Commercial Real Estate Credits?

7 Replies

Can anyone shed some light onto the topic of credits when financing a commercial deal? I’m guessing this is similar to a concession on the residential side but I can’t find any info on it. I met a guy who said he used a deferred maintenance credit to help offset his down payment.

Example: the buyer and seller negotiate a $900,000 property down to $800,000. The buyer finances the property for $900,000 and the seller gives him back $100,000 as a “deferred maintenance credit” which he uses to offset his down payment. Do banks allow this? Does anyone use anything similar to negotiate financing? Thanks!

I'm looking to have this questions answered as well. I asked my business banker about it and he seemed confused. He said that he's never heard of someone using seller credits when purchasing a investment property with a business loan but that as long as the purchase price stays at or below the approved loan amount, it should be fine.

@Ryan S. In my experience, this is just a Seller credit back to the buyer at closing. It is handled though title company and documented in Altman's amendments. Then the commission is based on either net sale price or gross sales price.

@Alex Olson Thanks for the reply. I have since been trying to use some of these strategies in my investing but what i've learned is that the banks are very leery about them and they are usually held in escrow then released appropriately and proportionately dependent upon the type of credit and what it is being used for. Not undoable, just need to be VERY clear with the bank what your intentions are. 

@Ryan S.

I negotiated a 100k+ credit for deferred maintenance and the bank is holding it indefinitely in an interest bearing account. They will disburse funds as the work is finished (receipts required). My original thought was to use it towards the downpayment but didn't work out like that. The lender wanted assurance that the credit would solely be used for the building improvements only.

@Nik S. Yes some banks are very strict. You could actually switch to a more favorable bank depending on what the issue with the property is and where it is located to get more of a favorable use of the funds. But, if it is of paramount importance, a bank may require items to be fixed prior to closing.

@Alex Olson

This was for a property that was 50% occupied. It needed renovated and stabilized! My options were slim as some banks didn't want to do the deal because of sellers tax returns on the property and vacancy. I saw the ARV/Stabilized value so I took what was given to me and that's what it takes sometimes!