All Forum Posts by: Dav Pohote

@Dav Pohote, what do you mean by "commercial real estate rates"? Multifamily "commercial" is going to be different than office, industrial, retail, hotel. Are you looking at recourse or non-recourse? Is this for a core property that was constructed in last couple years in a Class A market or a 60's construction in a small town, middle of nowhere.

Then it gets into borrower risk and relationships with lenders.

So I know this doesn't help, but there are many variables that affect commercial rates at any point in the market cycle: i.e. I am looking at loans on a 60 unit value add apartment complex within the last 3 days. And while these are not 15 yr quotes, they have ranged from low 6% fixed five year, full recourse to over 9% floating non-recourse, also 5 yr term.

After more time dealing with lenders, I see that. It's for a multifamily 8 unit that is down to the studs so value add is necessary. Ie, not currently habitable which is why I didn't find anything under 9%.

0 Votes

Quote from @Henry Clark:

Quote from @Dav Pohote:

Quote from @Steve Vaughan:

All my commercial loans were 5/5/20. 5yr fixed, 5yr callable, 20yr am. Getting a fixed rate loan for longer than 5 years was the exception.

Maybe this is in the Commercial forum but just being asked in general?

If that's so, I got 30s unless the 15 rate was at least .6% less than the 30. Sometimes, like in 2012, the 15 rate was 20% less than the 30.

At least check the rate of the 15. Yeah, you can always accelerate a resi 30, but sometimes the 15 rate is so much lower a 15 makes sense. Case by case.

I'm specifically looking at commercial loans atm - 15 yr in the 9.5% range.

I've previously done all less than 4 units where I got residential mortgages at much lower rates that cash flowed well on 15 year.

Not the case here. Cash flow super tight on 15 year vs respectable on 30 year. Also allows me to have a placement company to deal with tenant headaches.

So I'm looking into being open minded to a 30 year and appreciate the opinions shared here. Don't want to force things in a meh market.

I don't do MFH, but here are my financing considerations:

a. Above, tight at 15, better at 30. Also, you noted above your trying to cover operating costs and repairs. Problem with 30 years is somewhere in there you have to do a total rehab on the property. Roof, swimming pool, interior, exterior, driveways, landscaping, etc. Even if your property is brand new today, before 30 years you have to rehab or you lose value and tenants. Is that part of your 30 cash flow projection? Not just maintenance.

b. 30 is great from an inflation standpoint. You will be paying your debt off with cheaper dollars. Plus, your property value would have escalated if you maintained it, point "a" above.

c. Why is your interest rate at 9.5%? Why not 7%? What would be your terms on a 5/5/20-year amort period be?

d. What is the neighborhood like now? What will it look like in 20 or 30 years if you sell? What is the chance for devaluation? Or is it gentrifying and will escalate in value?

Appreciate the insight!

a. that's what I keep cash flow for on properties until they're paid off - repairs , expenses and improvements. This property is already gutted to the studs so everything will be newish, but 30 years is a long time.

c. This is the rate I got after looking around quite a bit. Anything over 5 units is classed as commercial and not privy to residential rates. It's also not occupied now (as it's down to studs), so I have to get a short term loan for the remodel (4-6 months) then refinance to conventional commercial. It'd be great if you linked to more info on a 5/5/20 because I didn't know about that.

d. it's gentrifying, pretty rapidly. newly built townhomes have sprung up around it. Brings in people who don't miss payments. new constructions all over the place. I guess you could say it was class c and is on it's way to class B.

1 Vote