Commercial loans longer than 20yr amortization?

Question

Hello BP! I've been working with some buyers on larger apartments around the $1m purchase price and have found some solid 1% rules in great A-B neighborhoods but the issue I'm running into is that commercial lenders are only willing to provide 20 year amortization loans instead of 25-28yr normal. I have heard of Fannie/FHA apartment loans up to 30-35yr amortizations but am very unfamiliar with that space.

Does anyone have any recommendations on where to find longer amortized commercial loan products? Located here in Columbus, OH.

Matt J. · Answer

@Marc Rice I’m not in your area but would encourage you to check with your local credit unions.

I have a commercial MF loan with a local CU and they offered a 30 year amortization with no pre-payment. I actually found several that offered this. Rate and fees were competitive.

Taylor L. · Answer

My concern with the long amortization loans is they all seem to come with onerous prepayment penalties. I expect a good number of unexpecting investors are currently stuck in underperforming properties with yield maintenance on them. Interest rates have massively fallen and, shoot, they could go lower. We're not out of this recession. There's no inherent reason T-bills can't go into negative rates, the EU has already trodden that ground a bit. Why not go with shorter amortization?

Nick Robinson · Answer

@Marc RiceHave they talked to a loan broker?  I know they will have to pay the broker a fee but sometimes they can find you a better deal that makes it worth it.  I used Commloan in AZ but do not know if they do business in OH.  I have a 25yr am on my complex.  From my understanding to get the 30yr you have to get an agency (Fannie or Freddie) loan and have a min loan amount of $1m.  I am sure a small credit union in the area would be willing to do a 30yr or at min a 25yr if the deal meets the min of a 1.25DCR.

Account Closed · Answer

I’m too lazy to shop around and just accept the higher payment that comes with 20yr amortization. Sounds like for them it breaks the deal?

Mike Dymski · Answer

Shop around or get with a commercial loan broker who has both agency and bank partners.

In the spirit of full candor, your clients could use representation from a CRE brokerage with more experience in this area.  Improper financing on a commercial property can be very problematic.  In addition, using a buyers broker for commercial MF is also a big disadvantage in most markets.  I respect the hustle though.

David Robinson · Answer

@Marc Rice I work with multiple lenders that can lrovide 30 year terms on an investment property.  Message me if you would like to connect.

Timothy Hero · Answer

I know of a company that does 30-year amortization, with the first 10 years being fixed.

Tyler Lynn · Answer

I would definitely recommend local community banks! I'm not in your area so I don't have any specific recommendations, but I was just on the phone with a local credit union the other day and they are specifically looking for long term hold assets. They were more than willing to go longer on the amortization as they are long term lenders who want to hold the loan for a while. Again there may be prepayment penalties so it depends on what your business plan is on your properties.

Marc Rice · Answer

Thanks Nick! The two lenders we spoke with hold portfolio, they used to be 25 but now are 20 due to covid. Great idea to check with a mortgage broker.

Marc Rice · Answer

Yeah I have heard of large prepayment penalties as high as 4-5%. My clients are ok with where the rates are at now and taking the risk since it's a good deal. They're just having trouble with the amortization piece now

Commercial loans longer than 20yr amortization?

Most Popular Reply