Current Commercial Loan Terms and Rates

[Aayush S.]

Hello BP,

I recently found an 8-plex property on the market and I'm wondering what the terms are for a commercial loan in order to get that property. So far I've been seeing 5-year terms, 20-year amortization, and below 6% interest rate. Could someone provide some insight on the current rates they are seeing and whether or not the terms given to me are common? Please feel free to PM me or post below.

[Chris Cambridge]

You should be able to get a 30yr/30am at around the same rates and 5yr/30am for less. Keep in mind programs are different and your credit, liquidity, property cash flow and condition influence the transaction. 

[Spencer Gray]

What's the purchase price or loan amount? I would look into Fannie or Freddie SBL programs. We just got a conventional Freddie 10 year term floating 250bps over libor (2.61% currently) 30 year am, non recourse. 

[Conor Freeman]

@Spencer Gray The Freddie floating-rate deals are on fire right now, a lot of our clients are taking advantage of them. Correct that they're in the 2.40%-2.60% range but the minimum loan amount is typically $7.5mm, so probably not a fit for an 8-plex, unfortunately.

@Aayush S. Terms on 5+ units should 5, 7, or 10 years on a 30-year amortization with rates in the high 3%'s / low 4%'s. Freddie and Fannie's small balance loan program starts at $1mm so depending on the location it may be too small for us. I'd start calling local banks. If you DM me the market I can pull a report showing all the apartment loans financed by banks in the area. Happy to pass it along to you. 

[Aayush S.]

Thank you all for the replies!
I do however have a follow-up question regarding refinancing since that is something I would need to do every 5-10 years with commercial loans. What are the typical closing costs of a refinance and what percent of the loan is that usually? 3%? 4%? 5%? Planning to try and refi every 5-10 years once I buy the property but not sure if I would really be benefitting from it.

[Lien Vuong]

I just closed on 3.875% with 30 year ammo and 2% pre payment penalty within the first 5 years if paid outside of bank with a local lender (Boston area for your reference)

[Chris Cambridge]

Originally posted by @Aayush S.:

Thank you all for the replies!
I do however have a follow-up question regarding refinancing since that is something I would need to do every 5-10 years with commercial loans. What are the typical closing costs of a refinance and what percent of the loan is that usually? 3%? 4%? 5%? Planning to try and refi every 5-10 years once I buy the property but not sure if I would really be benefitting from it.

Every state has different fees/taxes associated with closing. Check the state the property is located in to find out. Other than that it's just lender fees and/or broker fees. If you want a more technical answer the lower your loan the higher the fees because they tend to be fixed costs. 

[Aayush S.]

What would you say the average would be for say maybe a 500k loan? I'm trying to estimate the percent since it's something I will have to think about sooner or later? What would be the safest percentage to take? Currently, I'm using 6% closing costs, but I'm beginning to feel like that's quite high. Thoughts? 

[Tony Gorokhovsky]

@Aayush Shivashankar

I just closed a commercial loan of 5 year fixed on a 25 year amort @ 3.9%. The rate readjusts @ year 6 which I don’t love but all of the commercial lenders I’ve spoken with said the same thing to me.

Typically rates will depend on credit and experience.

[Jonathan Bombaci]

@Aayush S. check out local credit unions or call any banks you have a relationship with to see their terms. The terms will vary based on they type of property, the location, your experience, and your strength as a borrower. There is no “Industry Rate” or “Standard Terms” on the commercial side which I think you’re seeing based on the previous posts. 

We just closed on a 6 unit in Fitchburg for our personal portfolio and it was 25% down, 15 year loan, at 3.5% interest, fixed for 5 years, amortized over 25 years, with no prepayment penalty. 

We received similar rates on a property we closed in Lowell about 6 months ago with the same lender. 

Closing costs will vary as well based on many factors. I’ve paid $1200, $2500, $3500, and $7500 for commercial appraisals. Insurance can also vary substantially depending on property type and location. Assuming it’s a $500k, vanilla residential units, Class B commercial property that does not require any environmental testing or flood insurance, I’d estimate 2-3% or $10-15k in closing costs. Your lender can give you a better estimate once you have the property  under agreement and start your loan application. 

Commercial financing is the wild Wild West, go establish a good relationship with a lender and they’ll work with you on terms over time once you prove yourself. 

Best,

Jon

[Nick Robinson]

@Aayush S.
I agree with @Jonathan Bombaci and everyone else that has posted here.  There is not a standard rate or terms.  If you have never done a commercial deal I would plan on not getting the "best" terms or rates.  If you do not have a relationship with a local bank or CU you may want to look into getting a loan broker especially because it is your first deal.  

FYI I am closing on a property in about 2 weeks.  The property is a value add and the loan I am getting is a construction/bridge loan that rolls into perm. financing.  So the purchase and rehab is all rolled into the loan and it is interest only for the first 18mo.  It is a 10/30 with the first 5yr fixed at 3.8% and adjusts at year 6 and than is fixed at that rate for the last 5 years.  The prepayment penalty is a fixed 1% and they are lending me 70% LTC for the project.  Even though I have done commercial deals before I have never done one with this bank but they will go up to 75% LTC and roll the interest only period (18mo) into the loan so you do not have a payment for the 18mos you are rehabbing which is a huge advantage.  Basically everything is based on experience and relationships.  Good Luck and Happy Investing!!!

[Benjamin Zhang]

@Nick Robinson Hi Nick which bank or CU did you use? Do they lend out of State? I am trying to buy a 6 unit apartment building in NY. thank you  

[Nick Robinson]

@Benjamin Zhang
It is a small regional bank that only lends in AZ CO, maybe CA.If you need a lender I would try a loan broker it costs 1% but they do most the work for you. Also it usually ends up being about the same because the lender they find you will drop their 1% fee, sometimes.

[Benjamin Zhang]

@Nick Robinson got it. thank you 

[Shane Crockett]

@Conor Freeman can you pull a list of banks finding MF deals in any city? 🙂

[Ricardo Moreno]

@Conor Freeman I was wondering if you can pull a list for Houston Tx.