Category Archives for Commercial Mortgage
Strip Mall And Plaza Financing
“Strip Mall And Plaza Mortgage Loan Financing Solutions”
Strip Mall and Retail Plaza financing can come from a number of different lending sources, but regardless of the source, there are going to be some challenges that you’re going to need to address or overcome to get the financing you’re looking for.
While there can be a lot of unique commercial financing challenges to any one deal, here are the four most common challenges we come across with strip mall and plaza financing applications.
The four most common financing challenges relate to cash flow, tenant profiles and lease terms, vacancies, and building age, condition. and location.
Let’s start with cashflow.
Many times a strip mall location is going to be acquired because of the future profit potential from lowering vacancies, increasing rents, and so on.
But from the lender’s point of view, the cash flow from operations that will be considered for debt servicing is going to be historical in terms of what is reported in the last several years financial statements. So its going to be important to match up the available cash flow to the right financing scenario and lender to get financing in place to complete an application.
When cash flow improves in the future, then other lower cost, higher leverage financing options may be able to be considered, but at the time of purchase, you have to be best positioning the cash flow that is already in place with the most relevant commercial property lending sources.
Similar to cash flow, the existing tenant mix and leasing terms are going to be important to the application assessment of a commercial property financing source.
For instance, if you do not have any well established anchor tenants, or all existing leases or rental terms are all short term in nature, then it can be difficult to either get financing in place from a preferred lender, or get an interest term longer than a couple of years as most lenders want the lease terms to be at least as long as the interest term extended.
In terms of vacancies, you will likely be projecting a certain amount of cash flow from vacant units in the coming year for debt servicing, but business real estate lenders, who will always take conservative approaches, may discount future rents from the vacancies to zero, taking a worst case scenario into account. This again will impact your ability to meet the debt servicing requirements of certain lending groups and institutions.
The final of what I am calling the largest financing challenges is the age of the building, its location, and condition.
Commercial lenders will look at the building both from a security and unit marketability perspective.
From a security point of view, is there an active market for this type of property in the location in which it resides? How long on average does it take for one of these properties to be listed and sold on the market.
With respect to unit marketability, lenders are going to take note of the age of the building relative to other similar properties in the area. Newer developments are likely going to be able to command higher market rents and will have a greater advantage in attracting tenants due to newness/modernization factors. So market area capacity, vacancy, and rents can play a large role in determining who the most suitable lender will be and what they may be prepared to offer to you.
The best way to proactively address these challenges and/or overcome them is to work with an experienced mortgage broker who can quickly assess your situation and requirements and get you working with the most relevant lending sources for your deal as soon as possible.
Multi Unit Residential Property Financing
“Multi Unit Residential Property Mortgage Loan Financing Considerations”
Multi unit residential property mortgages are available through a number of our commercial property lending sources.
The key to getting a multi unit property financed is to clearly understand and then proactively addressing what are typically the major concerns with this type of commercial mortgage financing request.
More specifically, the main financing challenges related to multi unit commercial mortgages are cash flow, down payment or equity in the building, and the condition of the building.
So lets start first with cash flow.
When a commercial lender looks at a multi unit residential application, one of the first things they will focus on is the net cash flow available for debt servicing.
This is going to vary among lenders in terms of how much net cash flow is enough, and each lender will have their own additions and subtractions to the operating cash flow statement you provide, but in the end “A” lenders will require a higher net cash flow than “B” or “C” lenders so its going to be important to understand where the available cash flow that you have to work with will fit among lenders that do this type of financing.
And because the lender will typically only rely on historical cash flow, the fact that you may increase rents or reduce vacancy rates in the future will not likely be factored in so you have to work with the existing cash flow when trying to qualify for a commercial mortgage.
The second major financing challenge is the equity in the building for a building you already own, or the down payment you are prepared to make to acquire a multi unit residential property.
The minimum equity requirement for a commercial mortgage on a multi rez is going to be 15% of the value of the property, and at a 15% equity level the building will need to be insured.
In situations where insurance is required, it can be challenging to get the insurer, such as CMHC to insure based on your assessment of fair market value or even the actual purchase price. It’s not uncommon that they make adjustments to the gross value of the property which can reduce the amount of the mortgage that they are prepared to insure, requiring you to need to come up with more cash to put into the property as equity.
The third major challenge when trying to arrange financing for a multi unit residential property is the condition and age of the building.
Older buildings, or ones that require a certain amount of repair, can be closely scrutinized by the lender and/or the insurer which can result in a deficiency list that you will have to rectify before they will advance all the funds approved for financing.
