMC had to be “persistent and stubborn,” Klein says, and “apply enormous intensity” to working on the loan.