Commercial Funding Solutions
- Commercial Loan Brokering
- Residential Loan Brokering
- Broker Cash Flows
- Real Estate Investment
- And much more...
Commercial real estate
loans are different than the typical commercial loan made to a business.
As
the name implies, a commercial real estate loan is secured by a rental
property, such as an apartment building, office building, or shopping
center, or by some sort of business-related property, like a hotel, bowling
alley or self storage facility.
RilCorp. Brokerage is a commercial
mortgage Loan Broker where a user can apply to any one of 750 different commercial
mortgage lenders. If you are shopping
for a commercial real estate loan right now, please click
here.
Below are some interesting articles about commercial real estate loans,
and commercial real estate lending, that you may find helpful:
Suppose your client
is trying to buy a commercial property with a down payment of just 10%.
His plan is to have the seller carry back a second mortgage on the commercial
property equal to 15% of the purchase price.
He will then try to get
a loan from a commercial bank for 75% of the purchase price.
Unfortunately
the plan will not work. Most banks and all CMBS lenders forbid second
mortgages on the property at the time of the purchase. (Many CMBS lenders
WILL allow a mezzanine loan, however.)
So why are second mortgages
forbidden on the sale of commercial properties.
The reason is because
commercial lenders fear that the property owner, if cash gets tight,
will use the repair money to make the payments on the second mortgage
rather than to maintain the property.
A good solution is
to have the seller carry back the second mortgage on another property
owned by the buyer, say a rental duplex or a different office building.
When you apply for
a commercial mortgage loan using RilCorp., we have a special section called "Special
Issues" where you can describe the junior financing that you hope
the bank will alllow the seller to carry.
RilCorp. Brokerage is a great way to quickly
present your deal to 30 lenders to find the one lender aggressive enough
to help your client.
Commercial
Lenders Base Their Commercial Loan on Sales Price, Not the Appraisal
Almost
every day I see new commercial loan agents with commercial loan requests
where they want to get 90% or 100% LTV financing because the buyer
is buying the property for less than market.
They are dreaming! If
a seller can get $1,000,000 for his commercial property, he is NOT
going to sell it for $800,000.
As
far as 99.999% of all commercial lenders are concerned, the purchase
price is the best indication of the fair market value of the commercial
property.
Your commercial loan will be based on the lower of the two
- purchase price or appraisal.
Your
client buys a commercial property at a foreclosure sale and moves
his own company into the building.
The building is run down, so your
client fixes it up very nicely. Then he wants to pull out his cash
by refinancing the commercial building and obtaining a larger commercial
mortgage loan.
The
commercial bank to whom you have taken his commercial mortgage loan
request asks for a pro forma operating statement, but you have a problem.
Because your client has owned the property for just four months, you
have no operating expense history on the building. What do you do?
The
answer is to simply assume the commercial building is leased on a triple
net basis. Just assume the tenant pays all of the expenses, except
for reserves and management.
You
can simply pull a figure out of the air and declare it to be the fair
market triple net rent for the property. (The appraiser hired by the
bank will eventually determine if your guess was accurate.)
Take off
5% for Vacancy and Collection Loss to arrive at the Effective Gross
Income. Then deduct, say, 4% of the Effective Gross Income for management
and another 3% for Reserves for Replacements.
Voila!
You have just produced a Pro Forma Operating Statement on a commercial
property with no operating expense history. Sneaky and cool, huh?
Commercial Financing and How to Guestimate a Commercial Triple Net Lease Rate
What's
a Fair NNN Rent for a Commercial Property to Get Commercial Financing?
You
are a commercial mortgage broker or a commercial mortgage banker.
You are seeking a new commercial mortgage loan on an owner-used commercial
property.
The owner's tool company occupies the commercial property.
You need to prepare a pro forma operating statement in order to apply
for a commercial mortgage loan, but you don't know what lease rate
to use.
No
problem. Just work backwards from the commercial property's value.
If you know the commercial property is worth $600,000, just assume
a cap rate of 9%. Nine percent of $600,000 is $54,000 per year in
net income, after operating expenses.
If
we assume the property is leased on a triple net basis, then the
only operating expenses are replacement reserves (say, 3% of effective
gross income) and management (say, 4% of effective gross income).
We therefore multiply the $54,000 in net operating income by 107%
(3% plus 4%) to arrive at the effective gross income of $57,780.
The
effective gross income is just the gross rental income less 5% for
vacancy and collection losses. Finally, simply take $57,780 and divide
it by 95% to get the triple net annual gross rental income of the
commercial property!
You
can learn the entire practice of commercial mortgage finance,
for more information call
Jonathan Kain
Direct 323-481-6998.
Fannie
Mae and Freddie Mac will buy loans on homes, duplexes, triplexes,
and fourplexes. These loans are referred to as one-to-four family
dwellings.
Loans on one-to-four family dwellings are usually not
considered to be commercial loans.
However,
if an apartment building has five or more units, a loan on such a
property is usually considered to be a commercial loan.
The
terms "commercial loans" and "major loans" are
often used interchangeably by banks. The same loan officers who make
the commercial loans for the bank also make the major loans.
Major
loans includes not only commercial loans, but also land development
loans and residential subdivision construction loans.
You
can find hundreds of banks, hungry to make commercial loans, land
development loans, and residential subdivision construction loans.
If
You Try to Pay Off a Commercial Mortgage Loan Your Penalty Might
Be 20% of the Balance!
Most
commercial mortgage lenders making fixed rate commercial mortgage
loans charge a prepayment penalty.
The reason why is because the
investors who buy commercial mortgage backed securities (CMBS) want
a certain yield that is locked in.
Why? Imagine you are a pension
plan making actuarial projections to be sure you have enough money
to pay your retirees.
