Commercial Lending 5 - 7 Year Term - How Do You Hold Long Term?

9 Replies

Total newbie question here but I'm searching for 5+ unit multi families and commercial loans only have 5, 7 or 10 year terms. I understand that refi is part of the process, but this seems to force a refi that could conceivable come during downturn and ruin a strategy.

What am I missing here? How can you buy for long term cash flow when you're forced to change lending terms every 5 - 10 years? 

Yep, this is pretty much the way it works in the commercial space.  Lenders are unwilling to commit to 30 years at a fixed rate.  This happens in residential because of government support.

Only way this would hurt you is if interest rates increased in a downturn interest rates would be low 

There are fully ammortized (30 or even 40 years) commercial loans for newly constructed apartments but they come with strings attached. 

@Bob D.   those commercial loans also amortize over usually a 15-20 year period. What that means is after the 5-7 year term you usually would have built up quite a bit of equity even if the property has not appreciated. These are the only type of loans I use and when they expire it is simply a matter of meeting with the loan officer and putting new financing on the property. If things are going well with the property you won't have an issue. 

Of course there is a possibility that interest rates will spike or vacancy will rise but that is not the likely outcome. I think it is wise to think about what you would do if that did happen though and think through contingency plans.

I have one lender who offers a full 25 year fixed rate on pure commercial properties.  But most lenders do not do this so yes, 3,5,7,8,10 year terms are more common.

Everyone, thanks so much for the insight. BP never disappoints. 

Hey Ryan,
Do you have any contact info? I’m looking to speak to someone in commercial lending.

This seems to be a common question. There are multiple programs for commercial properties (non multi-family) that offer 25 and even 30 year fully amortizing loans. Some of these programs offer 25-year fixed rates with others that offer 3, 5, 7 & 10 year fixed rates. Some of these programs are limited to certain areas and/or property types.

From my experience generally 20-25 year amortizations with 5-7 year fixed terms. You can get longer fixed rate terms, however the caveats that are put in place don't usually make since unless your holding for long term.

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