Commercial Mortgage Loans

Commercial RE Loans

2009-06-10T08:38:00.000-07:00

Commercial real estate loans, and the industry in general, have gone through a tremendous amount of volatility in 2009. Huge banks have gone out of business and many more have ceased lending. Many of the banks that are still lending have created such conservative programs that very few borrower can even qualify. Many of those that can quaily won’t accept the terms as they are to harsh. Borrowers have become baffled as they take their perfectly good loan request to their previous sources only to hear “no and no and no…”

The market is bad, you know this. We estimate that literally 80% of all previous banks and lenders are either out of business or are not lending. For example the conduit market was down 98% in 2008 compared to 2007.

However, there still are commercial real estate loan options out there. None of them are perfect but a few of them are viable. For folks that operate their small business out of their commercial building, or at least 51% of it, they will have some of the reliable loans in the nation.

These programs are government guaranteed and go beyond just SBA loans. As you probably guessed, because the government has step up and further guaranteed the loans, it makes it a much safer, and attractive for the banks to take on the risk of a new loan.

Further the secondary market for these types of loans has become stronger, year to date. We are currently back up to about 60% of where we were in 2007 (Up from about 10% of where we were in the beginning of the year). This is where banks sell mortgages to one another. So the returning of the secondary market and the stability of having the government backing has kept this segment of the industry alive.

As far as terms, by far the biggest benefit of these loans is high levels of financing available. For example, most conventional lenders will now only go up to 60% loan to value, while most of the government programs will still go up to 80% – 85% on refinances or 80% – 90% on purchases. This high level of financing makes a huge difference in a market such as this where property values are declining. Many conventional deals are getting killed as the bank lowers there loan to value guidelines and at the same time, property values decline.

Another benefit is the amortization schedule offered. Government programs are typically amortized over 25 to 30 years while most banks are reducing their amortization schedule to 15 or 20 years. The issue here cash flow for the borrower. The difference in payment between a 15 year amortization schedules vs. a 25 year is often 20 – 25%. Most businesses need to keep as much cash flow in their operation as possible. Aggressively paying down their commercial real estate loan is not as important as having enough cash to pay the rest of their bills.

The current market is frustrating for all involved. However, commercial real estate loans are still closing and often loan requests that keep getting declined are often fundable, if in the hands of the right lender/bank. Keep working.

Are you frustrated with the results that your current contacts are providing? Are you concerned that they won’t be able to get your loan closed on time and at the quoted terms? If so, call Jeff Rauth, President of Jeff Rauth is President of Commercial Finance Advisors, Inc, a national commercial mortgage firm. He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000, nationwide. 248 885-8797 or at SBA 7a Loans or Commercial Real Estate Loans commercial loan brokers

Commercial Mortgage Loans, This Year

2009-06-10T08:32:00.000-07:00

Whether you’re in the business or are a property owner, trying to a get a commercial mortgage loan closed in this market, is akin to having a hyena as a house pet. You can do it, but it will be painful.

Here’s what is going on, from a commercial mortgage brokers perspective. Conventional lending is all but dead. If your property isn’t less than 60% loan to value, you’re going to have a difficult time getting it closed. If you have a typical investment property (non multifamily like office or a warehouse), with a non national credit tenant(s), you had better have enough outside income to carry the loan on its own or you are going to have a tough go at it (though not impossible).

Literally 80% of the banks either don’t want to lend or they can’t lend as their banking ratios have fallen below the feds standards. And or they just don’t have the cash… Many banks including some major national one have gone out of business, as its been well publicized. So you have to work with what the remaining 20%. Often times the offered terms are harsh and expensive. For those of you that are in the business you know that the conduit and or CMBS market is completely broken and nonexistent. It was literally down 98% in 2008 versus 2007. 98%... That’s according the respected Mortgage Bankers Association.

The SBA commercial loans and other more mysterious (and unpredictable government programs) have tried to step up and fill the void. In some regards its working in others it has been disappointing. For example SBA lending was down 60% as of May 2009 compared to the previous year. Ironically, this is when we all thought they would really kick in and save small business.

Commercial Mortgage Loans

Without suddenly sounding optimistic one of the best things you can do for yourself is to work with the RIGHT bank and or lender. You need to only work with the 20% that are still actively lending. Conversely and especially if you are facing a balloon the worst thing you can do is tie up you loan request with a bank that is not aggressively lending. Most of these commercial mortgage loans end up in the decline category wasting months of time and thousands of dollars, at a minimum, for the borrower.

