Commercial Real Estate Investing – The Refinance Nightmare


Howdy from the metropolis of Cedar Crest, New Mexico.

I just got back from my father-son retreat with my boys Colt (9) and Dakota (7). It was fun to hang out with other fathers but it was a lot more fun to be with my boys when they wanted to hang out with me. I was competing with their friends for time. What is up with that? When did I become “not cool”? I am thirty seven years old! I am too young to be “not cool” …right?


I am currently refinancing my shopping center in Southwest Texas. I am on my second attempt to refinance and I have been trying to do so for six months now. The shopping center is a solid performer with regards to cash flow, tenant strength and occupancy (100%). It is also in a great city with regards to the local economy. So…what is the problem? Where do I start?

There are a plethora of items that I did not see coming…NO ONE did. But from what I understand….my mortgage broker(s) are telling me about a “perfect storm”:

  1. Interest rates are extremely volatile…so lenders are increasing their margins to protect themselves
  2. Real estate values are dropping
  3. Underwriting in tightening
  4. The lender pool is shrinking
  5. Increased environmental concerns

And on and on. Yes, I could keep going because the reasons are limitless and the excuses are shocking. I do have to say that my mortgage broker is going out of his way to make things happen BUT the “hold ups” are unprecedented.

So…what have I learned and what advice can I give you?

  1. Start now – If you are planning to refinance in the next six months to a year, start now. This is a great area to be proactive in especially if you are dealing with defeasance, prepayment penalties, environmental issues, short leases, bad credit, etc. You will want to know before hand what issues you might be facing and start addressing them right away.
  2. Do business with mortgage brokers you have used before or come highly recommended – I have been burned once (okay..twice) by using a mortgage lender that I did not have any experience with and that was not recommended. Get recommendations from me or other real estate investors who have had good experiences with mortgage brokers. Most investors are happy to recommend someone from their team. Avoid real estate mortgage brokers from internet forums and those in the back pages of newsletters. Are they all bad? Of course not, but none of us have time to waste trying to find a mortgage broker.

With all that is going on in our economy, financing commercial projects require a lot more elbow grease than it did a year ago. Being proactive and having deep relationships with solid mortgage brokers are the best ways to get your deal done in a tough financing market.

Until next time…..rob

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  1. Real Estate has become a poopular business now in all over the world and everyone wants to earn more. So, this is a best way i can say to increase money because it has lesser risk as compare to other sources to increase finance with a fast speed.

  2. Expect this to get worse, not better in the coming year or so. While sometimes a refi just has to happen, anyone who can wait it out will save themselves a LOT of agony, as you are discovering right now. Thanks for a great post, good advice.

  3. Korina –
    A blanket statement such as “avoid mortgage brokers you meet on a forum” is probably a bit much. We’ve got dozens of really good mortgage brokers as members of our forum, and I’d recommend them over others any day of the week!

  4. Chris Lengquist on

    I’ve been doing father/son trips for 11 years now. They sure build memories.

    Sorry to hear about your challenges. I think items #3 & #4 are the ones that drive me the most nuts.

  5. Good news…The American dollar seems to have hit bottom and is now just starting to recover. This will start to have a positive impact on all money matters imho.

  6. Here is my opinion as-to-why your deal is not getting done; the banks can’t sell the loans they write.
    No loan buyers; no loans. They are issuing conditional approvals then stalling as long as they can in hopes that the secondary market for commercial mortgage paper will improve. When it doesn’t, they make up a reason to kill the deal. It’s the liquidity Crises!

    It’s not interest rate volatility (when have rates not been volatile), it’s not falling real estate prices (the property cash-flows and a good appraiser can determine value in all markets), it’s not tightening underwriting standards (the property is top quality and can pass even stringent underwriting) it’s not the shrinking lender pool (there are trillions of dollars in lending capacity on the side-lines) and it’s not environmental concerns (lenders have insurance for that). The-fact-of-the-matter is that they won’t issue you a loan because they are not confident that they can turn it into cash by selling it to Wall Street. They do not want to hold paper against your shopping center and earn 6.5% for the next 20 years. They want to make a point, sell the paper and use the money to make another loan, make a point on that one, sell that paper…and-so-on, and-so-on…

    This project needs a portfolio lender (someone who does not sell their loans) or the broker needs to find a lender who can still move their paper. They are out there.

    As-to mortgage brokers, my advise is to use a commercial specialist from a commercial only firm. A lot of people give their residential guy or gal a shot and, in this market, get very frustrated, very quickly. The commercial process is very different and the commercial mind-set is very different. You have to find a lender who’s making deals and closing loans, they know where the money is and they can secure approvals for their clients.

  7. Yes! Commercial refinancing is a hurdle. I have tried refinancing my little shop a couple of times and have had many problem. They are just to strict and their are not enough to choose from. I have had no luck with online brokers. Nice post.

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