Refinance with Life Insurance Companies - Negotiation & Terms

[Kim Hopkins]

Hello!

We are looking to refinance two of our industrial buildings and we are considering using a broker who works with life insurance companies. The terms are very good - 15 year fixed (almost unheard of for these types of buildings), 25 year am, low rates. 

We've always worked directly with the bank of choice. We've never used a broker. And we've never gone through insurance. I have some questions for those who have experience: 

1. The prepayment penalty is significant. I'm fine with this since we intend to keep both properties for the long term. Is there any major downside to being "locked in" for 15 years that I might not be seeing? 
2. The fees are slightly lower if we cross collateralize - i.e. use one loan for both properties. The two properties are in different states. But still, I don't really see a downside to this either. It would be harder to sell one of the properties, but it's already a big penalty regardless. 
3. Additionally, if we fund both properties with one loan, it's NON-RECOURSE, vs. if we use two separate loans it's 50% recourse. Non-recourse seems pretty great. But again, I'm not planning on going under water - so is it really that much of an advantage worth the messiness or combining both properties into one loan? 
4. Lastly and MOST IMPORTANT: what do people typically negotiate on these with regards to the fees and terms? The fees are SIGNIFICANT - 1% from the broker and .5% from the insurance co. Plus they are requiring Phase I, ALTA, Seismic, and Appraisal. What can be worked on here?
5. Any other "standard terms' you like to edit when you do a loan with an insurance co. and / or broker?

Thank you much in advance!
Kim

[Joseph Cacciapaglia]

1. If you want to cash out refi in the future, you'll have to pay the penalty to do that as well. If rates drop further, you won't be able to refi either. I don't see this as a big risk though.

2. If one property goes under, both are at risk. Also, will you be allowed to substitute collateral or get a release if you decide to sell one?

3. Non-recourse is a huge benefit. No one is "planning to go under water", but it happens.

4. The fee with the broker should have been negotiated prior to him providing you with a lender, so that may be moot. Depending on the loan size, 1% may be rich, but probably not. The 0.5% origination fee from the lender seems decent as well. You do want to be sure that you aren't paying a markup on the third party reports, but those seem standard, depending on the size of the property and location (seismic is often only done in certain areas).

5. There are a lot of terms that are negotiable with life company loans, so you want to get your mortgage broker and attorney to weigh in on this. Depending on which life company you're working with, terms can vary wildly. I spent a good portion of the last downturn servicing defaulted life company loans, and even with the same lender had very different results based on how well the loan docs were negotiated.