Commercial Mortgages
5 Steps To Get A Commercial Loan - How to Get a Commercial Loan
Step 1: Identify a Property and Put it Under ContractStep 2: Prepare your Financial PackageStep 3: Submit Financial Package for a QuoteStep 4: Choose a Loan ProductStep 5: Due Diligence & ClosingMany new commercial borrowers are familiar with the process for obtaining a home loan—you find a lender or loan officer, submit income and tax documentation, present property information, and after a bit of back and forth, hopefully obtain the loan approval. However, the commercial lending process is substantially different. If you require a commercial real estate loan it is important that you have an in-depth understanding of the process. In this guide, we will review ...
How to Start Investing in Commercial Real Estate
There are many people from all walks of life that are commercial real estate investors—small business owners, corporate executives, professional service providers, entrepreneurs, and professional investors. With the right preparation and understanding, commercial real estate (CRE) is the perfect asset for an investor to earn passive income while owning an appreciating asset. However, commercial real estate is not without its risks, so it’s important that any potential investor understands what they’re getting themselves into. Here are 5 steps to follow in order to jump into the commercial real estate investment game safely:It’s important to set an affordable budget for the property (...
What is a Treasury Swap Rate?
The US Treasury Swaps work just like any other interest rate swap, but are pegged to the US Treasuries rather than another index (i. e. LIBOR). The Treasury contract would be an agreement between two separate parties to exchange one stream of payments (i. e. treasury bill) for another over a set period of time. The parties to a typical swap contract are 1) a business, financial institution or investor on one side and 2) an investment or commercial bank on the other side. Interest rate swaps, including treasury swaps, can be used for many disparate purposes. Businesses can convert their debt on floating interest rates to fixed interest rates or investors may speculate on the long-term interes...
What is a Treasury Rate (Yield)?
The US Treasury Yield (also referred to as the Treasury Yield Curve Rates, Constant Maturity Treasury Rates, or CMTs) are calculated by the US Department of the Treasury from the daily yield curve. These rates are essentially the return an investor would receive from the purchase of a US government debt obligation (i. e. a bill, note or bond); it is the interest rate that the government pays to the investors in order to borrow money for different lengths of time (i. e. 30 days, 60 days, 90 days, 6 months for short terms and 1, 2, 3, 5, 7, 10, 20, and 30 years for longer terms). [Insert Current Treasury Rates Here]The treasury rate curve is plotted on an x and y axis and shows several y...
Interest Rate Swaps & How to Use Them
A bank may suggest that a borrower use an interest rate swap (IRS) in conjunction with an adjustable-rate mortgage (ARM) instead of a traditional ARM or fixed-rate commercial real estate loan product when interest rates are low but expected to rise in the future. This hedges future interest rate risk and can have certain advantages over typical fixed rate mortgage products. Typically borrowers will choose a swap rather than a typical ARM or fixed rate portfolio loan for the following reasons:To get a lower all-in interest rate and paymentsTo protect against future interest rate increasesTo lessen or eliminate potential prepayment penalties A swap is a type of interest rate derivative (IRD) t...
CMBS Commercial Loans
CMBS loans can be used for the purchase or refinance for Commercial Real Estate properties, including Hotels, Industrial, Office, Multi-family, Medical, Mixed-Use, Retail, and Self-StorageLike all the other loans we offer at CLD, this type of loan is secured by a first-position mortgage on a commercial real estate property and is particularly popular among commercial real estate investors seeking non-recourse loans. Although conduit lenders have reverted back more prudent credit decisions that mitigate risk of default, CMBS loans have more flexible underwriting guidelines than conventional or agency loans. This means that Commercial Real Estate Investors that cannot meet the more stringent c...
Conventional Commercial Loans
Commercial loans can take 2 different forms – owner-occupied mortgages and investment mortgages. When the collateral is owner-occupied, the property’s sponsor(s) use over 50% of the building’s useable square footage for their personal businesses. Any other use makes the collateral investment property. It is important to note that in order to securitize a commercial loan properly Commercial properties must be zoned appropriately. Conventional commercial loans are mortgages backed by commercial real estate that are provided by a lending institution such as banks, credit unions, savings and thrift institutions, life insurance companies, hedge funds, pension funds, private financial instit...
Bridge Loans
Bridge financing gives owners the flexibility they need to reposition and stabilize commercial real estate properties. It is important to note that Bridge loans usually call for a clear exit strategy upon the loan’s term completion. Property types that fall under the Bridge Loan Program are as follows: apartments, industrial, medical, mixed use, office, retail, as well as self-storage. Max LTV can go up to 90%. Term length ranges from 12-36 months. Amortization is interest only, self-amortizing or a combination of the two. Debt Service Coverage Ratio requirements vary widely depending on the program and can usually range from sub 1 to 1. 6 times. Bridge loans are can be recourse and non-re...