For those that qualify for the government programs such as the SBA business loans, this can be a blessing. 85% - 90% financing is a life saver as property values continue to decline. In addition, the secondary market for these types of programs are the healthiest in the business and continue to improve. Our fearless leader, Obama, has step up the guarantee to banks as well as bought $15 billion of SBA 7a loans that had clogged the system in early 2008.

By the way, the main qualifying component to the SBA loans is that your business occupies at least 51% of the buildings space. Contrary to their reputation, the SBA program have some of the easiest qualify standards out there, compared to other commercial mortgage loans.

Do you have to get it done? Are you frustrated with the results that your current contacts are providing? Are you concerned that they won’t be able to get your loan closed on time and at the quoted terms? If so, call Jeff Rauth, President of Jeff Rauth is President of Commercial Finance Advisors, Inc, a national commercial mortgage firm. He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000, nationwide. 248 885-8797 or at SBA 7a Loans or Commercial Real Estate Loans commercial loan brokers

Closed SBA 7a Loan

2009-06-08T15:21:00.000-07:00

Commercial Finance Advisors is pleased to announce the recent funding of an SBA 7a loan in Atlanta, Georgia in the suburban community of Buford. The project was a combination of a commercial refinance, construction, equipment and working capital for the borrower, who is a doctor.

“There was a couple of interesting components of the loan. One was that the borrower had already closed on the request with another bank, which after funding part of the loan backed out… It was a construction loan. This put the borrower in a terrible position and to say that he was frustrated and very concerned is an understatement. He had to still make monthly payments on the debt even though the bank did not hold up their end of the bargain.” Comments Jeff Rauth, President.

More info on SBA Business Loans:

“The first bank essentially just ran out of money. They are lucky (the first bank) we were able to get the new SBA 7a loan closed, otherwise the borrower would have had a very good lawsuit and more frustration to motivate him to pursue suing them for damages. Unfortunately we are seeing more loan requests like this cross our desk.”

SBA 7a loans are designed to help small business owners refinance or purchase new building for their business. There are a couple of very strong benefits to the program. One is that they can go up to 85% loan to value, which is a huge advantage as property values continue to decline in most markets in the nation. Another is that the underwriting standards for the SBA 7a loan can be very flexible, which allows loans that don’t fit conventional standards to still get funded.

One of the other major benefits to the program is the ability to roll in many different types of collateral, such as real estate, equipment, and good will. Borrowers are still able to get working capital and to consolidate high interest business credit cards as well.

However, not all SBA commercial loans are the same. Just like a typical commercial real estate loan, borrowers need to know who the aggressive lenders are, and how to submit loans correctly to get them done.

Commercial Finance Advisors, Inc works with borrowers nationwide, on commercial real estate loans from $400,000 - $5,000,000. Most of their clients have dealt with many local banks and are “feed up” with getting the run around and now need to get their loan closed.

Commercial Bank Loans, Why Bother?

2009-03-13T11:33:00.000-07:00

Conventional commercial bank loans are well worth the additional scrutiny. These loans offer the lowest rates, lowest fees, longest fixed periods, and longest amortization schedules currently offered in the market today, for your typical small commercial mortgages (Under $5,000,000).

The key here for borrowers to realize is that most of the banks that use to offer conventional bank loans are now sitting on the sidelines, waiting for the economy to turn around. Still other banks don’t have any capital to lend. However, there are many banks out there that are still offering conventional bank loans. They may not be local, but they are out there.

Most small local banks that are still lending are now only offering 20 year amortization schedules, with adjustable or 5 year fixed rate programs. However, there are banks that are still funding 10 year fixed rate loans on 30 year amortization schedules. For borrowers, increasing the amortization schedule to 30 years can be a substantial increase in cash flow. Simply by spreading out the repayment period, borrowers can normally get a 20% reduction in monthly payments or more.

In addition, the benefits of having a long term fixed rate in this economy are obvious. Many borrowers (and economists) are very concerned about potential inflationary pressures that might push rates to 1980 levels; as soon as the economy stabilizes and begins to grow again. Some borrowers have literally opted to refinance out of their current lower rate loan, into a higher rate, though longer fixed rate program due to these concerns.

Another major benefit to conventional commercial bank loans and the lowered fees offered. For example, government sponsored programs, such as SBA commercial loan or B and I loans typically charge an expensive 2 -3%, which is rolled into the loan amount. Commercial bank loans in comparison are normally only 1%.

Again, the important thing for borrowers to keep in mind is that there are banks out there that are still lending commercial real estate loans. Do not let yourself get discouraged. Perhaps your local banks aren’t lending, or are only offering really conservative programs, but if you take the time to research you can find viable sources.

SBA Commercial Loans – Poised For a Come Back?

2009-03-05T10:46:00.000-08:00

Year to date we have seen 6 major national SBA lenders come back to the market. That is very encouraging news, despite all of the continued talk of the recession and how bad it might get. The fact that these leaders in the industry have the confidence to put both their necks on the line and capital, is the most important and significant statement of belief they could provide.

SBA commercial loans, including the SBA 7a and the 504 loan program have received a lot of press lately, both good and bad. On the positive side, SBA loans have been one of the most durable programs throughout the credit crisis and though down sustainably for 2008 (37%) and year to date 2009 (estimated at 50% though that is not confirmed) – SBA loans are still funding. We know this because we still are closing SBA loans.

Liken this to the CMBS market that is all but dead and was down 98% in 2008, compared to 2007... 98%... This is according to the Mortgage Bankers Association, the most reputable association in our industry.

Many people are still disappointed by the SBA performance though. After all, the SBA was created to help small business through difficult times and to get loans that they would not have otherwise been qualified for.

Borrowers need to keep in mind that the SBA does not fund loans. Rather banks/lenders fund SBA loans and they provide a guarantee to the funding bank that if the borrower defaults, the Small Business Association will pay the bank back and make them whole. However, some backs have had a difficult time getting their capital back from the SBA… Which has caused fear in upper bank management and have forced banks to further scrutinize loan requests.

Despite these concerns and the media (which continue to pound fear pound into our society), many leading experts are hopeful that we have bottomed out, and they are backing their words, with the most valuable form of confidence – their capital.

SBA Commercial Loans - Status

2009-03-03T08:37:00.001-08:00

Via the Obama stimulus package, SBA commercial loans are in for some significant changes, so it seems. As normal however, business insiders are still waiting to see exactly how the proposed changes will actually appear on the "street".

For borrowers, the most significant change is the elimination of the of the SBA fees, which are substantial, for a period of 18 months. For example on an SBA 7a loan the fee has been set at 2.75% of the guaranteed portion of the loan, which is currently 75% of the total loan amount. So on a $1,000,000 total loan, the guaranteed portion is $750,000. The fee applies to the $750k, not the full $1 mil. The 2.75% fee in this example would equal $20,625. This fee is now going away.

The guaranteed portion of the loan has also, apparently been changed. This is in an effort to further motivate/incentives banks to begin lending again. Basically the total loan amount would be completely guaranteed, giving banks more confidence that, in case of borrower default, they would get their capital back.

As soon as we have reliable word that the changes have been made, and that banks have adopted them, we will let you know, here via this blog.

Commercial Mortgage Rates – Now

2009-02-05T13:06:00.000-08:00

With the so called TARP money and low indexes, owners are very curious regarding where the current commercial mortgage rates are. We give specific rates below and some general thoughts surrounding them, broken down by conventional and SBA loans. We will shortly come out with another report on rates for commercial investment properties.

Commercial Mortgage Rates on Conventional

For general purpose properties like office, retail that are either partially owner occupied or rented out, with loan amounts between $500,000 - $3,000,000 we are seeing rates in the low 6%’s and for some strong borrowers in the upper 5%’s. These are based on 25 and sometimes 30 year amortization schedules. Most fixed period offered are 5 years though we are seeing a few 7 and 10 year fixed program, though rare.

Conventional loan are as you may have guessed difficult to get done now. Loan to value are generally capped at 65% and underwriting is getting really concerned with global cash flow. This is where they look very hard at all of the borrower’s income and expenses both business and personal. Though seemingly uncomplicated to calculate and determine, it can get very cumbersome quickly and is a major “lynch men” of many current loan requests as the borrowers business may cash flow yet on the personal side they are underwater.

Commercial Mortgage Rates on SBA Commercial Loans

Due to the relationship between the LIBOR rate and the PRIME rate most SBA lenders have stopped using PRIME as their index on SBA 7a loans and instead now tie their loan to the 30 day LIBOR rate plus 300 basis points. The combination of the two, is not the effective rate for the borrower but just in effect the index (the 30 Day Libor was at 1.45% on 1/1/09). The funding bank still has to add their margin on top of this combination. Most banks are at 200 to 275 basis points over. For the borrower this is the part of the rate that can be negotiated. The actual effective rates we are seeing for borrower are around 6 – 6.5% on SBA 7a’s.

