Commercial RE Equity

[Griffin Dalrymple]

Thx in advance for your thoughts / ideas. I have a SMLLC that owns 2 commercial office units. Both units have leverage from different banks.

The details - Unit A value of $1.65M / mtg of $400K @ 3.25% (balloon in 6 yrs). Unit B value of $550K / mtg of $400K @ 6.75% (balloon in 8 yrs).

The properties cashflow a good bit. However, it drives me crazy I can't deploy the $1M+ equity into a different deal. I haven't found a bank willing to sit in a 2nd position (even at a low LTV). To sit in the 1st position requires repapering the higher equity deal with the low IR.

Any thoughts on how I can access this equity without selling or refinancing the more valuable property?

[Nick Maugeri]

Quote from @Griffin Dalrymple:

Thx in advance for your thoughts / ideas. I have a SMLLC that owns 2 commercial office units. Both units have leverage from different banks.

The details - Unit A value of $1.65M / mtg of $400K @ 3.25% (balloon in 6 yrs). Unit B value of $550K / mtg of $400K @ 6.75% (balloon in 8 yrs).

The properties cashflow a good bit. However, it drives me crazy I can't deploy the $1M+ equity into a different deal. I haven't found a bank willing to sit in a 2nd position (even at a low LTV). To sit in the 1st position requires repapering the higher equity deal with the low IR.

Any thoughts on how I can access this equity without selling or refinancing the more valuable property?

LOC?

[Gino Barbaro]

@Griffin Dalrymple

If there's no other way, the options are to 1031 or sell a portion to a partner. When rates drop, the option is to refinance.

We're in the same position. 2 deals with ton of equity, yet have to wait until rates drop.

I guess it's a good problem to have but it can be frustrating

Gino

[Griffin Dalrymple]

@Nick Maugeri no bank will offer a LOC on the properties (even with very attractive LTV) bc they don't want 2nd position.

[Griffin Dalrymple]

Thx @Gino Barbaro. Yes, sitting on the CF isn’t a bad place to be but I like making deals. I guess I’ll sit and wait…. TY

[Nick Maugeri]

Quote from @Griffin Dalrymple:

@Nick Maugeri no bank will offer a LOC on the properties (even with very attractive LTV) bc they don't want 2nd position.

It seems like good options would be private lenders then, depending on what you can support for their return. Another consideration is to get a portfolio loan that will take on both properties at an average rate which will give you capital through a finance (refi similar). Even if you have to pay a bit more now and have CF decreased, you will get the funds to continue deals and can reposition later. 

[Henry Clark]

Understand your lender is part of your team.  Decide how you plan to scale.  Don't chase interest rates.  Ask them what their Federal Lending Limit is and see if that fits your scaling plans.

I would talk with the larger loan outfit.  Ask them how to refi the smaller second loan to them.  Tell them you would like to Cross Collateralize to buy a 3rd property.  Without refinancing the larger loan.