Once again, this tends to be more of a challenge in situations where a high loan to value financing facility is going to be required due to the fact that the lender and/or the insurer want to make sure that the equity they are relying on for security will be maintained during the term of the loan.
If you are looking for multi unit residential property financing for a purchase or refinancing scenario, it can make a great deal of sense to work with an experienced mortgage broker who can help proactively help you overcome the three challenges mentioned above and get financing in place in the time you have to work with.
Restaurant Property Loan
“Restaurant Property Loan Or Mortgage Financing Solutions”
When we’re talking about a restaurant property loan, we are referring to a commercial building that is being used as a restaurant by the owner or the building has a tenant that is utilizing it to house a restaurant operation.
In either case, the main lending criteria are going to focus on the brand of the restaurant and the location. Most “A” and “B” lenders will only finance commercial restaurant properties that are branded under a national franchise or a well known restaurant chain.
This is not to say that standalone restaurant operations cannot secure commercial mortgage financing for their operations, but a commercial mortgage is likely going to be harder to come by unless a lender believes there are strong alternative uses for the building in the location where it is situated.
For business owners and property owners looking to secure a restaurant property loan or mortgage, we work with a cross section of commercial lenders that can collectively fund a variety of different restaurant mortgage applications.
All the lenders we deal with can be placed into one of the three following categories.
The first and lowest cost category would include banks and other institutional lenders such as trust companies and credit unions. Lower cost from this group also means lower risk, so the lending and funding requirements will also be the tightest.
The second group or category of business lenders for restaurant real estate properties would include investment funds, hedge funds, and other quasi institutional lenders whose focus is on deals that do not quite qualify with group #1 above. These “B” lenders will still be focused the restaurant brand and cash flow, but will also provide greater consideration for the equity in the property and other risk mitigation factors to get the deal done. Their rates will also be higher, but that will be offset by providing terms and conditions that are more flexible than what you would be able to secure from an “A” type commercial mortgage lender.
The last group is private mortgage lenders which can be an excellent source of short term financing. Once again, the rates are going to be higher, but the application and funding process tends to be shorter in comparison to the other two groups, which can make a private commercial mortgage a preferred option in situations where you have a very tight timeline to work with to close a deal, generate incremental capital, or refinance an existing mortgage.
Application Process For A Restaurant Building Mortgage
To apply for a restaurant property loan, you’re going to need to complete a commercial mortgage application form detailing out the property and potential borrowers for the mortgage.
At least three years of accountant prepared financial statements are also going to be required with more value attached to review engagement or audited statements.
All commercial mortgage lenders will require an AACI property appraisal as well as an environmental audit as well.
Resumes and backgrounds of the owners and operators of the restaurant will also be reviewed by prospective lenders as well as any other information pertinent to a particular application, restaurant brand, and location.
If you are in need of a restaurant property loan or mortgage financing facility, I suggest that you give me a call so we can go over your requirements together and discuss different options that may be available to you in the market place.
Student Residence Financing
“Long Term Mortgage Financing For
Student Residence”
If you require a mortgage for an existing student residence, or one that is in the process of being built or renovated, we welcome the opportunity to discuss your mortgage financing needs directly with you.
One of the key lending criteria for financing a student residence will be location. Lenders will want to know the distance from the residence to the school, historical vacancy rates, student housing capacity in the area, comparable student housing costs in the area and vacancy rates for similar facilities.
Basically, the local market supply and demand statistics are going to be important to any lender considering long term mortgage financing on a student housing facility.
Mortgage Application Process For a Student Residence
When applying for a commercial mortgage, lender’s will want to first have a full application completed that outlines the ownership structure for the property as well as all the related property information.
For instance, there will be a great interest in the rent roll for the residence as well as any other management information reports that are available to provide data on rents paid, vacancies, seasonality in the occupancy and so on.
From a debt servicing point of view, the application will need to provide accountant prepared financial statements for the last three years if possible as well as well supported set of projections that include a detailed listing of assumptions used to create the forecast and the source documents and logic that support the source documents utilized.
In terms of the physical property, an appraisal is going to be required along with an environmental audit from a lender approved environmental engineer.
Timelines To Completion For A Commercial Mortgage To Finance A Student Residence
From the time of application to funding, most applications for this type of financing can be completed in a 30 day to 60 day period of time.
That being said, the timelines can get extended if additional time is required to complete outside or third party work such as the completion of financial statements, property appraisals, environmental audits, market studies, and so on.
The goal is always to try and cover off all requirements as quickly as possible, regardless of the source for any one particular lender requirement.
The reality at times, however, is that the coordination necessary to meet all lender requirements to first get an approval and then get the deal funded can take longer than anticipated, due mostly to the number of people that can be involved in the application process.
So while 30 to 60 days is a good guide to work from, the sooner you can start the process the better to allow for potential timing issues down the road.
If you require student residence financing right now for a property you own or are trying to acquire, I suggest that you give me a call so we can go through your requirements together and discuss different commercial mortgage funding options that can meet your business needs.
Retail Property Financing
“Retail Property Financing Available From Our Commercial Mortgage Lenders”
Today we’re going to talk about retail property financing for structures such as strip malls, plazas, big box stores, and so on.
When institutional lenders are considering a retail building mortgage application they immediately are going to focus in on things such as the location, the strength of the retail rent and lease market in that area, the strength of your tenant rent roll if you are renting, or your business financials if you are self occupied.
Commercial mortgage lenders that will look at providing financing for a retail building will typically fall into one of three different categories.
The first category would banks and other institutional lenders. While the cost of financing is going to be the lowest from this group of commercial lenders, the lender requirements are also going to be the highest to assure that rate and risk are in proportion.
The second category of commercial mortgage lenders for retail building financing would be sub prime or quasi institutional lenders such as investment banks, hedge funds, and other forms of organized investor capital interested in commercial real estate financing. This form of financing is ideally suited for those applicants that are just below the requirements of bank financing, or for applicants that are not going to have sufficient time to complete or meet the lending and funding requirements of a bank or institutional lender in the time that the applicant has to work with.
The rates for a sub prime retail building mortgage are going to be slightly higher, but the requirements are also going to be less stringent as compared to an institutional lender.
The third category of lender for retail property loans is from private mortgage lenders, which are effectively short term bridge loans to deal with some combination of tight timelines and funding constraints that can’t be satisfied by the first two categories of lenders.
Application Process And Timelines
For Completion And Funding
The application process is going to include a general disclosure of business owner information, financial statements, appraisal reports, environmental reports, rent rolls, tenant profiles, and anything else that is relevant to a particular situation.
Even though an “A” lender may require more information, fundamentally all lenders will require the primary information listed above. Sub prime lenders and private lenders may be more flexible in working with the information provided which can result in funding approvals that may otherwise not be possible with a bank or institutional lender.
The timelines to completion from application to funding will typically fall in the 30 to 60 day range. This can also go beyond 60 days if additional time is required to get third party reports in from accountants, appraisers, consultants, etc., as each of these service providers will be working within their own work schedules which may not always correspond with your own planning timeline.
Keys To Retail Property Financing Success
The two main keys to retail building mortgage financing is to 1) make sure you have sufficient time to work through the process, and 2) work with an experienced commercial mortgage broker who can get you working with the most relevant lenders as quickly as possible so that you are able to meet your funding requirement in the time you have to work with.
If you require retail property financing, I suggest that you give me a call so we can go through your requirements together and discuss different commercial mortgage options that are available to you.
Click Here To Speak Directly To Commercial Mortgage Broker Joe Walsh
Office Building Financing
“Office Building And Professional Building Mortgage Financing”
Office Building mortgage financing or Professional Building Mortgage financing can be placed through a wide variety of lenders, depending on the specifics of any particular application.
Each lender is going to have their own lending criteria, but for the most part, all commercial mortgage lenders that fund office buildings are going to pay close attention to the age of the building, location of the building, and the rent roll or tenant lease contracts in place or expected to be in place in the near future.
For the lower interest rate business real estate loans, lenders are looking to see that the tenant lease terms match up to the interest term being sought. The quality of the tenant can also be very important in terms of their credit and financial stability that will increase the probability that they will be able to pay their rent on time through out the lease term.
Vacancy rate is also a key consideration as well as the marketing plan in place or to be put into place to reduce existing vacancy.
Lender’s will also look at the average market rent for similar buildings and prefer funding deals where the professional building in question is at or very near market rents as well. When landlords provide leases below market rent, there is a risk that if the tenant were to leave that it may be difficult to replace that tenant at market level or even at the discounted level the previous tenant was at, depending on the vacancy level in the building and the space availability in the area.
That all being said, different scenarios will qualify with different lenders and different lender categories.
There Are A Number Of Different Office Building Mortgage Financing Options Available
If a particular application package cannot qualify with a bank or institutional lender, then there are sub prime options that will be slightly more expensive for the most part, but also somewhat easier to qualify for.
And if short term financing is required to complete a purchase or meet a deadline that would not allow the financing process to be completed with an institutional lender even if the borrower would qualify, private mortgage financing can be a good option to get funds into place quickly, providing you with time to arrange your preferred longer term mortgage funding option.