Special use properties like restaurants, motel, etc are having a difficult time getting any bank to fund their loan and borrowers should expect that their rate will be at the higher end i.e. 275 basis points over.

Though the options have been reduced, commercial loans are still closing. Owner occupants should look really hard at the SBA options as they are the most viable in the market, especially on higher leveraged loans. Loan request at or below 60% loan to value, that are doable should qualify for some of the best commercial mortgage rates in the history of the business.

Lastly it has never been more important to take your loan to the right bank/lender, from the beginning. You need to know who is still closing and which source is the right fit for your situation.

Commercial Bridge Loans

2008-12-04T10:47:00.000-08:00

We've launched a new website devoted to commercial bridge loans. A lot of content, including how to spot all of the scams out there.

Commercial Mortgages – Bad Credit

2008-11-24T07:12:00.000-08:00

Commercial Finance Advisors, a national commercial mortgage broker, releases a free report (no email address required) on both what borrowers can do to improve their credit scores immediately and what loan options are still available for them in this credit crisis. In addition, for borrowers that want more information they have a 200 page book on credit repair for free as well.
Link to report and free book: Commercial Mortgages - Bad Credit

“As commercial mortgage brokers, we are interested in closing loans not selling credit repair services. We are working hard in this market and have taken a “whatever it takes” type attitude” Says Jeff Rauth President. “And if giving away some information will help potential clients get better loans and build some loyalty to us, we’re all for it.”

Info on Commercial Mortgage Lenders

The impact of bad credit on commercial mortgage options is negative, however borrowers still can get loans closed. And the credit crisis will eventually end. If the borrower do the work now to improve their score, in 3 to 6 months who knows where we will be - It might just be a lot better. “Keep in mind we, as a nation go through recessions ever 10 to 15 years.”

Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial real estate loans amount from $500,000 - $5,000,000 for both owner occupants and investors.

Hard Money Commercial Loans – What Are They Thinking?

2008-11-19T20:30:00.000-08:00

Why would any borrower accept 15% rates and 5% on the front of a hard money commercial loan? Because their other options are worse, that’s why. For example they may lose a substantial amount of equity out right or have to take on a partner that may take a higher percentage of their equity than a hard money lender would charge in fees.

Also the commercial hard money loans are easier and more reliable to attain than finding, negotiating and bringing on a partner or waiting months for a conventional loan to close (assuming the borrower qualifies). Partners also have the high potential of creating legal issues if the project does not work out as planned.

For borrowers seriously considering going with a hard money commercial lender it is wise to only use a source that has been referred to borrowers by an experienced, unbiased third party. This segment of the industry is filled with unethical people that have the bad habit of taking $5,000 good faith deposits with no intention of funding loans.

For many borrowers this $5,000 may be their last chunk of change and they can’t make the mistake of going with the wrong commercial hard money lender. Borrowers have almost no recourse either as most have to sign agreements stating that the fee is non refundable and the Letter of Intent is only a letter of “interest”. Which of course, relieves the hard money lender of funding the deal.

Commercial real estate loans

Commercial Mortgage Refinance – Recent Closing

2008-11-17T19:48:00.000-08:00

Commercial Finance Advisors is pleased to announce a recent commercial mortgage refinance. The property is an office condo in Atlanta, Georgia. Loan amount $1,250,000. The borrowers business occupied 100% of the office condo. Loan program was an SBA 7a loan, with a rate of 6.5%. The borrower was in a high interest rate loan, the commercial mortgage refinance saved the borrower thousands of dollars.

Link to commercial mortgage refinancing:

“We continue to grind out transaction, despite the credit crisis. The SBA 7a loan as well as other government sponsored programs are still viable. However, not all banks that offer government sponsored programs are still doing deals. You need to know which banks have the liquidity and desire to fund transactions.
http://www.cfa-commercial.com

Commercial Hard Money

2008-11-11T08:42:00.000-08:00

Many commercial mortgage borrowers, due to the greater realities of the market, are finding that the there only viable option is a commercial hard money loan. The terms are often surprisingly expensive for borrowers that are use to typical commercial real estate loans.

For example, market right now for commercial hard money is 12% - 16% interest only with 3% - 10% points on the front of the loan… Borrowers use to 2% over Prime as their rate, with a 1% bank fee are again, often floored by these terms.

