Balloon payments in commercial lending (ticking time bomb?)

[James R. Copeland]

So I would LOVE to eventually get into Commercial Real Estate, especially apartments, but realize the commercial loan world is much different from SFR's. The part that keeps sticking out to me is the concept of a "balloon payment" after a few years. That just sounds crazy to me! Especially where commercial properties usually run in excess of 1 Mil, I can't imagine a bill coming due for ~70% of that all at once only a few years into owning the property, yet this seems to be the common practice!

Do most newcomers in commercial real estate end up refinancing every so often to avoid the balloons, or do they sell/1031, or do you recommend only getting into commercial when you know you'll be able to cover the balloon when it hits in full?

-Jim

[Alexander Felice]

It's not really a ballon as much a liability termination option for the lender.

in 5 years they can call the note due and you refi to another bank. Sometimes they will allow you to refi with them.

Plan to refi, don't plan to pay the debt off in 5 years.