Understanding commercial loan offers

[Charles H.]

Hello,

I am looking into commercial loans to get into multifamily buildings... I am sending out emails to local banks in areas I want to invest. These loans are a bit more tricky than conventional loans and one of the few emails I got made me jumped off my chair... So I'd like to have your opinion.

Type of Loan: Fully Amortizing Fifteen Year Commercial Real Estate Loan

Pricing: 3/3 ARM or 5/5 ARM priced at 350 basis points over the applicable U.S. Treasury Constant Maturity Index. Initial pricing today would be in the range of 5.5% for a 3/3 ARM and 5.75% for a 5/5 ARM.

350 basis point.... what does it mean? Also, do you all guys have to deal with an ARM commercial ? Not really a fan of ARM for conventional so for bigger deal like commercial, it makes me a bit stressed out.

Fee: 25 basis points of the loan amount

25 basis points, aka fee of 25% the full loan amount ?!?!? 

Loan to Value:Up to 75% of the lesser of the purchase price or appraised value of the property. Borrower to have 25% hard equity in the project.

Debt Service Coverage: 1.25x coverage of proposed debt.

Repayment: Principal and Interest payments in an amount to fully amortize the loan over 15 years.

Security:First mortgage and assignment of leases and rents on subject property

Guarantors:Unlimited personal guaranty of all having an ownership interest of 20% or more.

Does it mean I sign with my blood with such statement saying "unlimited personal guaranty" - therefore a really nasty recourse loan?

Maintenance Reserve:To be established for future upkeep of the property

Escrow Account:For property taxes and insurance


Again, these are typical underwriting standards and can be adjusted based on information reviewed during the underwriting process.

Also, no balloon payment? or is it the ARM 3/3 or 5/5 that says balloon in 3 or 5 ?

Any other thing you see in here that makes you wonder...let me know. As of now, I am just checking out banks in Indianapolis area.

Thanks BP community for the help and understanding of these loans.