| Commercial Real Estate Loans |
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Commercial real estate loans are secured by commercial income properties of various types including commercial, industrial, office, retail and mixed use. They may also include special purpose properties that include self-storage facilities, medical buildings, restaurants, churches, hotels, or automotive related properties such as gas stations, auto repair facilities, etc.
Commercial loan amounts usually exceed $1 million. However, small balance commercial loans less than a million dollars are being offered by niche lenders who prefer smaller loan amounts between $250,000 and $1 million. Because of the smaller loan size, these loans are generally be priced a little higher than larger loans.
Borrowers may be individuals or may be organized as a limited liability company, partnership, corporation or trust.
Properties are usually leased to create an income stream but may be owner occupied.
Loans are available for single tenant and multi-tenant properties with good quality tenants. Tenants can be owner-users or arms length tenants or a combination of both. Single tenants that occupy "Big Box" retail property are preferably well established and nationally recognized. Conventional lenders expect multi-tenant properties to have standard lease agreements with escalation clauses and remaining terms and extensions that compliment the loan maturity term along with a high occupancy percentage.
The merits of each commercial loan are underwritten on a case-by case basis because each transaction is unique. However, there are some common assessment criteria that lenders apply. For conventional lenders, a key component will be the debt service coverage ratio (DSCR). The debt service is the monthly loan payment due on your loan. The DSCR is the debt service compared to the amount of the net monthly income generated by the property. The net monthly income is the gross income, less a vacancy factor, less expenses. Today, conventional lenders look for a DSCR of 1.25:1.0 to 1:50:1.0. This means the property should generate a net income of at least $1.25 to $1.50 for every $1.00 of debt service. Lenders may apply market rents if they are lower than what is being received from your tenants. DSCR can be higher or lower depending on the transaction and lender. Private money lenders may go to a break even DSCR. This means they will consider income of $1.00 of net operating income for every dollar of debt service and sometimes a less than break even DSCR if you can provide a verifiable repayment source, low loan to value and reasonable exit strategy. Of course, private money is more expensive, but is typically short term and may be affordable depending on the circumstances.
For owner/user properties, SBA loans are available from $150,000 to $5,000,000. Purchase money SBA loans are available to owner/users up to 90% LTV. Some exceptions apply.
Conventional purchase money loans on commercial property are generally available up to 60 - 75% LTV. Rate and Term refinances are generally up to 60 - 70% and Cash out refinances are generally restricted to 50 - 60% LTV. Private money lenders generally allow a maximum LTV of 50 - 60%. LTVs may be a little higher or lower depending on the lender.
Permanent loans terms are typically amortized over a 20 or 25 year term. Shorter and longer amortization terms are available on a case-by-case basis. In some instances, the lender may offer interest only payments which will cause there to be no amortization of the loan. The maturity term is usually 10 years at which time a balloon payment will become due.
Prepayment penalties will vary depending on the lender and the length of the fixed rate term.
Non-recourse and limited recourse loans are available on transactions with low loan to value ratios.
Programs are available that feature attractively priced fixed rates for the first one to seven years before any adjustments are scheduled to occur. Variable rate loans with no fixed rate term are also available. Most commercial loans will have a maximum term of 10 years with a balloon payment due at maturity.
Properties should be located in Southern California, be well maintained and be marketable both on a for sale and for lease basis. Some lenders will negotiate a pledged hold-back agreement to allow owners to make value added repairs.
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Construction financing is available on a case-by-case basis. Patti works with developers and investors to locate financing terms needed to succeed.
Generally speaking, construction loans terms vary by project but are typically interest only on funds as they are disbursed with a maximum term from 12 to 36 months. Depending on the lender, funds may be disbursed using either a voucher or draw system to insure a lien free completion of the project.
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Call for a complimentary loan analysis to determine if there are acceptable loan programs available to meet your requirements. Knowing that the loan programs are tailored with your best interests in mind will empower you to make decisions with confidence.
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