Nashville, TN · Member since 2017 · 92 posts · 14 votes
Has anyone done a commercial real estate loan through an insurance company? I’m just learning of this form of lending and found a company in my town. On its face, it looks like the rates are great, non-recourse, and could potentially could get a 20yr note. The only downside is early payoff penalties.
Am I missing anything? This feels like a great opportunity and wondering why you don’t hear about it more often.
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
7y
They're a little tough to deal with, but mostly fine as long as you don't need to make any changes, like if they have the right to veto a tenant or changes to a lease, it can be tough to get responses. The biggest issue is prepayment, like you said, Usually you can't at all during the first number of years or even half the term or more, and the second phase the defeasance costs are huge. They also usually have very high fees up front and they usually will only lend relatively been numbers.
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
7y
They're a little tough to deal with, but mostly fine as long as you don't need to make any changes, like if they have the right to veto a tenant or changes to a lease, it can be tough to get responses. The biggest issue is prepayment, like you said, Usually you can't at all during the first number of years or even half the term or more, and the second phase the defeasance costs are huge. They also usually have very high fees up front and they usually will only lend relatively been numbers.
Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes
7y
@Adam Philpot There are lots of hoops you have to jump through to get these types of loans, but they can be great, depending on your situation. Make sure you have an attorney who's done a couple of these before, as they'll be able to help you get all the paperwork done.
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
7y
@Adam Philpot Loans with insurance companies often have attractive rates with long(er) terms and long(er) amortization periods but the prepay penalties take into account the cost of the loan for the remaining balance owed, which ultimately results in a much bigger penalty. If you plan to hold the asset for an extended period, IC loans can be really attractive but if you intend to have a shorter hold period or to resale within a short period, the costs to place this type of debt is less attractive.
Nashville, TN · Member since 2017 · 92 posts · 14 votes
7y
@Stanley Bronstein @Jessica Zolotorofe @David Miller
Thanks for all the feedback! I meeting with an insurance loan originator tomorrow. I don’t have a deal in hand but wanted to have a quick introduction. Below are so if the questions I want to ask him. Any other topics you guys think I should add??
What are the fees on your loans?
Are there terms around early payoff? At 5yr,10yrs, 15yr etc...
Do you try to have any control in tenant veto or lease changes or do you leave me and my team to run the business?
What is all the information you like on the property and the team managing the property?