small commercial loans?

Question

I used conventional financing for a few smaller properties but am now looking at some 8-plexes. Looking to borrow about $500-800k, depending. Commercial financing is new to me -- how do I navigate finding small loans? I'm looking to buy out of state (live in CA, buy in NC), which I suspect will add another layer of complexity in finding a local lender. Also, what kind of interest rates should I expect (I have a strong borrower profile)?

Brad Hayden · Answer

@Kelly A.  Have you considered working with a commercial mortgage broker? Financing for multiple family 5+ units is a completely different product from any residential loan and being able to quickly identify and engage the best option for a specific deal may be the difference between a successful closing and a lost opportunity. Especially if you're thinking of investing in several different markets. A mortgage broker will have an established network of lenders and will know what lenders work in what markets and which ones are best suited for the specifics of each deal. You won't have to spend your valuable time researching and screening lenders for each new market/deal.

I don't work in CA, but I do work in NC and many other markets.

I'd be happy to discuss further or answer any questions you might have. Send me a DM and we'll set some time to talk.

Hope this helps!

Dushyant Ravi · Answer

Despite me being a direct lender and a banker, I would recommend a broker at these loan amounts as options are typically local banks based in the area where the property is located or private lenders & debt funds that may have nationwide coverage. A broker can be handy here as some local banks might not lend to sponsors who are not local but a broker can source quotes for you from a bank that does not have that limitation. CMBS is ruled out as they start at typically only ~$2MM or close to it and then you have Freddie & Fannie that can also lend nationwide but Freddie's SBL program starts at ~$1MM and while Fannie's in theory starts at $750K, their bread and butter is really loans greater than $1MM.

Timothy Hero · Answer

It sounds like you have some 8-units picked out. Are they occupied and in turn key condition?

Kenneth Mendonca · Answer

@Kelly A.

As others have mentioned, things get a little more complicated with commercial loans. Fortunately, there's a ton of education out there on CRE debt especially when it comes to programs like Freddie SBL or Fannie Mae Small Loans. As a lender myself, I'm seeing rates in the mid 3's for under $7.5M. There are a ton of interest only options too that could be very attractive depending on your use case.

I'm also seeing a 30 year fixed FHA loan for under 3% still.

Are you leaning towards recourse or non-recourse financing?

Whichever route you choose, make sure to keep your lender honest! Get their underwriting ASAP, make sure their comps are fact-based (e.g. not dependent on the appraisers mood), ensure their expenses are within the reasonable variance of recent transactions, and most importantly keep their delivery timeframes short. They say 24-48 hours, but often it takes 1 week for some junior analyst to give you a quote.

More often than not, by the time you get the term sheet, the property is gone! If only there was a better way!

Nick Belsky · Answer

@Kelly A.

Commercial loans are a bit different than residential.  Even when doing DSCR loans for 5+, things get a little more complicated.  Lenders will most likely take more interest in you, your experience, and your plans for the property compared to Residential loans.  Find a mortgage broker who knows how to navigate.  The best MF5+ rates I am seeing as of this morning are 4.50% for a 30 year year fixed.  They go as high as the sky based on the property and borrower profile...

Cheers!

David M. · Answer

@Kelly A.

You might try local / regional banks or credit unions in the area.  They are more likely to originate non-conforming loans.  Also, it doesn't have to be a local lender.  Just like there are multi-state / national residential mortgage lenders, that are larger lenders that provide non-conforming loans that you need.

If you poke around BP, the big thing now are DSCR loan products.  Some recent posts say they are getting around 5%, but I'm not sure about the rest of the terms.

Just remember that non-residential/non-conforming loans I don't believe are regulated, nor necessarily consistent.  Its not like conforming residential loans.  So, be sure to check "everything" from each lender.  Good luck.