Commercial Lending With Guest Speaker Seth Wage – Peoples State Bank

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Hey everyone, it’s Austin Solomon and welcome to The Real, Wausau Real Estate Show. Today we got our first guest on the show, Seth Wage!

Guest Speaker: Seth Wage, Commercial Banker
Peoples State Bank | 1905 Stewart Ave, Wausau, WI 54402
715.847.4146 (Office) | 715.370.8981 (Cell)

Seth: Hi Austin, thanks for having me, really appreciate it!

Austin: Right on! Right on! Thanks for tuning in here today, we got Seth Wage, Commercial Lender over at Peoples State Bank. Seth tell us a little bit about yourself.

Seth: I am originally from Wausau. I went to college at UW-Superior and then post-college I came back to People’s State Bank. I had interned there a little bit during college, really fell in love with the organization and knew it was going to be a good place I was going to want to stay, so I came back after school and worked my way up the teller line to a personal banker to an underwriter and now I’m finally a commercial banker.

Austin: Sweet.

Seth: It’s been a long process but it’s been a great ride and I’ve learned so much, so I’m pleased to be in the financing industry.

Austin: Sweet. So what was your degree that you had?

Seth: So, I have a degree in marketing and finance. I decided to take the finance route. I still do some marketing but not a lot.

Austin: Right, awesome! So kind of worked your way up from the teller, then underwriting the loans, making sure everything looks good and you’re doing like the “big big” commercial loans.

Seth: Talking to the customers. The underwriters still do a lot of the work but we get to talk to the customers.

Austin: Sweet! So, tell us a little bit about commercial lending because I myself have been in the industry for about 4 years and I don’t know that much about the commercial lending. So, tell us a little bit about who do you guys help. Let’s just start there. Who do you guys help with loans?

Seth: The majority of people we help are business owners, so I work with a lot of owners or CEOs of bigger companies or CFOs, people who are making the decisions as far as the financing goes for the companies. Also we work a lot with real estate investors, so similar to who you would work with. People who are looking to buy real estate to rent to other people, so that could be single family, duplexes, multi-family, you name it!

The size really doesn’t matter as long as it’s being used for business purposes is really where we come in. When it’s generally for personal purposes, that’s where you’re going to use a residential mortgage. So mainly business owners in short.

Austin: Sweet, sweet. So, I think you used to know I used to own a lawn care business, that’s where I got my feet wet in the business space. So if I was looking to purchase a new fleet of trucks and maybe get back into that space. And if I were looking for a bit of money, I could come to you and say, hey here’s my business plan, here’s what I need, $50,000 for xyz, can you help me finance this.

Seth: Yes. I would say that’s our bread and butter. It’s small businesses who may not have the capital up front but know if they get the capital they can succeed in the future because of the equipment they have and extra capital they have to do the things they need to make more money in the long run. So, absolutely, lawn care businesses and equipment financing, we do a lot of.

Austin: So, how do you decide… or you guys might have some requirements like you want to see a business plan to know where that money is going to be spent and what the projections are. Tell us a little about if someone was trying to obtain that loan, what type of things should they prepare? Or should they just reach out to you and say, hey this is what I’m thinking about, what do I need, or tell us a little bit about that.

Seth: Ultimately what you’re going to want to do when you get a loan for a business, like you said Austin, make sure you have projections ready and how you’re going to pay back that loan. We want a pretty concrete plan on how you’re going to be able to pay us back over the next 3-7 years if we’re talking equipment. A business plan is really important, but ultimately do the projections really make sense? And do you have experience in the space that you’re going to make money in?

If there is lack of experience and you’re a start-up business, it’s tougher for us to get those deals done because ultimately the risk is on the bank and not really on you because you don’t have as much experience in the space. So, those are the biggest things, but really having a concrete plan as to how it’s going to be repaid is really the biggest thing.

Austin: Awesome. Let’s transition how does the commercial space look right now in Wausau? I do a little bit of commercial work, I mainly do residential. How does that look right now? What’s trending? Are there a lot of buildings being sold? Is it a lot of investors that are looking to purchase and rent? What’s sliding across your desk a lot?

Seth: In the market right now, just in my opinion, highway visibility in commercial real estate is really important. So, when we see businesses or buildings go on the market in the commercial space, generally it gets snatched up right away and goes for a little bit of a premium. But there aren’t really that many buildings up for sale. Grand Ave you might see a couple, but for the most part, what we’re more often financing is owner-occupied real estate. You know the big strip mall real estate, that’s big, but that’s more non owner-occupied, that’s more investors that are purchasing those. So we look at those as well, pretty much anything in the commercial real estate space is what we’re going to look at. But to me, in the Wausau market, the highway visibility seems really important in our space here. I don’t know what you think Austin, when it comes to having a sign up along the highway for your business, that can go a long ways.

