Sponsored by JD Bank
For investors looking to finance income-producing property, the approval process can feel daunting. But there’s a reason lenders scrutinize real estate investments so thoroughly, says Mark Juneau, Vice President Commercial Banker with JD Bank.
“Banks don’t underwrite the upside of a deal,” he says. “We underwrite the downside survivability of a deal.”
That distinction shapes everything about how JD Bank evaluates investment real estate. When a deal lands on Juneau’s desk, he’s looking at four things:
- Demonstrated ability to repay
- Risk control
- Strength of the sponsor or guarantor
- Collateral position
- Of those, cash flow is foundational.
“People say cash is king. Cash flow is king in investment real estate,” Juneau says. “The deal must service the debt under conservative assumptions. Can this project stand by itself on its own merits? That’s what I’m looking for — predictable, durable cash flow.”
The project itself is only half the equation. Juneau is equally focused on who’s standing behind it.
“A mediocre deal with a great guarantor beats a great deal with a weak guarantor every day of the week,” he says. “The guarantor strength plays a pivotal role in getting a deal done.”
That calculus runs through what bankers call the five Cs of credit — character, capacity, capital, collateral, and conditions. When promising deals fall apart in underwriting, Juneau says it’s rarely about a single disqualifying factor. More often, it’s a clarity problem — or a credibility one.
“If I can’t clearly explain this deal to our credit department, to our board, or to an examiner, it’s not going to get done,” he says. “It has to make sense.”
Financial plans built on projected market conditions rather than actual property performance tend to raise flags. So do overly optimistic expectations of a return on investment, particularly in the current rate environment.
“Does it make sense to put $200,000 into a project and make a 3% return when you could make 15%?” Juneau asks. “That’s a story deal. They tell me a story about everything they want to do, but they have no idea how to get there.”
Juneau’s advice to borrowers is consistent: stay in your lane, and know your numbers before you walk in the door.
“Someone who is experienced in apartments or single-family rentals isn’t necessarily going to be successful investing in a hotel — two completely different animals,” he says. “Be a master of one trade. And have realistic underwriting goals. Are those market rents? Is that the true vacancy factor in this market?”
Above all, he emphasizes the relationship itself — not only with the institution, but with the individual banker as well. Louisiana-focused JD Bank counts that relationship among its most valuable assets
“Your banker is the one fighting for your growth,” Juneau says. “If your banker doesn’t believe in what you’re doing, he’s not going to be able to sell that to his credit committee, his board, his directors. Build that relationship before you need it.”
JD Bank is a community bank serving South Louisiana. To connect with a commercial banker, visit jdbank.com.
