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Commercial Loans Under $1 MM are Tough to Find — Is Private Money the Only Option in this Market?
18 Jan 2010 | 5 Comments | posted by Corey Curwick Dutton | in Private Money
You aren’t the only one who is having a tough time financing commercial property under $1 MM. Banks just aren’t lending right now on the following types of property:
· Mixed-Use Commercial under $1 MM
· Multi-Family Commercial under $500K
· Retail Commercial under $500K
Even if the properties are income-producing, qualified borrowers just can’t get their banks to do refinances much less any cash-out.
Private money may be the only option if you or your clients have an income-producing property that you are seeking to purchase, refinance, or need cash out.
Why? Private lenders are very active in this space and are looking for mixed-use commercial, multi-family, retail strip commercial under $1 MM. Banks are not.
Any further comments on this discussion? I’d love to hear from the anyone who may have had recent experience with this property type in the current lending environment. Please share.
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5 Comments
I have found that most Community Banks in my area are willing to lend on investment property acquisitions under the following parameters: 20% equity, 1.2 DCR, borrower with experience and a strong financial statement.
I just closed a sub $1MM loan on a multifamily property in Texas that my group owns. Refi cash out no less. Recourse, of course. Underwriting tougher but can be done. Part of the problem is that appraisers that were seeming to “hit the number” before now don’t have a number to hit so they are scared to put a price on an asset. Even fully rehabbed and running very strong it was appraised at over an 11% CAP, that alone will keep deals from trading as appraisals will not hit the contract price mark on many deals in 2010, even if they are good ones and realistic CAP rates – say 9 to 9.5%. I could probably get that appraisal done tomorrow and it would come in at a 9.0% CAP. Get it done by the next appraiser and it might come in at an 11% CAP. Shaky sign of the times.
We have found the Credit Unions as well as small community banks to be a great source of funds for the smaller loans. They especially like the owner occupied properties.
The challenge with the properties or borrowers that are not “A+” and can’t pass today’s tight underwriting. Luckily there are opportunity oriented lenders that can often fill that gap.
Now more than ever it is important for borrowers to seek financing that best suits their needs – leverage, pricing, additional uses of funds, banking relationship, etc.
All good points!
Banks are running scared right now. They are focusing on their troubled assets and potential issues with FDIC restrictions. Thus can be hamstrung with lending potential.
In a nut shell community banks have established the following guidelines that if met for the most part should be acceptable.
Income Property – Mixed Use and Retail
DCR of 1.25x’s
Global DCR of 1:35x’s
LTV not to exceed 70%, though FDIC Guidelines are a bit higher.
In addition depending on the potential of the overall banking relationship the bank might extend their inhouse guidelines.
Owner Occupied:
Banks if they have an SBA department will go 90% either via 7(a) or 504. Right now don’t think you can go wrong with the 7a as they are waiving guarantee fees. With only a 3 year prepay, not sure how much interest rate risk you might see. Can always refi should rates increase rapidly in the next 3+ years. You will be playing the appreciation game and hope values appreciate and can refinance into a conventional note.
Multi-Family
That is a specialty, but FDIC Guidelines allow the 80% and there are programs for 90% on construction loans, I think with Fannie Mae. Many Community Banks might shy away from the contsruction side and only do a seasoned property.
But each bank will have it’s hot and cold buttons. Your best bet is to call around, do some research, even look at thier financials.
Hope this helps, if anyone might have further questions, please don’t hesitate to ask.
Noel