The office mortgage loan financing options you consider will also be a function of the time you have to work with.
For instance any bank or institutional lending deal will require 30 to 60 days to close and its not unusual for the time period from application to funding to exceed 60 days. This is largely due to the amount of third party information the lender will require from the likes of accountants, commercial property appraisers, environmental consultants, and so on. Each of these third party providers will have their own work schedules to manage which can cause delays in getting your requests completed in the time you have to work with.
When the available time is 30 days or less, then private commercial mortgage financing is likely going to be the best option. This is short term financing which typically only covers a term of one year, but can be a key commercial mortgage financing component to acquiring a property, refinancing an existing mortgage, consolidating debt, or funding construction and/or renovation work.
The key to getting an office building mortgage or professional building mortgage in place is focusing in on the right commercial mortgage lenders with a solid information package.
Its easy to waste considerable amounts of valuable time focusing in on lending sources that have a low probability of being able to fund your deal.
In order to increase your probability of success with office building financing, you should consider utilizing the services of a commercial mortgage broker who can help guide you through the market in terms of who can fund your deal at the point of time you require financing as well as putting together an application package that will proactively answer the questions of interested lenders.
If you have an office building or professional building that requires financing either for purchase, refinance, or construction, I suggest that you give me a call so we can go through your situation together and discuss different commercial mortgage financing options potentially available to you.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Hotel Property Financing
“Hotel Property Financing Available From Different Categories Of
Commercial Mortgage Lender”
For hotel property financing from a commercial lender, the key criteria for lending is going to start with cash flow, followed closely by vacancy rates and the seasonal use patterns that impact the cash flow of the hotel operation.
Other key lender requirements can revolve around the type of hotel and category. For instance is the hotel property under the flag of a national or international hotel chain? Is the hotel classified as a three, four, or five star hotel? Is it linked into a national reservation system and so on.
Each type of lender will have their own lending/funding criteria related to hotel financing, making it critical to be applying to a funder that is interested in your particular hotel profile.
Lender Categories For Hotel Commercial Mortgage Financing
When it comes to hotel property financing, there are basically three lender categories that can be looked at.
The first category, or lowest rate category would be a bank, credit union, or other form of institutional lender which could include life insurance companies, trust companies, pension plans, and so on.
While category #1 will provide the best rates on the market, their financing requirements will also be stringent and difficult to qualify for at times.
The second lender category for hotel financing is would be more of a “B” lending category where the financing target of the lenders are hotels that cannot quite qualify with a bank or institutional lender.
This group would include quasi institutional lenders such as investment bankers, hedge funds, and other forms of investment funds.
The rates will be slightly higher, but lending requirements also not as rigid as you will find in the lower rate lender category.
The third category would primarily include private mortgage lenders which could range from an individual investor to a mortgage syndicate to a mortgage investment corporation.
Once again, the rate is going to be higher than what you would get from a bank or institutional lender, but the qualifying criteria will also be easier to achieve.
Private commercial mortgage financing can be an excellent source of short term funding for a hotel property.
Hotel Financing Application Process
The application process for securing a commercial mortgage on a hotel property is going to start with a completion of a standard application that clearly outlines the ownership of the hotel as well as the guarantors for the proposed mortgage.
Most commercial mortgage lenders are going to want to see at least three years of accountant prepared financial statements as well as three years of operational data to clearly understand the room and service pricing, vacancy rates, and so on. The property will require an AACI appraisal as well as an environmental audit. Financial projections will be required for the next three to five year period with all assumptions clearly outlined.
If the hotel has a marketing plan, this would also be useful for assessing the business viability of a funding application.
The resumes of the owners and managers will be required to better understand the experience that is available to the business.
There can be several other lender requirements in a hotel financing application, but the above items represent what would be required in any application.
Timelines For Completion Of A Hotel Property Financing Application
The average time of completion from the point of application to funding typically ranges in the 30 to 60 day range. The process timeline can extend even further depending on the amount of time it takes to receive all the third party requested documentation such as financial statements and appraisals.
Depending on the area and time of year, third party experts such as accountants, appraisers, and consultants may have a back log of work which can take them longer to complete your requirements.
This is another reason why the process for hotel financing should be started as soon as possible so there is plenty of time to fully explore all the relevant commercial mortgage financing options available to you.
Best Approach For Securing Hotel Property Financing
Compared to other forms of commercial property financing, a hotel finance solution is one of the more complete to arrange due to the fact that the lender or funder needs to assess both the hotel property and the business operating within it.
