Commercial office loan- Matured, renew? Prepay indemnity etc

Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes

Hi guys, I'm redoing a commercial loan for an office building in LA. Last loan just matured we're thinking of staying with the same bank

These are the terms, options and rate:

10 year 15 year amortization

No points or major fees since we're going with same bank.

1. 5.15% for no prepay option

2. 5.7% with prepay and prepayment penalty

What are some things I should add since we may plan on developing or in the near future reselling property? This is not definite though...

This is a low LTV, like 30-40% LTV

Is this pretty standard? Is it good? I'm leaning towards the 5.7% since we may develop or refi/sell in future

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Eric Schleif

Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes

So the loan has already matured? Has the current lender granted you an extension? What is the loan amount you are seeking to refinance? What is the occupancy and cash flow for the building? How do the lease rolls look and how do the current rents compare to the market?

These terms do not sound that great to me, but would need a little more info on the deal.

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Eric Schleif
Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes
9y
So the loan has already matured? Has the current lender granted you an extension? What is the loan amount you are seeking to refinance? What is the occupancy and cash flow for the building? How do the lease rolls look and how do the current rents compare to the market?
These terms do not sound that great to me, but would need a little more info on the deal.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
30 -40% ltv and amortization is 15?? Seems like crappy loan with low amortization and in the 5's for rate.
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Will F.
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Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
9y
Originally posted by @Eric Schleif:
So the loan has already matured? Has the current lender granted you an extension? What is the loan amount you are seeking to refinance? What is the occupancy and cash flow for the building? How do the lease rolls look and how do the current rents compare to the market?
These terms do not sound that great to me, but would need a little more info on the deal.
It basically matured a couple weeks ago and they gave us an extension. We've been paying off this loan office off for 20 years.
The property is worth $1.2m+, loan is just $350k. So the LTV is like 30%
It's a 10 year with 15 year amort. Also forgot to mention we're able to pay the loan off. So it's about 5.6% fixed and allows a "breakfund" clause. With commercial loans often they have less favorable prepayment penalties, right? (again I don't do many commercial loans, only have a few)
They did not do full underwriting they're basically just extending the original loan.
We feel forced into this due to the maturity of the loan (there was some mix up with a changed PO box and auto pay set up to pay off loan), but they haven't really disclosed much. It's 50% owner occupied. It gets about $7000/mo rent about $1.5 - 2 per sf. just 2 tenants.
It's supposed to close and we're just waiting on the final docs. I don't feel like we have much negotiating power due to the maturity.
I do more residential projects. On my last commercial mixed-use deal I got a 3.5% 3 yr fixed/30 amort rate but it then goes adjustable. I feel very forced into this due to the loan maturity/ extension...
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Will F.
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Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
9y
Originally posted by @Joel Owens:

30 -40% ltv and amortization is 15?? Seems like crappy loan with low amortization and in the 5's for rate.
So is 5 % high for an office loan? I didn't really shop rates because we just went with our current lender. We didn't have to go through full underwriting because it was a renewal. The rate was much lower than the prior rate in mid 7s
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Eric Schleif
Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes
9y
Sorry Will I just saw your response to my post. I think those are bad terms but i usually don't get involved in office deals below $5MM-$10MM. I'm also concerned by the maturity default as I am not sure what the terms of your extension are with the current lender. It sounds like you may be a little over your head on this and I would suggest calling a commercial mortgage broker in your area that does smaller loans or even call a couple of local banks to see what they could offer. Just to give you an indication I just quoted a smaller office deal in the $4.5MM range with a 10 year term on a 30 year amortization at 4.30%, 70%LTV, and non-recourse.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Yeah Will I do not play in the smaller commercial space. I deal in larger properties where the loan size is bigger. In that larger loan space you can have local banks,regional,banks, national banks, credit unions, CMBS, Life Insurance companies, private family offices, etc. looking over the property to do a loan.
For small balance stuff say a 350k loan that is mainly a local bank. Rates will be higher and terms not as good because less competition for that stuff. Generally that is more mom and pop type stuff and banks underwrite and stress test it pretty conservatively for margin. Success is more dependent on the operator/owner at that level.
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