Blanket Loan Appraisals in California: What Private Lenders Need When One Loan Covers Several Properties

Blanket loans and cross-collateralized loans are common in private lending. An investor wants to pull equity out of three buildings at once, refinance a small portfolio or buy several properties in one deal. PM Appraisal is on lender approved appraiser lists, including Val-Chris Investments, Inc., Stonecrest and East West Bank, and we have completed more than 2,500 appraisals for California Mortgage Association members. This guide covers what a lender should ask for when one loan covers several properties, and how to keep the appraisals from slowing the closing.

What is a blanket loan appraisal?

A blanket loan is a single loan secured by two or more properties, usually with one deed of trust covering all of them or a deed of trust on each. People also call it a cross-collateralized loan or a portfolio loan. The appraisal side is not one special kind of report. It is the set of appraisals the lender needs to understand each piece of collateral, and sometimes the collateral as a group.

For most private lenders, the core deliverable is the same as on any commercial collateral appraisal: a supported market value for each property, with the approaches that fit that property type, its own market analysis and its own reconciliation. What changes on a blanket loan is coordination. Several inspections, several sets of documents and several property types have to land before one closing date.

Why does each property need its own value?

Because each property is its own collateral. Lenders commonly use the individual values to:

• Size the loan. Total loan to total value is only as good as each value that goes into the total.
• Set release prices. Many blanket loans let the borrower sell or refinance one property and release it from the lien by paying down an agreed amount. Lenders often set that amount using each property’s share of the total value, sometimes with a premium. How release provisions are written is a question for the lender and its attorney, but they work best when each property has its own supported value to start from.
• Plan for problems. If the loan goes bad, the lender may have to sell properties one at a time. A value for each property, with its own exposure time, shows what each one could bring on its own.
• Answer investors and auditors. If the lender sells interests in the loan, a clear value for each property makes the file easier to defend.

Can the appraiser just add up the values to get a portfolio value?

Not if the question is what the whole group is worth. USPAP Standards Rule 1-4(e) says that when an appraiser analyzes an assemblage of the various estates or component parts of a property, the appraiser must analyze the effect on value, if any, of the assemblage, and “must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts.”

In practice, a group of properties sold together can be worth less than the sum of the separate values, because fewer buyers can take on the whole group and the seller may have to accept a discount for a bulk sale. Sometimes it can be worth more, for example when adjoining parcels are more useful together. The sum of the separate values is a number, but it is not automatically the market value of the portfolio.

Federal rules for banks make a similar point. For federally related transactions, the OCC’s appraisal rule at 12 CFR 34.44 requires appraisals to analyze and report appropriate deductions and discounts for, among other things, “tract developments with unsold units.” Private lenders are generally not bound by that bank rule, but the logic is the same: if several units or parcels would have to be sold over time, the value of the group reflects that.

So decide up front which values your file needs:

1. Individual market values only. The most common request on a private blanket loan.
2. Individual values plus a value of the portfolio as a whole. Useful when the realistic exit is selling the group together. It needs its own analysis, so it belongs in the scope from the start.
3. Prospective values on some properties. If the loan funds work on one building, that property may also need an as-complete or as-stabilized value. See our guides to bridge loan appraisals and as-complete appraisals for construction loans.

Do you need one report or separate reports for each property?

Either can work. The right answer depends on how the loan will be managed after it closes.

• Separate reports for each property make it simple to release, sell or refinance one property later, or to hand one report to a title company or a co-lender without the rest of the file.
• One report covering all the properties, with a separate value for each, keeps everything in one place and can make the lender’s review easier when the properties are similar.

Tell your appraiser how the loan is structured, how releases will work and who will rely on the reports, and the scope of work can be set to match. Under USPAP the appraiser identifies the client and intended users at the start of the assignment, so settle who the client is before anyone orders.

What if the properties are different types or in different counties?

That is normal on a blanket loan, and it is where a statewide firm helps. A borrower might pledge a strip retail center in Riverside County, a small warehouse in the Bay Area and a few apartment buildings in San Diego. Each property gets the analysis that fits it:

• Income property such as apartments, retail, office and industrial: the rent roll tested against market rents, vacancy, expenses and a supported capitalization rate, alongside comparable sales.
• Owner-user buildings: comparable sales first, with an income check where the market supports one.
• Land and development sites: comparable land sales and highest and best use, and sometimes a subdivision analysis.
• Special-use property such as gas stations, hotels, care facilities or religious facilities: approaches suited to the use, often including the cost approach.

Local rules matter too. An apartment building under a city rent ordinance and one outside it can have very different income pictures, even in the same region. We appraise every commercial property type in every California county, so one appraisal firm, one phone number and one set of standards can cover the whole loan. See the full list of property types and our statewide coverage.

How do you keep several appraisals on one closing schedule?

Rush commercial appraisals take 5 to 7 business days. On a multi-property loan, the schedule also depends on how many properties there are, how spread out they are and how quickly access and documents arrive. Standard timing depends on the property and scope. Call (805) 990-9700 for a timeline on your assignment.

What helps most:

1. Send the full property list on the first call. Addresses, APNs, property types and which values you need for each.
2. Put the properties that drive the loan first. The largest values, or the ones that decide whether the loan works, go first in the inspection schedule.
3. Name one access contact for every property. Tenants, managers and lockboxes are the usual cause of delays.
4. Send each property’s documents as one package. A folder per property beats a stream of attachments.
5. Raise questions with the appraiser directly. At PM Appraisal you call or text the appraiser on your assignment, not a coordinator.

What should the borrower send for a blanket loan appraisal?

For each property:

• Address, APN and property type
• Current rent roll and copies of leases, for income property
• Trailing 12 months of operating statements and the current year budget
• Any renovation scope, budget and schedule, if a prospective value is needed
• Recent capital improvements and known deferred maintenance
• Any purchase contract, if the property is being acquired
• The on-site contact for the inspection

For the loan as a whole: the closing date, how the properties are grouped, how releases will work, and whether the lender needs a value of the group as a whole. Your appraiser will confirm the exact list on the first call.

Can a borrower reuse appraisals done for another lender?

Usually not as the new lender’s appraisal. USPAP guidance (Advisory Opinion 26) says that once a report has been prepared for a named client, the appraiser cannot “readdress” or transfer it to another party. A new lender typically engages a new assignment for its own loan. Some lenders read a prior report for background, which is a credit policy question, not an appraisal one.

What else do we appraise for lenders and their clients?

Blanket loans are one example of the work we do. PM Appraisal appraises every commercial property type, from office, retail, industrial and multifamily to gas stations, hotels, land, vineyards, medical, care facilities and special-use property, and every kind of commercial appraisal. For lenders that includes bridge loans, purchase and refinance loans, construction loans and fix-and-flip and after-repair value appraisals. For the attorneys, CPAs and trustees who work with the same investors, we handle estate and date-of-death, divorce, retroactive, partition and litigation appraisals, and portfolio appraisals for estates and families that own property across the state. We do plenty of half-million-dollar properties, and large ones too, such as the 113-unit Holiday Inn Express near the gate of Yosemite and the Procore campus in Carpinteria. Our opinions are independent. We never take an assignment that requires a predetermined value, and our fees are never tied to the result.

This article is general information, not legal advice. Talk to your attorney about how release provisions, lending laws and loan documents apply to your loans.

Keep reading

• Hard money and private lender appraisals
• Multi-property portfolio appraisals
• Commercial bridge loan appraisals in California
• As-complete appraisals for California construction loans (SB 978)
• Rush commercial appraisals in 5 to 7 business days
• Commercial appraisal in the Bay Area

This article is general information, not legal or tax advice. Talk to your attorney or CPA about your situation.