Commercial mortgages for tenanted properties can be much more straight forward to assess in terms of the cash flow and debt servicing requirements now and in the future.
From a lender point of view, it can also be hard at times to identify which lenders are funding hotel applications and what their lending/funding requirements are.
Commercial mortgage lenders typically are in and out of this market, depending on the strength of the economy and the strength or weighting of their portfolio.
As a result, its easy to waste valuable time working through an application with a lender that has a very low probability of actually funding your deal at the point in time you require funding.
So from both a application complexity and positioning point of view, and lender market understanding, it can make a great deal of sense to work with a commercial mortgage broker who has a good understanding of the market place an is experienced in putting an effective application package together for any targeted commercial lenders.
If you have a hotel property financing requirement for acquisition, construction, or commercial mortgage refinancing, I suggest that you give me a call so we can go over your situation in detail and review commercial mortgage financing options that available to you.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Commercial Mortgage Appraisal
“Commercial Mortgage Appraisal Watch Outs And Considerations”
Commercial mortgage appraisals are a critical part of getting a commercial property in place.
And depending on the scope of a given commercial property appraisal and the activity or demand for commercial appraisals in a given area during a given time period, the completion of a commercial property appraisal can take several weeks or even months to complete and can add considerable time to the commercial mortgage application process.
A commercial real estate appraisal can also come with a significant cost to complete, so time and money are both going to potentially come into play.
As a result, there are a number of watch outs and considerations for anyone applying for a commercial mortgage.
First of all, most mortgage lenders will have their own accepted or approved list of commercial property appraisers. Any appraisal presented to them that was completed by an accredited or non accredited appraiser from outside their list will not be considered.
This creates a bit of dilemma in that some property owners, knowing the amount of time that it can take to get a commercial appraisal completed, will want to get an appraiser working on their property prior to even applying for financing.
This is truly a risk in that if the appraiser selected is not on the approved list of the lender you’re trying to work with, the appraisal may have to be redone which is going to take time and money. That being said, if you have a good idea of the lender or lenders that you are likely going to be working with or applying with, you can do some checking and find the appraisers that are approved on all or most of the targeted lenders’ lists.
A second challenge with commercial mortgage appraisals is that they are going to have to be made out directly to your targeted lender, even though you are paying for them. As a result, the commercial lender will get a copy of the appraisal, but you may not. This is something you will want to discuss in advance with any lender you want to apply with if you will want a copy of the appraisal for your own use and potentially have one or more copies of the appraisal sent on to other lenders if your financing request is not approved.
The lender may also have an agreement with their approved appraisers that any appraiser they receive from a given appraiser cannot be re issued for a period of time, say 60 days. This restricts the amount of shopping you can do with a completed commercial appraisal.
Third, it can be a good idea to find out how busy the appraisers in your area are at a given time. There can be periods of time when commercial activity is high that it may take a month or more before an appraiser can even start working on your file. Because there are significantly fewer certified commercial appraisers than residential, the demand for appraisal services can outstrip the available supply, and when you further limit your choices to lender approved appraisers, there can be a considerable back log in getting the work completed.
Of all the aspects that can go into a commercial mortgage, the commercial real estate appraisal can be the most difficult to accomplish and can add the most time to the overall process, which speaks to the need to closely manage this requirement, even before you formally apply for commercial property financing.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Retirement Home Loan Financing
“Retirement Home Loan And Mortgage Financing For Purchase, Renovation, Construction, And Refinance”
Retirement home loan financing in the form of a mortgage registered on real estate is available from a number of our lending sources.
One of the things that bodes well for these types of commercial propertyfinancing applications is that retirement homes, facilities, and communities are a growth industry with supply not always keeping up with demand in all geographies.
This is a good thing from a borrower point of view as there is considerable interest among lenders to provide retirement home mortgages and loans.
That being said, each situation will have its own unique aspects, which will ultimately determine the specific lenders that will be interested in financing the deal.
Like any type of commercial property financing application, retirement home financing is going to take some time and effort to arrange in order to meet all the requirements of an interested lender.
This is also why its going to be important to be contacting and working with lenders that are the most relevant for a given retirement home loan request, otherwise a considerable amount of valuable time can be lost going through the application process for a lender that may only be marginally interested, or has lending/funding criteria that inevitably will be too difficult for the borrower to meet.
Retirement home lenders will also have different focuses when it comes to the different types of potential financing requirements.
For instance, a lender that will provide construction financing and short term bridge loans to a retirement home project may not have any interest in providing long term financing for a purchase or mortgage refinancing. And if you are looking at financing multiple steps such as purchase, renovation, and then long term mortgage refinancing, this may require coordination with more than one lender as each stage may require a different financing facility.