No one ever willingly chooses to go the commercial hard money route. Instead they do so out of necessity. Borrower elect to accept the term after they have done an exhaustive search for traditional loans and have found no takers. The decision is boils down to which is more expensive, paying the 6% points or losing the business/building and or both.

Unfortunately as the credit crisis deepens and the future of the commercial secondary market remains in doubt, borrowers have to face the reality that it may be 2 to 3 years before the markets return. For some they simply cannot wait that long and have to choice their best alternative.

On a more positive side, the loan terms are interest only which often means a lower payment for the borrower, than they currently have. Also, if the loan request is a debt consolidation deal, the borrower will often save, from a cash flow perspective, thousands of dollars per month by lengthen the amortization, putting them in a stronger position to restructure and buying them time.

Again, borrowers do not normally pick hard money as their first option. But instead realize that this may be in fact their best option due to the realities of their individual situation and the greater markets.

Restaurant Financing, Current Options

2008-11-10T12:50:00.000-08:00

There are still viable options for restaurant financing in the market today. Borrowers however should realize and accept that the choices have become more limited, than they where just 6 months ago. For example, most conventional and or conduit type loans for restaurants are now gone.

Instead, borrowers should be focused on portfolio lenders, i.e. banks or lenders that hold the debt on their balance sheet. This is the opposite of what we have seen in the last decade as most restaurant lenders packaged and sold their loans off onto the secondary market and thus rid themselves of the loan in exchange for a split.

Portfolio lenders can be difficult to find though. And they don’t really advertise themselves as such. Borrowers should be prepared to call many banks to find sources that are set up as portfolio lenders and that are willing to consider a special purpose property like a restaurant. Many banks are shying away from this building type. We’re occasional are asked why.

The reason boils down to the difficulty in recollecting the bank’s capital in case of borrower default. When a borrower defaults on a loan, the bank has to go through the foreclosure process, than they have to sell the property on the open market to recoup their capital. Because the building itself was designed as a restaurant it cannot adequately be used for anything other than a restaurant – thus limiting their pool of potential buyers, making it harder to sell.

As far as terms, restaurant loans are almost all now quarterly adjustable. However rates are very strong due to Prime being as low as it is (currently at 4%). We are seeing most restaurant loans in the 6%’s now. Via government sponsored loan programs borrowers can still expect 85% financing on purchases and up to 85% on refinance transactions.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Commercial Loan Rates

Hotel Loans – Now in the Credit Crisis

2008-11-06T11:10:00.000-08:00

Where do you start? Hotel loans whether for purchase or refinance have taken a firm beating in this credit crisis. Basically, there are now only a few options on hotel loans. Probably 90% of all conventional hotel loan programs are gone. Deals over $3,000,000 are taking the worst of it, flagged or unflaged, conventional or nonconventional.

As many readers are aware, the issues on the commercial secondary market is the immediate cause of this mess. Very few banks are willing to portfolio hotel loans and instead are used to funding and selling the hotel debt off into the secondary market. Now since there are very few buyers, banks have to either pass on the deal or fund it and hold onto the loan in their balance sheet for the long term. Most banks would rather portfolio more general purpose properties like office or retail before they’d consider hotels. So deals that banks where willing to underwrite and fund just a few months ago, they are now backing away from in fear that there won’t be in buyers of the hotel loan.

Fixed rates on hotels are virtually gone. The vast majority of all hotel loans are now quarterly adjustable, based off of Prime. The typical margin is 2% - 2.75% over. Prime is now at 4% so most borrowers are looking at an effective rate of 6% - 6.75%. Ironically these are some of the best rates we seen in long time. But of course borrowers have to live with adjustable rates, and for some borrowers this is hard to do. Many don’t care (that much) and or recognize that this is the only option.

Debt coverage ratios have in general become more conservative (no surprise here) to a minimum 1.35. Some banks want to see ratio’s closer to a 1.4 -1.5 on conventional loans. Which basically means that the funding banks are "cherry picking". It also means that the loan to value will be very strong, most likely lower than 50% because the two ratios are tied together.

All in all, SBA loans rule the day with hotel financing. Again borrowers should be thinking about loan amount less than $3,000,000 to have more options. And on a positive note, despite all the carnage, borrowers are getting great rates, and high levels of financing through these government sponsored programs, like up to 85% on purchases and 80% on refinances. As always, the trick here is finding the commercial banks that are actually funding deals with the government programs. Just as with conventional loan most banks that used to do SBA loans are “on hold” until the market returns.

