Options on how pull Equity out of Commercial Office Investments!
I have several commercial office buildings(6) that I refinanced in 2018 with a portfolio loan. This loan is about (5) years into a (10) year pre payment penalty of 10%, carries a current rate of 4.76%, adjusts next April (5 year treasury + 2.76%, then static for the next 5 years). I would like to tap the over 50% equity position without a refi. I have significant positive cash flow, have owned the majority of properties for over 10 years, and have excellent credit. What options would you suggest? What type of terms/rates could I anticipate? I do not need the cash, just looking to put it to work. Thx in advance.
@Greg Heden Have you checked with your existing portfolio lender if they can just do a HELOC on your properties? That could be the easiest solution since they already know your finances and the properties.
HELOCs aren't a common option for commercial properties. You are looking for a lender to take a stand alone second lien on equity you currently have. This can be done, but is not cheap. Expect 10-13% and Interest only or adjustable rates. Not to mention most HML will want 2-4% in fees at closing just to do the loan. The 10yr PPP is tough. Many will cross collateralize and make this work. The real question is how much are you willing to pay to get the cash and is it worth it to you...?
Cheers!
@Greg Heden Your best bet is likely to refinance them when your prepayment window opens. Most commercial loans have a 60-90 day window to prepay at no penalty before a rate reset date. Your rate reset will likely be above market based on the terms above (5yr Try. + 2.76%). My lenders are currently quoting spreads between 1.90% and 2.50% on office. Feel free to reach out - I'm a local Loan Officer in Scottsdale!
-Ryan
Thanks for the feedback everyone. @Ryan Pubins The prepayment is in the loan docs, how can this be mitigated due to a rate reset? This was a 20 year note resetting every five years.
It seems like the best option is to refinance into a new portfolio loan. My current rate is set to adjust in April 2023 to the current 5 year treasury plus 2%, it is a bit lower than I stated earlier. Existing loan is 2.4M, looking to pull 1.5M out with a new loan of 3.9.New LTV would be in the 60's depending on appraisals. Original lender is not interested in the deal but my business bank has offered me a 10 year fixed/25AM, 10 year swap+2.5%,3-2-1 prepay, and 1/4pt orig. Thinking the added liquidity and controlling the interest rate risk are very appealing. All thoughts or recommendations welcome!