Lining up multiple lenders is of course doable, but more challenging, especially when it comes to hitting all the milestones in a project timeline.
This is why it makes a great deal of sense to work with a commercial mortgage broker who can first accurately assess the requirements of the project and then get you working directly with the most relevant retirement home financing sources as quickly as possible.
If you have a retirement home loan financing requirement right now, or will have in the near future, I suggest that you give me a call so we can go through your requirements together and discuss different financing strategies available to you.
Nursing Home Financing
“Nursing Home Financing For Purchase, Expansion, Construction, and Refinancing”
Nursing home financing can be required for a number of different applications including financing a purchase, a facility expansion, new construction, or refinancing and existing nursing home mortgage that may or may not require incremental capital for debt consolidation.
For each type of nursing home financing application and geography, there are going to be different lender solutions potentially available in the market place.
As an example, a well established nursing home with solid cash flows can acquire mortgage financing directly from “A” lenders provided that the loan to value fits within their criteria.
Some “A” lenders will require the nursing home owners to acquire mortgage insurance to help cover off the risk of loss for deals up to 85 loan to value.
When nursing home properties cannot quite cover off the debt servicing requirements of “A” lenders, there is also a secondary market that can be available to the borrower to secure financing at slightly higher rates.
In cases where there may be slightly lower cash flow, the lending risk can be offset by larger equity in the property, further protecting the lender from any potential future loss.
With respect to construction, depending on the specific requirements for the project and funds available to invest, nursing home construction financing solutions can come from bank or institutional lenders, sub prime lenders, and private mortgage lenders.
The key in all cases is to clearly understand the requirements of the borrower and the project and then match them up with the most relevant nursing home financing options available on the market.
The best way to do this in most cases is to work through a commercial broker who has access to variety of different lenders that would potentially be interested in debt financing for a nursing home property.
If you’re starting the process to look for nursing home financing, or are in the middle of a project and have an immediate need, I suggest that you give me a call so we can go through your requirements together and discuss potential nursing home mortgage loan financing options available to you for your consideration and review.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh For A Free Assessment Of Your Options
Commercial Mortgage Amortization
“Commercial Mortgage Amortization Can Have A Significant Impact On Cash Flow”
Commercial mortgage amortization can in many cases make or break your cash flow.
Which is why in many situations amortization can even be more important that the interest rate being charged, at least in the short term.
For instance, if you can get a great rate from a commercial mortgage lender but only receive a fifteen year amortization, which is not all the uncommon with commercial property financing, the drain on your cash flow can be considerable.
With commercial mortgage financing in general, there are longer amortization terms available, but this is going to depend on the mortgage lender and the property type.
And sometimes the best commercial mortgage rates are tied to shorter amortization periods due to the fact that the lender is wanting to get capital back as quickly as possible to lower their risk and strengthen their security position.
Sometimes the challenge of a shorter amortization period is only going to be an issue for a few years. This can be a common occurrence with newer companies that are trying to get into their first owned space or established companies that are in a growth mode, want to conserve capital, but also want to acquire commercial property for space and cash flow saving on rent or a host of other reasons.
In these types of situations where the borrower is confident that tight cash flow for debt servicing is only short term in nature, sometimes it actually can make good sense to get a private mortgage on the commercial property even if you qualify for a bank or institutional commercial property loan.
The reason for this strategy is that private lenders typically charge interest only for debt service which eliminates the principal repayment amount from the monthly mortgage payment.
Yes, by doing this you are not paying the mortgage down in the short term, but it is allowing you to acquire or refinance a commercial building and manage the debt servicing requirements with the present level of cash flow that exists.
And while most private mortgages are only for a period of one year, it is possible to get a two year term or perhaps an option to renew after one year. You may also be able to negotiate favorable prepayment privileges as well so when the time comes that you are in a position to refinance with a bank or institutional lender, you can pay out the mortgage without any added costs being incurred.
The other option of trying to get a longer amortization period with an acceptable rate is to start the process for locating and securing a commercial mortgage sooner. The time it can take to get a property financing commitment in your hand can be considerable so starting early will increase your chances of success.
Another thing to consider is working with a commercial mortgage broker who can help you zero in on commercial programs and options that you may not have been able to find on your own with the time you have to work with.
Strip Mall Financing
“Strip Mall Mortgage Loan Financing Is More Specialized Lending”
It’s not a given that every commercial lender is going to provide strip mall financing.
Even for commercial lenders that do fund strip mall mortgages, they are likely going to be ruled somewhat by the percentage of their portfolio that can be committed to this type of commercial mortgage.
