Mortgage Financing For Office Buildings
“Mortgage Financing For Office Buildings Can Be A Challenging Form of Commercial Mortgage Financing To Secure”
Office building mortgage financing is strictly considered to be commercial financing.
There is no mortgage insurance available for this type of mortgage loan like that provided by the Canada Mortgage And Housing Corporation (CMHC) for residential properties.
As a commercial mortgage opportunity, the average debt to value leverage that borrowers can expect to secure is 65%.
In smaller centers where there is less of an active resale market, the loan to value amounts can drop to as low as 50% for interested lenders. And in more well established markets, the loan to value can go as high as 75%.
Outside of the market location, the other factors that contribute to the type of leverage and rates a prospective borrower can secure include the age and condition of the building, the quality of the leases, and the overall net cash flow generated.
Office buildings that have long term leases provided by triple A type tenants will attract better and more aggressive offers from commercial property lenders. Lenders will also look at the matching of lease terms with interest terms. When existing leases are for a shorter period of time than a requested lease term, the amount of leverage provided may be reduced as the lenders will typically look at this as a higher risk scenario.
Basically, the longer the lease terms in place for credit worthy tenants, the more and better commercial mortgage options a borrower will have.
Building age and condition will also be closely assessed by the lender. In certain cases, lenders may even require repair or improvement work to be preformed before a commercial mortgage can be granted.
And while the quality of the leases is very important, the net cash flow is what will determine if higher levels of leverage are attainable for properties that are strong in all other lender assessed areas.
While triple A tenants provide a strong sense of cash flow security to a commercial mortgage provider, they can also use their strong credit status to negotiate lower rates. In the end, the lease rates will dictate the level of net cash flow that can be obtained, so borrowers looking for the lowest rates and highest leverage need to make sure they are going to meet the debt servicing requirements of their target lenders before committing to any below market lease rate in order to attract certain high profile commercial tenants.
If you have an office building that needs to refinance its existing mortgage, I recommend that you give me a call so that I can quickly provide you with a free assessment of your commercial mortgage options.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel