refinance options - what to choose.

[Sean Kollee]

The time has finally come to refinance my six suite rental building.  This is just the latest in an arduous process, to find the deal under market value on the land, rezone it to multifamily district (long and costly process), permit a six suite rental (difficult with many technical fire code and structural engineering challenges), build the units (using all my experience in home building and every possible favour and technique learned over the years to project manage), get financing to finish construction (from a private lender after the bank lenders totally dried up on this type of financing), and pre lease the units while under construction to quality tenants.  All of this took 2 years, and was extremely difficult.  At this point the units are all leased out, gross rents are 9k, value of building is about 1.875M based on reasonable comparables, current loan outstanding is 600k, building cost to complete about 1.45M.

I need to refinance, simple reason is I need to takeout equity from this property so I can build more homes elsewhere (have 8 homes planned to build in the next year). Unfortunately the bank loan market has become really tough, with the banks tightening restrictions, imposing difficult metrics to deal with and applying commercial rates and fees to my property.

I've been able to get a basic commercial loan offer, not what I wanted, but what I could get.  1m loan, 5% fixed rate, 5 year term, 1.25% fees and legal up front, and a lot of paperwork and hurdles to overcome yet to ensure I actually get the loan approved.  

Another option is to go interest only from a private source at 7%, same 1M loan on the asset, highly flexible and no additional fees as we have already got the construction loan in place on title.

Currently leaning toward the private option, it could,  based on flexibility, allow me to improve my balance sheet and down the road approaching other lenders to get more of a residential type product given the property has 3 titles, rather than pursuing a blanket type loan through the commercial office.

Downsides of the private loan include the interest only payments don't allow me to amortize the building, and the rate is higher.  I would like to own this building outright some day, but the immediate priority is I have multiple homes under construction and need the funds to pay for my share of the new builds (have investor/partner on these new builds).  

thoughts?