Dying on the Vine: Why Communication Matters After the Underwriting Begins

Every commercial real estate lender has experienced it. A transaction that appears to be moving steadily toward a closing simply dies on the vine.

Not every commercial real estate loan request results in a closing, and no experienced lender expects otherwise. Borrowers select competing proposals, investment strategies change, acquisitions fall through, and financing plans are postponed. Those outcomes are simply part of the lending business.

What is far less understandable is when a lender commits substantial time and resources to evaluating a transaction only to have communication abruptly cease. Whether the loan request ends after indicative terms are issued or after a Letter of Intent has been offered, the lender is left without knowing whether the borrower selected another lender, postponed the transaction, or simply decided not to proceed. More importantly, the silence leaves a lasting impression.

The first opportunity for a transaction to die on the vine often occurs early in the underwriting process. A broker submits a financing request, the lender opens a loan file, reviews hundreds of pages of documentation, requests supplemental information, builds a financial model, sizes the loan, and ultimately issues indicative terms. At that point, communication simply stops. The lender is left wondering whether the borrower selected another lender, abandoned the transaction, decided not to refinance, or simply lost interest.

A second, and perhaps more frustrating, situation occurs much later in the process. Underwriting is complete. Conference calls have been held with the borrower. Questions have been answered. Internal credit approvals have been obtained, and a Letter of Intent has been issued. Then the broker and the borrower simply disappear. In many cases, the lender is left to conclude that the Letter of Intent simply served as a basis for negotiating competing proposals rather than the beginning of a transaction.

There is nothing improper about a borrower choosing another lender. Competition benefits borrowers, and every lender understands that not every opportunity will result in a closed loan. The concern is not losing the transaction. The concern is investing significant underwriting resources, management time, and internal credit resources only to have the process end without explanation.

Many brokers assume lenders evaluate each transaction independently. In reality, lenders also evaluate the professionals with whom they do business. A broker who consistently communicates, even when the borrower ultimately selects another lender, develops a reputation for professionalism and credibility. Conversely, a pattern of allowing transactions to simply fade away without explanation may eventually influence how future opportunities are received. Human nature suggests that lenders are more inclined to devote their time and underwriting resources to brokers who have demonstrated respect for the process and for the professionals involved.

Commercial real estate lenders operate with finite underwriting resources. Every file that is opened requires analysts, underwriters, credit officers, legal review, management attention, and often significant interaction with the borrower. When those resources are committed to transactions that quietly disappear, they cannot be devoted to other borrowers who are prepared to move forward. Over time, lenders naturally become more selective about where they invest that time.

Fortunately, the solution requires very little effort. If the borrower has selected another lender, say so. If the transaction has been postponed, communicate that decision. If market conditions have changed or the financing is no longer needed, simply close the loop.

A thirty-second email saying, “The borrower selected another lender,” preserves a relationship. Weeks of silence can damage one.