You need to know that you will earn a certain
amount of interest. This is why you buy commercial mortgage backed
securities.
The
most common form of prepayment penalty is a defeasance formula. The
legal definition of defeasance is, "A
provision in an instrument that nullifies it if certain acts are
performed."
When
a borrower wants to pay off a fixed rate commercial mortgage loan,
he must perform an act; i.e., he must give to the lender a bundle
of U.S. Treasuries that provides the lender with the same stream
of interest payments and the same balloon payment as the original
mortgage.
Buying
and assembling these U.S. Treasuries is immensely expensive, often
on the order of 15% to 20% - and sometimes 25% - of the principal
balance on the loan!
Watch out for loans with a defeasance prepayment
penalty.
You
can find hundreds of fixed rate commercial lenders, many of whom
have either small prepayment penalties or none at all.
I
just returned from the Mortgage Bankers Association's annual conference
on commercial mortgage finance.
This year's conference was held in
the fabulous Gaslamp District of San Diego. I came away stunned by
the amount of money chasing commercial mortgages.
And
the lenders were really rolling out the red carpet for commercial
borrowers.
One company was offering 25 year fully-amortized commercial
mortgages for no points, no appraisal fee, no toxic report fees,
and no closing costs.
You'll find this lender with RilCorp.
Another
lender was a huge residential mortgage banker that had just entered
commercial.
They were packaging commercial mortgages in the same
fully-documented style as home loans destined for sale to FNMA. The
impressive thing about this giant was that they already had an installed
base of 20,000 residential mortgage brokers.
One
lender was offering no income verification, no asset verification
commercial mortgages at rates only 75 basis points higher than normal
bank commercial mortgages.
Never
in the history of commercial mortgage finance has so much money been
chasing commercial mortgages.
I
was training one of my loan officers today and he asked, "When
do I use a loan-to-value ratio and when do I use a loan-to-cost ratio?"
The
answer is that it depends on whether this is a construction loan
or a loan on a standing property. A standing property is obviously
one that has already been built.
The
loan-to-cost ratio is only used for development projects. Perhaps
the borrower is a developer who wants to build an office building
or a residential subdivision (housing tract).
In this case the commercial
mortgage underwriter would want to look at the cost of the project
and make sure that the developer is contributing at least 20% of
the total cost of the project.
Put another way, the underwriter would
want to make sure that the loan-to-cost ratio does not exceed 80%.
In
contrast, if you are financing a standing property, then the only
applicable ratio is the loan-to-value ratio.
I
saw a commercial loan application link on RilCorp. Brokerage recently, for a $10 million
loan, where the commercial mortgage broker was trying to obtain a
blanket loan over 10 different commercial properties owned by the
same borrower but spread out all across town.
A
blanket loan is one where there is just one promissory note (I promise
to pay $10 million ...), but the note is secured by several different
mortgages on several different non-contiguous parcels.
If the parcels
were contiguous (touching), it is customary for the lender to use
just one mortgage and to include each of the contiguous parcels in
the legal description of the property.
Where the properties are clearly
different and separated from each other, it is customary to use a
separate mortgage for each separate property.
So
why would a borrower want to get a blanket mortgage? He might think
that he is saving money on closing costs by making the loan just
one big deal. In addition, the larger the commercial loan, the slightly
lower the interest rate.
But
commercial lenders in general do not like to blanket properties,
especially if the properties have different uses.
Few commercial
mortgage lenders would jump at the opportunity, for example, to make
a blanket loan across an apartment building and an office building.
This is especially true if the commercial mortgage lender loved apartment
loans but hated office building loans becasue they are over-built,
or vice versa.
Blanket
commercial loans are messy and complicated. They are also very difficult
for a commercial mortgage lender to re-sell in the secondary market.
Certainly conduits and life companies would rarely make a blanket
loan. Most banks would pass as well.
Some
commercial mortgage lenders will indeed blanket different properties,
but they will usually only do so if they feel insecure.
Certainly
hard money lenders and the occasional bank, lending for its own portfolio
will consider a blanket loan.
The most common blanket loan you will
see, however, is one where the commercial mortgage lender blankets
the borrower's personal residence.
So
if you get a request for a blanket commercial mortgage loan, be smart.
Split the deal up into several smaller loans.
You
can find hundreds of commercial lenders for just about any commercial
property type.
A
mixed use property is one that has both a commercial component and
a residential component.
The most common example can be found in
inner cities, where there will be a storefront on the ground floor
and maybe one or two apartment units on top.
Mixed
use properties are classified as investment properties, and the SBA
is not chartered to help investors become more wealthy.
Instead the
SBA is chartered to help small businesses grow and hopefully hire
more workers.
You
can find scores of SBA lenders on the RilCorp. link for owner-user properties,
such as industrial buildings and office buildings.
This commercial mortgage loan system is exactly
what you need.
Seven hundred and fifty commercial lenders await
your application. Simply input your needs.
Then ask the system, "Hey
computer, show me the cheapest commercial mortgage lenders for my particular
deal."
Presto-chango, the computer will instantly search a database
of 750 commercial mortgage lenders and give you a list of twenty commercial
mortgage lenders who are hungry for your exact type of deal.
You
can then submit your loan to the four most attractive commercial lenders
with just one mouse click. You can also use the phone numbers listed
to call the lenders directly.
Lenders will then contact
you by phone and by e-mail to compete for your business. These
direct commercial mortgage lenders chase YOU, so your negotiating
position
is so much stronger.
Commercial lenders are fussy. No problem. If
your loan gets turned down, simply go to the next four cheapest commercial
lenders on the list and apply with a simple mouse click.
There
are lots of "A" paper lenders, "B" paper lenders
and easy "C" paper lenders. You fill out just one application,
and it works for everyone. Slick, huh? Please tell us below
how the lenders can reach you.
