Rules, and Exceptions, in Commercial Financing

[Tim Milazzo]

There are exceptions to every rule, so getting to the *right* lender in commercial real estate is key.

The rule for 5+ unit multifamily properties is "don't house hack", i.e. rent or use one of the units to live in yourself. It lowers the NOI, and makes it a riskier underwriting because the DSCR is hampered.

Beverly Grove, CA 6-unit Multifamily Property

At this property in Los Angeles, the property owner is keeping not one, but TWO units back for their own use, which is 33% financial vacancy. Definitely breaking the rule!

My StackSource teammate Huber Bongolan arranged long-term, fixed rate debt at 4.75% on the property anyway. How?

The *exception* to the rule is that the property was in Beverly Grove, where rental demand was strong enough for an entrepreneurial bank to get comfortable with a loan at 1.00x DSCR (break even), knowing that those two units could be rented out if they had to be.

Work with experts in commercial real estate. They know the rules, but more importantly, they know the exceptions!