Commercial loan/ refinancing my multi family

[Mitch Balgobin]

Hello everyone: I have been approached by my management company to look into refinancing my (2) 3 family units located in the Bronx Here is part of the proposal agreement. Please give my your thoughts. I am have no experience with this.

2. Loan Type:

3. Loan Amount:

4. Purpose:

5. Term:

6. Interest Rate:

7. Guarantor(s):

8. Security:

9. Prepayment Penalty:

10. Documentation Fee:

11. Loan Fee:

TBD LLC

Commercial Real Estate Loan

The lower of $1,000,000 or up to 65% of the As-Is Appraisal Value Cash Out

10 years based on a 30-year amortization schedule

Year 1-5: Fixed at 2.75% (45-days hold from date of LOI) Year 6-10: Fixed at 5-Year CMT + 2.25% (Floor Rate: 2.75%)

b. Anyone who holds 25% or more of ownership interest

Guarantors shall be joint & several

a. 1st position mortgage of up to $1,000,000 on the property located at

c. 1st position UCC-1 Fixture filing on the property

If the Borrower repays during the life of the loan, the prepayment penalty will be assessed as follows:

5.00% in the 1st & 6th year, 4.00% in the 2nd year and 7th year, 3.00% in the 3rd year and 8th year, 2.00% in the 4th year and 9th year, and 1.00% in the 5th year and 10th year.

Notwithstanding previous paragraph, the Borrower will be afforded a 90-day window before the end of each 5-year period to refinance or pay-off without penalty.

$2,500.00 1.00%

Thank you.

Mitch B.

[Jaysen Medhurst]

@Mitch Balgobin, BLUF: I don't see this as a very attractive refi package. Without knowing much more about your properties or situation, I wouldn't take it. A few questions and other things to think about:

Who is this potential lender? If they're asking you to open deposit accounts, then they have to be licensed either with the state or as a national bank. This will make it a lot easier to research if they have a bunch of complaints against them.

The fact that you paused your mortgage payments is going to be an issue right now, if you want to refi with another bank. Can you get them back on track? My understanding is that if you restart your payments and stay current, it shouldn't impact your ability to refi in the future.

Most of the terms you posted don't look all that crazy. All things that I would expect to see in a commercial mortgage agreement. I don't claim to be an expert of all the ins and outs, though. EXCEPT: 

• "No subordinate financing permitted on the properties." This is a huge red flag and I would never agree to it. First you're only doing 65% LTV. Second, with a market that can appreciate as much as NYC, it's not inconceivable that your properties could double in value during the next ten years. You'd be unable to tap into any of that equity unless you refi, either in that short 90-day window at the end of 5 years OR pay a prepayment penalty.
• $60k in closing costs! On two, 3-unit buildings! Um....no thanks! Perhaps if there weren't all the other downsides, but that's a lot of money in closing costs.
• I didn't see anything in the terms about the loan being assumable. As I mentioned above, not having that (especially with the other issues above) would be an absolute deal breaker for me.

What are you current mortgage terms? Original amount, current FMV, current mortgage balance, rate, monthly payment.

What are the rough financials of the buildings? GSR, OpEx, CapEx, total debt service.

I do think it's worth spending some time talking with other local banks and CUs about what refi products they're currently offering. At the very least getting some information and comparison shopping. No need to bring up the "pause" right now. You just want to get info and see what's what. You'll probably get the best terms from a CU and using a residential mortgage.

Feel free to reach out with any other questions.