116 Unit Apartment Complex Financing Question

[Jerry Kisasonak]

We are looking at a 116 unit apartment complex. The asking price is $4,950,000. The NOI is $484,000/yr. The seller will carry a 20% second. With 100% financing we should cashflow about $13,500 a month. That is calculated with a loan at 5% with 30 year amortization.

Here's my question: Are there commercial loans that have a 30 year amortization? We are currently doing single family loans with a portfolio lender and we were told that 20 year amortization was their maximum amortization length for commercial loans (they consider any investment property loan a commercial loan). What are the current standard lending guidelines in the multifamily arena? Thanks in advance!

[Bill Gulley]

Getting over $M in a portfolio loan is more about the collective financing aspects than falling into a loan program. Jon is right that, an individual investor, or small business owner won't come close to fixed rate loans with a 30 year amortization.

Principal reduction reduces lender's risks, there are also interest rate risk considerations, loan concentrations to one borrower and within a loan category pose risk concerns. The age and condition of the collateral can be an issue, the perception of management as well as the market.

Lender's must ensure that there is sufficient cash flow to an owner, if there isn't, the probability of a borrower bailing out goes up, OTH, the owner's cash flow beyond a level that keeps the borrower in the game isn't the goal of any lender. It's more like a partnership where principal reduction is required as if you were paying out profits, the lender will always want to limit involvement over a long term, there isn't any reason to prolong the aspects of higher front end risks for the rate charged, especially at current rates.

And, your lender will probably be local at that amount and I'd doubt one would vary much from another. Another thing at that amount, in the backroom of a bank, they may shift that loan to a participating lender, where another bank takes a chunk of that loan to reduce risks between the two lenders. Getting different terms becomes twice as difficult on the street. You'll have the "lead lender" who services the loan and appears to hold the whole loan, but half could be on a participation with another lender, this can also happen after the fact, never know. Loans need to be marketable in some respect as part might be shared later on as well, so getting a lender that varies from the norm really places constraints on future options in portfolio management. 

We have a similar loan at a 20 year am, adjustable rate on commercial in Texas, that's pretty standard in the game I'd say. :)