What can then end up happening with these strip mall funding sources is that they are in and out of the market depending on their portfolio mix at any given point in time.
From a leverage point of view, strip malls are typically financed between 50% and 75% of the appraised value of the strip mall, which the lender may want to consider on both a market and income approach to value. The wide range for loan to value ratio is due to the large variability that exists among strip malls including age, condition, location, layout, and so on.
From a cash flow qualifying point of view, most banks and institutional lenders will be looking at a debt coverage ratio of 1.20 to 1.30 (debt servicing requirements divided by cash flow). Debt service will be greatly influenced by interest rate and amortization, both of which are going to vary by the lending funding group looking at the deal.
In the market, the lowest cost form of strip mall mortgage loan financing is going to come from banks and institutional lenders. The next best option from a rate perspective will come from private bankers, investment groups, and other quasi institutional lenders that occupy the sub prime lending space. While the interest rates may be slightly higher, these groups can be slightly easier to qualify with and tend to focus on the applicants that are either just out of the reach of bank financing, or don’t have the time to go through the typically long debt funding process that you will find with most bank and institutional lenders.
As a short term form of strip mall mortgage financing, private mortgage lenders can also be a good source of funds in terms of both speed in getting a strip mall mortgage in place and the flexibility to get out of the private mortgage when other funds are available or lower cost financing can be arranged.
Each strip mall and borrower profile is a unique situation that will have a specific fit in the market place.
To determine where to apply for strip mall financing at any given point in time, applicants should consider the services of a commercial mortgage broker that has access to all the different categories of strip mall lenders in the market place.
If you have a strip mall financing requirement, I suggest that you give me a call so we can go over your situation and discuss potential strip mall loan financing solutions that may be available to you.
Commercial Mortgage Rates
“Commercial Mortgage Rates Can Come In A Wide Range”
Commercial mortgage rates can be more than a bit difficult to understand at times.
If you qualify for the posted institutional “A” lending rates, you’ll find that even though commercial mortgage rates have gone up slightly in the last year, they are still set at record lows across rate terms.
For the businesses and individuals that qualify for the top end rates, the cost of capital is very good these days with terms of 5 years coming in under 4.5% from some lenders.
But once again, this is for those that qualify for cheaper money, which is far from an automatic occurrence.
Strong cash flow from strong real estate in strong markets equals lower cost of capital.
For anything outside of that description, the cost of capital is going to be higher.
While that’s hardly the end of the world, there can be a considerable range in interest rates for properties that do not automatically fall into the premium “A” credit range.
Obviously the more competition there is for any type of commercial mortgage application, the better the available rates will be in any market category.
And higher end competition will advertise their rates and work to gain the business.
Where commercial mortgage rates really start to vary across a range is when there is less competition for the business, where commercial mortgage lenders are interested in the opportunity, but are selective in terms of the amount of funding they place in any particular segment and at the rate they can place the funds.
Commercial mortgage financing can be very much a game of timing when you can’t fall into the deep pockets of the large banks or institutional lenders.
If you have good cash flow and a solid property, there is likely a decent commercial mortgage rate out there, but the challenge is finding and getting in place in the time you have to work with.
The commercial mortgage market, especially in larger centers where there are more commercial property assets, will have a constantly changing market dynamic where mortgage lenders will come in and out of the market, and where long time commercial mortgage lenders will pull in and out of certain markets according to the weighting of their portfolio.
Sources of money for commercial lenders can also dictate the costs of money for certain types of properties at different period of time along with money supply. In the end, lower rates don’t do you any good if the lender doesn’t have the funds available, or isn’t prepared to commit funds towards a commercial mortgage for your property or project.
Primarily because of time pressures, many business owners and property owners can end up securing a financing rate that is higher than what is available to them. When time is limited, its going to be important to understand where the market is at and which lenders are going to be the most interested and most aggressive towards any particular opportunity.
Focusing in on the wrong lender may get you funded, but perhaps at the higher end of the commercial mortgage rate range for your property.
The best way to increase your probability of getting a good commercial mortgage rate out of the market at any given point in time is to work with a commercial mortgage broker who can get you working with a commercial mortgage lender capable of meeting your requirements and providing a very competitive offer.
If you’re finding it difficult to qualify for the posted “A” commercial mortgage rates and want to better understand the next available options, I suggest that you give me a call so we can go over your situation together and review different commercial mortgage rate options available in the market.
The Commercial Mortgage Financing Story
“Every Commercial Mortgage Financing Application Has A Story The Needs To Be Told In Order To Get Approved For Funding”
Commercial mortgage financing is like any other type of business financing in that there needs to be a beginning, a middle, and an end that makes sense.
