All Forum Posts by: Tim Milazzo

Hi Arthur,

 Checking loan rates for residential mortgages won't help you size up your commercial loan. A few things to know:

1. Commercial loan rates are a bit higher.

2. Commercial loans more structure. You'll want to understand amortization, recourse, and prepayment penalties.

3. A good rule of thumb is to bring 30% equity to the table (70% loan). Sometimes you can get up to an 80% loan. Don't count on it or you can get burned.

Whether or not it's a good deal, I don't think anyone could tell you unless you shared some more info (after receiving it from the seller).

 - Tim

There's another department at PNC that focuses on commercial real estate, but I don't think they're the right lender for you here. You shouldn't worry about who you do your other banking with - be laser-focused on the right commercial loan terms if you're going to finance this to take cash out (vs. selling).

I won't be helpful on the selling front, but as per financing, yes, if you can get that early option exercise from the tenant, typically we can get lenders to more or less match the lease expiration with the loan maturity, because it eliminates that risk of an empty property leading to loan default. It would be even easier to get a five year fixed rate because it has some margin to the end of the lease - but just know, that means you'll be doing that same dance between lease extension and loan maturity again in five years (or you can choose to sell the property then).

Chris,

 With a single-tenant, double-net lease situation like this, the attributes of the tenant and the lease are some of the most important pieces of information that a lender will want to understand. Based on what you've shared so far, here's where we would key in:

1. Buy Option - Can it be waived? Would the tenant agree to give it up? If so, what would they want in return?

2. Lease Options - 2019 lease expiration is something that no bank or credit union (the best rates available for a property like this) would touch. A bank needs to see a long-term, locked-in tenant, and then will write the loan term to match. Can you get them to agree to an early option exercise?

If those two items aren't worked out, your only option for taking cash out right now would be a private bridge lender. In that case, the rate would be higher, but you can potentially get an Interest-Only loan, so it would keep your monthly cash flow up.

 Happy to take a look at the deal specifics if you'd like - feel free to PM!

 - Tim

Hi Kyle,

I'm impressed that you had your local bank on board for the terms you mentioned - limited recourse and 75% LTC. LTCs are trending much lower than 75% nationally with banks.

Are you open to exploring private construction loans (non-bank lenders)? Often what we see is the rate is more expensive, but they are more aggressive on LTC, and can get their head around a deal and close faster, with less red tape.

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Checklist: What you’ll need to get a commercial real estate loan offer

What is the right time to seek out financing for a commercial real estate project? Here we’ll cover the items you need to have ready in order to line up financing quotes from lenders.

Beginner’s Guide to HUD Multi-family loans

HUD loans provide extremely favorable terms. Refinancing a stabilized asset would fall under HUD's 223(f) program, which provides a 35-year term and amortization, non-recourse loan at up to 80% loan to value, at a fixed all-in rate as low as 3.75% (as of Q1 2017).

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GSE stands for “Government Sponsored Entity”, and in this beginner’s guide we’re going to cover the two most important players, who you’ve sure to have heard of: Fannie Mae, and Freddie Mac.

Got it. At that size, you're not going to get a small-balance commercial loan from Freddie Mac or Fannie Mae, so it's going to be about finding the right local bank or credit union that's comfortable with the scenario. Good luck - reach out if you need someone else running that process for you and advising along the way.

Tamas - what is the acquisition price of the property? How high are you looking to go on leverage?

The main elements you need to include in your loan package to be really successful:

1. Project Summary - what, where, highlights.

2. Financing Request - amount, LTV/LTC, Term, capital structure, requirements

3. Sponsor Profile - names, track record, assets under ownership, location, SREO

4. Asset info - address, asset type, sqft, units, year constructed, etc.

5. Financials - rent roll, cash flow, pro forma

The industry standard is to package it up as an attractive PDF, but we make it a step more interactive for the lender for quickest turnaround and max transparency. Here's an example: StackSource loan package example

Here's a simple break-down from my perspective:

1. Mortgage Broker (residential) - can provide conventional mortgage, or investor loans on 1-4 unit residential.

2. Commercial Mortgage Broker - arranges commercial loans based on their network of relationships on multifamily (5+ units), office, industrial, retail, hotel, and other revenue-generating assets, or owner-occupied commercial.

  NOTE: most of these guys that are more savvy don't brand themselves as a "broker". They could call themselves "real estate investment banking" (which could mean anything), or capital markets. We call ours "Capital Advisors" at StackSource, because we take a consultative approach to financing.

3. Commercial Mortgage Banker (independent of a bank) - Same as #2, except they often have a few exclusive lender relationships that they prefer, so more exclusive but maybe more narrow. Often will keep the servicing rights with their correspondent lender relationships.

I think the time might be better suited closing the deal with a reputable bridge lender on an Interest-Only loan, which itself will ease the DSCR and allow you to get higher leverage now, and then refinancing once you (presumably) get the income up. Even if you get a bank lender that commits to a bit higher leverage today than the 40% you're being quoted, it won't be 70%, and you might still be wasting your time. Leave unicorn hunting to venture capitalists.