Commercial Portfolio Refi?

Question

I am new to commercial real estate. If one were to buy 5 commercial properties in cash for $5m per property, how would one refinance and tap into the aggregate $25m in equity? Would you need to refinance each property individually or would a lender lend based off the entire portfolio?

Greg Dickerson · Answer

@John Hodges It all depends on the type of assets and the lender. It’s always best to keep each property in a separate LLC so the one does not affect the whole. Also makes easier to refi or sell down the road.

Joel Owens · Answer

My clients with up to 100 million like to do non-recourse loans and separate entities. That way unless fraud or bankruptcy carve outs only the down payment is at risk.

It can sometimes  give leverage against the lender when they only have the property for recourse when a loan needs to be restructured due to ongoing issues with a property.

Brandon Hicks · Answer

@John Hodges

Either...just depends on the size of the lender.

Joel Owens · Answer

The more a property is the only recourse for the lender and the borrower is weak to qualify the more AMAZING the property and tenants have to be.

Example a client wants to buy a 5 million property however the net worth is only 2.5 million and they are putting 1.5 million down  and loan for the rest. Because the asset is high quality and the borrower is a surgeon with 800,000 annula income the lender feels good about the lower net worth because their net worth is up-trending at a good pace.

If however someone is worth 2 million but putting 1.5 million down and then has little ongoing other income to speak of it will be muhc harder to qualify for. Lenders want to try to make a deal for a loan but also stick to their guidelines with the occasional exception. Unlike residential in commercial lenders expect LLC's, trusts, and all kinds of other entities when buying.

Chet Mazur · Answer

There is so many different products out there that it's hard to say, buy have have done deal where I kept commercial properties separate. You generally have to document income somehow.

John Hodges · Answer

So if I am seeking a strictly commercial loan based off the property, all they care about is the actual properties income? I assume they would want to see at least a year of income on a tax return as well?

Chet Mazur · Answer

I think that commercial lenders have greater flexibility. If pledging the personal assets they care, and not if personal assets kept personal.

John Hodges · Answer

Does having properties within an LLC makes it more difficult to get financing?

If you had an aggregate of $25m in equity, what do lenders look for? Do they care about personal income or just the income of the properties?

Commercial Portfolio Refi?

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