Austin: It seems like from what I have seen. And again, there’s limited knowledge in this space. But from what I have seen, the buildings and office spaces that are really outdated… if you have a really outdated office space and it needs quite a bit of updating and repairs, even though it’s commercial, it’s not fetching the values that people think it would. So, I think for the move-in ready spaces, and updated spaces, those are doing well. And there’s a lot of…

Seth: They need some TLC.

Austin: Yeah! And those don’t seem to be moving unless they’re priced accordingly.

Seth: Yeah, when a real estate investor is looking at a property that needs some TLC, what they are going to want to make sure is that it’s priced where they can continue to get a good return. So when they buy the property now, but need to stick more money into it in order to get it into a rental space for a tenant or business. So, that’s something to consider when real estate is on the market, is it priced well enough for them to make money after they put money in it additionally. So that’s a bit about the pricing when it comes to real estate and what brokers and Realtors face.

Austin: And with that, what I’ve seen is if an investor wants to put $100,000 into a property, they don’t want a dollar for dollar return. So if the building is $200,000 and they put in $100,000, and it’s worth $300,000. They are looking to buy it for $200,000, put $100,000 in and want it to be worth $400,000.

Seth: Yes, yes. They want that appreciation once improvements are made. They want to make money in this space, that’s why they’re in it.

Austin: One other thing I thought that could be valuable is, it seems like the multi-family space is really constricted right now. There’s not a lot of 4-plexes, 8-plexes, 16 units. Probably the reason is some of the rents here have been crazy the last few years. So, you’re probably seeing those have been really good on the numbers side of things.

Seth: Yes, yes. That’s the biggest thing. What we’re looking at more-so is vacancy. Are these units full or are they vacant? 100% occupied units pay back loans. So that’s a good fact when it comes to those things. But I think condos… there are not enough condos in this space. You go to bigger cities and condos are everywhere. And there are not a lot around here. I don’t know if you’ve sold any condos, I don’t know of many.

Austin: Yes, that’s a great question. I would say there is quite a demand for, if an investor was looking to purchase and develop a condo association, I think there would be a line of buyers that would be ready to jump.

Seth: But as far as the multi-family goes. We’re ultimately looking at when you buy it, is there any real maintenance we need to worry about because ultimately the bank is liable for the amount they’ve given to purchase the property, but the bank doesn’t want to be liable for the improvements that need to be made. Typically those are made out of the cash from the investor. So that is considered along with what we talked about with the vacancy. Do the rents support what they need to be in order to make the debt payments. So as an investor or someone who owns a multi-family, making sure the rent levels are where you can fill up your unit but where you can also pay off your debt as well. That’s really important and ultimately what we’re looking at.

Austin: One other thing too Seth. Have you ever… or at least it gets tossed around in my space, that because someone owns something commercial, it’s somehow worth like 5x the value. Has that ever come up with you?

Seth: Not really. Ultimately it’s based on cash flow and the value it’s worth. If it’s generating crazy cash flow, then it’s worth more. But if it’s generating minimal cash flow and it’s maybe just a break even property. It’s not going to be worth quite as much.

Austin: That’s a great point. If it doesn’t have the potential to produce a lot of cash flow in its current state then it’s not cash flowing. Then it’s going to negatively affect the value.

Seth: Yeah, so if you’re putting something on the market to sell, making sure the cash flow is as good as you can potentially have it, it’s going to increase the return when you sell it. That’s something to take note of.

Austin: Sweet. I guess last question for you Seth, if you were to help anyone that has a portfolio. If you were to help them get it ready for sale. What kind of things would be helpful as a seller or owner of a commercial property to prepare for, not only, the potential buyer, but for a lending institution.

Seth: I think laying out the income the property is producing and expenses in a neatly formatted excel spreadsheet because it’s easy to follow and easy to see what type of cash flow the property is generating. Also, something for a seller is to be clear with what maintenance needs to be done or if you’ve done any maintenance within the last 5 years. If you’ve stuck $50K in the property, tell the buyer that. But really between those two things. Those are really important when trying to sell a property.

Austin: Sweet, so documenting the numbers and finances, keeping track of the records, what have we done and what might need to be done in the future.

Seth: Exactly.

Austin: Sweet, any final thoughts Seth, or golden nuggets you just want to drop on the podcast, here’s your chance!

Seth: I don’t have anything too crazy. As Austin is always available text or email, I’m always available if you have questions or want more information in regards to anything. Even if it’s just seeking advice, we’re here to provide value to people who may not fully understand what it takes to get a business loan.

Austin: Awesome! Thanks for being on the show today Seth, we’ll include your contact information in the show notes and the transcription, so yeah. Thanks for being on the show!

Seth: Absolutely, thanks for having me. I had a lot of fun.

Austin: You bet!

Guest Speaker: Seth Wage, Commercial Banker
Peoples State Bank | 1905 Stewart Ave, Wausau, WI 54402
715.847.4146 (Office) | 715.370.8981 (Cell)

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Austin Solomon | The Solomon Group – Coldwell Banker Action – (715) 212-4693

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