USDA Commercial Loans
USDA stands for United States Department of Agriculture. The USDA helps create jobs and stimulates rural economies by providing financial backing for rural businesses and properties. Its primary purpose is to create and maintain employment and improve the economic climate in rural communities. USDA Loan proceeds may be used for working capital, machinery, and equipment, real estate, and certain types of debt refinancing. This is achieved by expanding the lending capability of lenders in rural areas and helping them service quality loans that provide lasting community benefits. Properties that fall under USDA loans are as follows: apartments, hotels, industrial, medical, mixed use, office, re...
Construction Commercial Loans
Commercial Loan Direct offers conventional construction loans for commercial real estate properties, SBA-504 companion mortgages for transactions that are approved via the Small Business Administration, and FHA loans for apartment complexes construction. Property types eligible for construction financing are as follows: industrial, medical, mixed use, multifamily, office, retail, as well as self-storage. LTVs can go up to 75% through a conventional program but sometimes can go a little higher by obtaining an exception, 90% Loan to cost can be achieved through HUD’s FHA program for multifamily construction, and 90% with the SBA 504 program for owner occupied properties. Term lengths usually...
CMBS Loan Application Process
Getting an Application If you are in agreement regarding the rate that was quoted to you by the CMBS Lender, the next step is for them to issue you an application. Typically, in order to be issued an application, the following additional items are needed: 3 years historical operating statements on the property Annual budget for the current year Copy of the franchise agreement and any proposed PIP (if hospitality) Purchase price (if purchase) Cost basis (i. e. purchase price + capital improvements) and loan balance (if refinance) Requested loan amount, including schedule of sources and uses Keep in mind that some of these items may be reviewed during the underwriting period rather than ...
How Millennials Are Changing Commercial Real Estate: Office Vacancies (Pt. 2)
The millennial attitude toward work is very different than it was for Generation X or the Baby Boomers. While being extremely savvy with technology (we are the “Facebook” generation after all), millennials work to live, not live to work. Slaving away to prove our worth and escalate up the corporate ladder at a Fortune 500 company for 40-50 years until we finally retire is not the goal of our generation (no offense, parents and grandparents! ). Instead we are a generation of efficiency, technology, creativity, and experiences. While we understand the necessity of working to make money and provide a sense of accomplishment, we value our personal lives substantially more than the generati...
How Millennials Are Changing Commercial Real Estate: Crowdfunding (Pt. 1)
Many members of the so-called “millennial” generation (1982-2004) entered into the job market during one of the most difficult times in US history—the Great Recession. Loaded with student debt, no savings, big dreams, and the skills learned during internships, we had to come out of school and try to make a living when most companies were not only not hiring, but letting go some of their most seasoned employees. This difficult economic environment paired with the technological savviness of our generation has combined to make a meaningful and unique contribution to the growth of commercial real estate, which has been long overdue. One of the most interesting ways this creativity has expr...
5 Reasons Your Commercial Mortgage Rate Could Go Up Before Closing
For both new and experienced investors, the commercial loan diligence and closing process can be stressful, and the last thing any borrower wants to think about is their interest rate increasing between submitting their loan application and closing. However, there are several factors that can lead to an interest rate change before the loan closes, which can not only affect investor returns, but potentially down payments if the change is drastic enough. The 5 most common reasons an interest rate increase can happen are the following:One of the easiest ways to protect yourself from interest rate increases is to lock the interest rate before closing. Locks (if available) can freeze the rate for...
How to Prepare a Financial Package For a Commercial Loan
*Not all Lenders or loan programs are created equal and each program has it’s own specific guidelines. This is a general list of the items you should start to prepare although additional loan information may be requested, depending on the loan program that you select:3 years of federal business tax returns, including all statements (operating statements if the previous year is not yet filed or on extension)Year-to-date business operating statementsCurrent business balance sheet, including current debt schedule3 years of personal tax returns (W-2 if last year is on extension)Personal Financial StatementFor refinance – current loan payoff including any prepay penaltyFor purchase – execut...
Why Lenders Should Stop Re Trading Borrowers
After working in both commercial real estate lending and investing for the past ten years, I can say two things with absolute certainty concerning commercial real estate loans: 1) Lenders re-trade Borrowers far more often than they should on the loan terms they put out on their initial term sheet 2) there’s almost nothing that angers a Borrower more than being re-traded (or worse having their loan denied) because an underwriting item wasn’t taken into consideration on the front end. Any experienced commercial real estate investor has probably had this happen to them at least once, if not multiple times. It can end up costing the Borrower a lot of wasted time, money, and en...
What is a CMBS Loan?
A Commercial Mortgage-Backed Securities (CMBS or conduit) mortgage is a fixed-rate, non-recourse loan product that uses flexible underwriting standards and larger commercial real estate properties as collateral. Several of these mortgages are pooled together, securitized into bonds, and sold to investors. However, this doesn’t affect the borrower; the loan is serviced similarly to any other loan product. The financial institution that offers the loans to borrowers will initially fund the loans with its own money at closing, then pool the loans together and securitize them (i. e. turn them into bonds). The rating agencies (i. e. Moody’s, Fitch, Kroll, S&P, DBRS, and Morningstar) then ...
