Portfolio loans after 10 conventional loan

[Ryan Keenan]

Hello BP, been researching on here pretty heavy about using portfolio loans. I'm still alittle confused. Say you have a 5/1 arm and the 5 years is up, I know it adjusts but what if there is a balloon? What are the best types of commercial loan terms to strive for?

B2r , visio , these aren't commercial lenders? Is it better to use them?

Thanks!

[Joel Owens]

Commercial loans are bigger so lenders do not like to hang out fixed interest rates for very long. Big multifamily has Fannie and Freddie money but commercial the lenders are different.

Most lenders for commercial will not go out past 10 years fixed on interest rate and still get good terms for amortization, rate, ltv, etc. I have seen a 12 to 15 year fixed for STNL with an A credit tenant before although interest rate is higher.

So my clients on commercial retail we try to do 10 year fixed interest rate with a 25 to 30 year amortization putting 30% or more down. I prefer 10 years as you can get some considerable paydown in that time and even though investors say they want to hold long term about 75% do not hold for more than 5 years. The 10 years is about the average time of a commercial cycle from low to high point so the investor owner then likely has to opportune time when they choose to sell or refi into new loan. If they had 5 year loan or 3 year when loan comes due might not be the right time to refi or sell putting the owner in a bad position with the asset. For the loan we want no prepayment penalty or at worst a 5,4,3,2,1 structure where penalty goes away completely in year 6. Even in 5,4,3,2,1 structure we negotiate to be allowed to paydown so much each year without invoking the penalty on the loan. We try to get non-recourse with limited carve outs. If recourse or partial we try to negotiate a burn off where guarantee goes away after year 6 for example or a certain LTV is reached. There are 7 year fixed loans as well. That is about as low as I want to go for stabilized assets where the gap widening of debt rate and cap rate is based on annual rental increases only.