Financing for a commercial property

12 Replies

Whats the best way to finance for a commercial property? I'd like to get a fixed rate over 30 years but rates are around 8-9%. Is there any other way to finance a commercial property to get a lower rate?

Low rate, 30 year fixed loans exist in the residential market only because there are government policies that subsidize those loans.  You won't find that for commercial loans.

@Ned Micic

Jon is absolutely correct that you won’t find fixed 30’year commercial loans with low rates.

However, you could find commercial loans with 30 amortization in the 4.5-5% range depending on a lot of factors or course. Will probably be in the range of a 5 year balloon.

@Ned Micic   My commercial loans all are 20 year term, fixed around 5% for the first 5 years, and then resetting with any interest rate changes after that.  With the slight increases over the past year, I'm paying 5.5 - 6.25% now.  I also was able to do one as a 15 year fixed, 5.75%.  Personal guarantee on all of them. All of them are held in house by local banks in my area.  

Hope that helps,

Tom

What kind of property is it?  You can get commercial loans on 1-4 unit properties for full 30 year fixed rate as low as 6.5%.  If pure commercial property, the most you'd likely get is 25 years.  Again lowest rate would be 6.5%. Obviously rates/terms depend on many factors so these are best case.

@Ned Micic ...I feel there is some misspeak in this thread, unless I'm missing something.  You actually can obtain 30 year fully amortizing loans for commercial, but it has to multifamily (5+ units) and has to fit into Agency financing guidelines.  Rates will be in the 4s-5s, depending on factors.

If it's any other asset type, as industrial, retail, office, etc., then yes, you can expect usually 25 year ams, rates will be dependent somewhat upon lender.  Probably going to start in the 5s and go up, again, depending on different factors.

Tom what kind of loan costs did you pay out of pocket to close ?

@Ned Micic

Banks won't offer a 30 year on a commercial property.

You can get 2nd tier portfolio money on single family, non owner occupied, with no income verification in the 5's.  You can get commercial money, 5 plus units, warehouse etc... in the 6's and 7's, with a 25 year amortization.

The money is out there.

Find a good broker who can help you find it.

Stephanie

Ned, what kind of property is this? The rates you are referring to are VERY high. They did just go up, but only to about 4.25-4.5 on most deals. You can always get a swap loan, if you want some more stability. I haven't seen many 30 year loans, but 25 year amortization is popular, which should help.

Shop around. Check your local banks - you need to find one that is investor friendly and wants to increase their real estate mortgage holdings. You should be able to find 20-25yr amortization, 4.5-5.5% 5-year fixed rates, 5 year balloon if you come in with ~20% downpayment. 

What kind of "commercial" property are we talking about? If you are talking about a multi-family project you can get 30-year amortization but generally, the term is only for 10 years, geographically specific rates and the loans are non-personal recourse (a huge benefit). I would encourage anyone who has loans with personal recourse to start looking at ways to refinance to a non-personal-recourse loan if their properties qualify and times are good.

If you are talking about a non-multi-family project such as an office, industrial, retail, etc then there are programs that do offer up to 30-year amortization and 30-year terms with no balloons and rate adjustments after 5 years. Depending on the type of project and the use, there are programs that offer 25-year fixed interest rates. Yesterday I just saw a quote for a 25-year fixed rate for a commercial office purchase at 6%. 

Sometimes you can get OK rates and terms from local banks but it has been my experience that local lenders sometimes rely upon borrowers not knowing what regional or national lenders offer.

@Jeff Shelton   I always work with local banks as mentioned in my post, so closing costs are very little.  The last one was no points, $1k attorney fees, $350 documentation fee, $150 recording fees, $15 flood determination fee, and $25 wire transfer fee.

Outside of closing, appraisal fees from $500 to $1600 at the highest (that was a mixed use store front / apartment building).

Hope that helps,

- Tom

I just received terms from US Bank yesterday for a commercial loan. 25 year amortized over 25 years with a 5 year fix at 4.65. 25% down.

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