Tag Archives: commercial building loan

How to evaluate Commercial Real Estate Loans

There are many commercial real estate loan companies. How do you tell the good from the bad and the ugly?

Commercial real estate loan rates were ridiculously low until recently when rates started moving up. The ten-year government note has moved from 1.44% on January 1, 2018 to over 2.85% on Friday, January 9, 2018, with projections up to over 3%, 3.5% and 4% in the next 60 days. You most likely will not see current rates this low again in your lifetime. Commercial loans are at these low rates because commercial real estate loan companies are sitting on an ocean of cash, nearly $2 trillion dollars. Commercial investors still feel hesitant, however, to overextend with loans from the shock they experienced by the recession of 2008.

So just which commercial loan is best for you? A life Insurance company, a conduit, a credit union, an SBA lender, a commercial bank, a USDA Business and industries lender or even a hard money commercial lender? A life insurance company offers the most attractive commercial interest rates that are only 0.35% to 0.50% higher than the prime residential mortgage rates. Be aware, few life insurance companies will touch commercial projects smaller than $5 million. The project must be very standard and cannot be older than 20 years.

The next avenue which is available is a CMBS where commercial real estate loan rates are 50 to 65 basis points over the prime residential mortgage rate. For projects between $3 to $5 million and up, a conduit may be an appropriate choice for you. They will also finance older properties. For projects with good credit principals, banks and credit unions may be a good option. The rates run typically 0.75% to 1.50% over prime, 30 residential mortgage rates.

SBA and USDA Loans

SBA, if you qualify, should be considered first. The standard 7a SBA loan is 2.75% over prime floating. With the SBA you can quality for a 90% loan-to-value and the loan is fully amortized over 25 years. You must have a credit score of 700-plus and financials for the last several years. The USDA loan is less attractive. The loans are made through banks and guaranteed by the USDA and they are similar to SBA loans–2.75% over floating prime and fully amortized over 25 years. These properties must be located in eligible rural areas in order to qualify.

Although an effort has been made to quote current rates, this is a fluid market and, as pointed out, rates have increased since the first of the year and are fluctuating.

Once underwritten, residential mortgage companies can sell the mortgage to Fannie Mae or Freddie Mac. The illiquidity of the commercial market, since they do not have an agency to sell their underwritten mortgages to and these types of loans are seen as higher risk, results in commercial mortgages 0.35% to 1.50% higher. Before applying, you need to get all your ducks in a row including property type, projected cash flow, age of property and projected operating expenses. For many real estate investors who require quick capital for their next project, a hard money loan is the answer. Call us at Level 4 Funding for a no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Building Loans: Understanding the process

250px_callCenter3Commercial building loans are highly nuanced, with unique loan structures, underwriting standards and complex closing procedures. Learn about some of the challenges involved in acquiring a commercial building loan.

Most construction loans come from local or regional banks. These groups have greater knowledge of market conditions and often have a better understanding of each project potential. There are some specialty lenders, national banks and life insurance companies that offer construction loans, but in these cases borrowers may find it difficult to qualify. Construction loans are considered risky by many lenders and larger groups may be unwilling to underwrite these loans for the majority of borrowers.

Construction loans are usually issued in two parts, both to finance the cost of development and provide the borrower with a long term mortgage. The first short term part of these a construction loan pays for a projects construction and lease out phase. The longer term loan pays off the short term loan and is issued once the project reaches a specific point, either in terms of occupancy or in terms of income generated. Some construction lenders combine these two types of financing, in a form called mini-perm loans. The long term portion of these loans is given for a shorter period. This helps the lender evaluate a projects performance before the borrower can refinance to a long term mortgage.

The underwriting process for a construction loan is unique. New developments do not have a financial history for a lender to evaluate. The lenders understanding of the projects potential comes entirely from the borrowers assumptions. This means before any construction loan is approved lenders will closely scrutinize the experience of the developer, the contractors involved and the prevailing market conditions. Borrowers will need to provide detailed tax returns, financial statements, details about their outstanding debt obligations and above all a detailed pro forma. This document should detail specifically how the construction loan will be used, come with detailed cost estimates and explain any assumptions about a projects potential income. These documents will take some time for the lender to review, but if a construction is approved the lender will issue a binding commitment letter which outlines the terms of the loan in specific detail.

Even after a commercial building loan is approved, closing is a complex process.

On both sides of the agreement, both borrower and lender will likely need to rely on legal experts in order to sort through the procedures and to gather the documentation needed for a construction loan to finally close. In many cases commitment letters also come with a “closing checklist,” which details specific steps the borrower must take before any funds can be dispersed.

Further steps are needed to secure funding even after a commercial building loan closes.

Construction loans are distributed in “waves of funding.” The full loan amount is not received up front. The first wave of initial funding is meant to cover the initial costs needed to get the project off the ground. Further funds are distributed on a monthly basis to cover the regular costs of construction. However should a borrower encounter any unexpected expenses during this time they must submit a “draw request” to their lender. These costs must be approved and verified by the lender before any additional funds can be dispersed.

Navigating the process of securing a construction loan can be complex. Borrowers should seek out local banks, expect a lengthy approval process and expect further complications even after the loan closes.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Building Loan

1645 W BaseLineIf you are interested in widening your real estate portfolio, there is a good chance that you are not able to float the entire cost of such an investment on your own. This is where you will need a commercial building loan to help you cover the costs of the property and turn it in to a revenue generating investment.

Very few individuals or businesses are able to handle the massive amount of funds that are necessary to take advantage of a hot tip. It is also unlikely, if you are operating a business that has payroll, operating expenses and a steady need for cashflow, that you are able to set aside enough to cover the expense of renovations to existing properties. This is where a commercial building loan comes in to assist borrowers.

These loans are often used to provide the necessary capital to make large improvements to the property or the equipment of a business in order to increase the revenue stream. Typically, these loans are not used to purchase new property, although there are always exceptions to the rule. For the most part, a commercial building loan is used to improve an existing business in order to increase the revenue stream. In this way, the borrower is able to quickly pay back the loan. Ideally, the increase in capital from the improvements will be almost immediately evident and will enable to borrower to also quickly pay back the loan.

While there are many different sets of terms and interest rates, depending on the lender and the unique circumstances of the borrower, there are a handful of standard practices that you are likely to encounter if you are looking for a commercial building loan. One of these is the terms of payment. It is fair to expect that you, as a borrower, will face a large balloon payment at the end of the loan. Unlike a residential mortgage, this is a standard practice with commercial loans. This might seem daunting until you realize that the purpose of such a loan is to generate revenue quickly. The loan should also help facilitate an increase in the bottom line of the borrower, especially with properties that are tied to rentals, as the renovations should increase the value of the property.

What are the drawbacks of a commercial building loan?

One of the biggest drawbacks is that an investor has no control over many of the factors that determine a borrower’s ability to pay back the loan. While they are absolutely necessary in order to expand an operating business by way of renovations and improvements, there is always a risk involved when borrowing such large sums of money. Anyone who says that it is a guaranteed investment is either stupid or a liar. That being said, there are a number of things that a borrower can do to minimize their risk. Being organized, doing your research and being realistic with your planning are all steps that can be taken to ensure that your commercial building loan is effective and responsible.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
clip_image002clip_image004clip_image006clip_image008
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage