Need help converting a HELOC to a commercial real estate loan

[Scott Johnson]

Hello BiggerPockets,

Last year my wife and I purchased a multiuse commercial building in Wisconsin with a HELOC loan. With this loan we purchased the property and rehabbed it. We now have two short term rentals on the second floor and a commercial space on the main floor. The HELOC interest rate keeps increasing so I am looking to do a cash out refinance into a traditional fixed commercial loan. This is my first commercial investment so I'm figuring this out as I go and don't have any resources in the commercial lending world. Can anyone help me find a loan officer who could help me out?

Thank you for any input or ideas!

Scott

[Albert Bui]

Quote from @Scott Johnson:

Hello BiggerPockets,

Last year my wife and I purchased a multiuse commercial building in Wisconsin with a HELOC loan. With this loan we purchased the property and rehabbed it. We now have two short term rentals on the second floor and a commercial space on the main floor. The HELOC interest rate keeps increasing so I am looking to do a cash out refinance into a traditional fixed commercial loan. This is my first commercial investment so I'm figuring this out as I go and don't have any resources in the commercial lending world. Can anyone help me find a loan officer who could help me out?

Thank you for any input or ideas!

Scott

Most commercial portfolio banks (local banks / Credit unions) wont want to be in 2nd position (what HELOC's are typically in is 2nd position or 3rd) so you'll have to refinance your entire capital stack (1st & 2nd mortgages) together possibly so the lender can be in "1st position," on title.

There second scenario is your first is with the local community/commercial bank then sure they'll do the 2nd but thats only because they know they have the first position secured as well. So there are no absolutes in life or lending really.

Id compared the pricing and rates between the commercial note versus what your current capital stack looks like (1st conventional loan I assume with HELOC 2nd (prime + margin interest only floating?)) and see which is better over all because on commercial fixed notes you do take on the terminal risk of the loan potentially ballooning in year 5-10 and its something you have to plan for.

Savvy investors always keep multiple take out (payoff lenders) options to ensure their debt is well positioned and if anything happens they'll just jump on to the next option.

Commercial notes also might have prepayment penalties too so just be careful with those depending on what your game plan is for a property. I've seen some borrowers chase a lower rate at a regional or community bank rate (.50-.75% less sometimes) than a credit union but they didnt realize that CU's generally have no PPP or pre-payment penalties so at the end of the day its almost apples to apples but if you were to increase your rate at the community bank to get no PPP then you would probably end up at the same rate as the CU or credit union anyway (anecdotal).

@Carlos Valencia@Matthew Kwan