Sometimes the story is fairly easy to tell and sometimes it can take quite a bit of explaining and supporting documentation to get a lender comfortable with the situation.
Because basically all commercial mortgages are customized financing facilities to some degree due to the fact that every property and every supporting cash flow stream is different, its always going to be important for a lender to be able to wrap their head around why financing is required and why it would be in their interest to provide it.
Especially when you talking about a bank or institutionally provided commercial mortgage, the specifics of the story are going to be important and need to hold water during the entire loan application and review process.
Private lenders that provide commercial property financing are also interested in the basic story to make sure that they are not getting into situation that they may regret later.
Instead of just referring to the beginning, middle, and end of a story, lets get a bit more specific.
A commercial mortgage lender is going to want to know the current status of the property which is explained through appraisals, environmental reports, pictures, and so on. They are also going to want to know about the repayment source of the mortgage which is going to be supported by rental agreements, historical financial operating statements, contracts, etc. Lets call this the beginning.
Or another way of putting this is the current status of applicant and property.
The second phase, or middle of the story is a summary of the both the property’s and borrower’s backgrounds … how did you get to this point in time and how did the present commercial financing need come about.
The third phase, or end of the story is focused on how a mortgage will be repaid over time and the exit strategy for the lender. The end of the story, or where are we going from here phase will need to relate to how the property and mortgage fits into the bigger scheme of things.
For instance if a business is acquiring a commercial property for one or more of its operating entities, all these different divisions of a business can have dynamics that will impact a commercial mortgage either directly or indirectly.
Yes, there are commercial mortgage requests that are very straight forward…but most are not, and its the ability to tell a complete and comprehensive story that can make all the difference between getting financing and not getting financing.
There are business owners and managers that believe they don’t need to tell a comprehensive story and try to control the information that is disclosed to a lender. While this approach can work, it can also backfire as well as any confusion or uncertainty with the information provided will most likely lead to a decline of the application.
This is also where a good mortgage broker can be invaluable to you in putting an application for a commercial mortgage together where the story is told clearly and in an order or sequence that will be well received by a commercial mortgage lender.
If you have a commercial mortgage financing requirement, I suggest that you give me a call so we can over over the details of your capital needs together.
Commercial Mortgage Placement Costs
“The Time It Takes To Get A Commercial Mortgage In Place Is Largely Impacted By A Lender’s Third Party Verification Requirements”
Commercial mortgage placement costs are getting quite significant and if you want to not only increase the probability of getting the financing you want, in the time period you want it in, then you may need to consider spending even more money.
The standard underwriting requirements of all bank and institutional lenders now require commercial appraisals and environmental reports on just about any commercial mortgage financing they provide.
And if the loan is large enough, the cash flow verification requirements can demand review engagement or even audited financial statements no less than 6 months old.
While this is certainly not anything new to business owners that require financing on their commercial property, what many are still struggling with is getting in front of the right lender and getting financing in place in a reasonable amount of time.
The reason both of these are difficult is that most borrowers still want to apply for financing, projecting ahead what the appraisal and environmental report will say. They want to apply and get approved for financing, subject to the proper completion of all the third party verifications that the lender is going to be asking for.
There are a number of challenges with this approach.
The first is all about timing. In certain areas, at certain times of the year, it can be next to impossible to get a commercial property appraisal completed for several months due to the back log of the appraisers that work in the area.
This is not a big surprise in that all commercial property basically requires up to date or recent commercial appraisals, so at times its going to be hard to get one done quickly.
The second challenge is not knowing exactly what some of these third party experts are going to come up with in terms of valuation, potential liability assessments, business issues, and so on.
If there are any material surprises, its likely a lender will pass on the deal and your left to start over again with someone else.
To combat these issues, one can make the argument that it makes sense to get these third party reports completed on a regular basis or ahead of time on your own.
Yes, there is a risk that a funding source may require you to redo something using one of their approved service providers, but at least you can accurately present the information to make the case for financing in the first place without too much risk of being surprised further down the process from a third party report.
And, in many cases, assuming you are getting appraisals, environmental reports, and financial statements done by name brand providers with solid commercial reputations, there is always a good chance that their work will be accepted by a wide variety of lenders.
But even if you risk having to do things twice, you may still be much farther ahead than those that start out with nothing when they apply, or information reports that are badly dated and perhaps no longer closely represent the property in question to the lender.
Spending some money up front and being proactive assembling what a commercial property financing source is going to require any way can make all the difference in getting the deal you want done, and getting done in the time you have to work with.