Daycare Centers Loans – From Leasing to Owning

2008-11-05T14:20:00.000-08:00

The majority of daycare center owners, lease their facilities rather than own the underlying commercial real estate. Why? And, what are some ways that existing daycare centers can buy their existing building and enjoy the time tested benefits of owning? That’s what we discuss in this brief article.

First of all, many aspiring daycare center owners start off with the plan/desire to own their building. But often come to the conclusion that owning is just out of their reach financially, unfortunately. For example, say the daycare owner wanted to build a 8,000 square foot facility. And say the total project cost including land, construction, franchise fees, equipment and working capital totaled $1,500,000. If the daycare owner decided to own, they would be expected to shell out between 10% - 20% cash (depending on many factors such as if the daycare was a start up, risk tolerance of the bank, etc). At 15% the borrower would need to put $225,000 into the project.

If the daycare owner decide to lease the facility, on the same 8,000 square foot example above, they typically would only need to come out of pocket 10% -20% of the equipment, franchise costs, working capital and tenant improvement costs (space build out costs). These costs would normally be less than half the total project cost, or for this example approximately $600,000. The daycare owner would only need to come out of pocket $90,000 at 15% rather than $225,000 if they owned.

However, one of the easiest deals to get done, even in this credit crisis, is to buy the facility you are currently renting. Obviously you will need to come to an agreement with your landlord, but you might be surprised on how eager they are about talking to you about selling. Keep in mind, most landlords are constantly looking at new deals that requirement cash. So they may be very open minded to ripping up your lease and selling you the property.

As far as the down stroke on the purchase there is a little known guideline which can help reduce your out of pocket down payment to 5% or sometime less – It’s a form of rent concession. And NO you don’t already need it in place. From a conceptual standpoint it can be thought of as a lease to own type structure, where a portion of the monthly payment goes against the purchase price.

One of the keys here is that the value on the appraisal has to come in higher than the purchase price. For example, say you negotiate a $1,000,000 purchase price with the current owner. You have occupied the property for 2 years and paid $3,500 per month in rent or $42,000 per year. You could potentially attribute the $84,000 of this rent to go against the purchase price to cover your down payment. If the property appraised for $1,100,000 you could attribute the $84,000 of the rent you already paid. Your down stroke would be 15% of the $1,100,000 = $165,000 less the $84,000 of rent concession or total out of pocket of only $81,000. Versus a straight 15% of the $1,000,000 purchase price or $150,000 out of pocket.

If you lease your daycare center give this some serious consideration as the benefits of owning are substantial. Building long term wealth via depreciation, property appreciation and of course the chipping away of the mortgage with every payment you make, to name a few.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. commercial real estate loans or daycare center loans or commercial loan rates

Daycare Center Financing – Current Options

2008-11-05T07:03:00.000-08:00

With major national daycare center lenders like UPS and CIT now out until further notice, many childcare centers owners and prospective owners are searching for financing options - and are finding few reliable programs.

One of the biggest issues here for both independent and franchised daycare centers is that most banks will no longer consider Tenant Improvement Loans. I.e. loans to build out leased space. Instead, most banks (that are still funding loans) want the collateral of the commercial real estate.

This can create a couple of different issues for the owner or franchisor. Number one, it can run right against the business model of the franchise. For example, the franchise might have a smaller location requirement and the process of finding land, going through the zoning/permitting, constructing the facility, etc don’t make sense, based on their smaller location model.

The other issue for the individual owner is that the capital injection will normally be greater, not on a percentage basis, but rather on a dollar amount. For example, on a leased facility, the operator would be expected to come in with 10% -15% cash of the tenant improvements/equipment costs. So, if these costs were $700,000, most franchisee have been expected to come in with $70,000 -$105,000 “out of pocket”.

If on that same deal, the operator decided (by choice or forced into due to the credit crisis) to own the facility, they would need roughly $250,000 to $375,000 i.e. 10% -15% of the total project cost (In this example, say $2,500,000). This difference in dollar amount is obviously substantial and will eliminate the opportunity for many hopeful daycare center owners.

For operators that can come up with the required cash, owning the facility is often their best route, regardless of the credit crisis. For one, their monthly payment is typically lower than if they leased. This increase in cash flow is paramount for any business whether daycare or not. Also, additional benefits such as depreciation and real estate appreciation are two classic advantages of owning. And of course, every month the borrower chips away at the loan balance building long term wealth rather than simply paying rent.

All in all, there are still options out there for daycare centers financing. However many industry players will have to be open minded and flexible with adapting to the current standards if they want to get there daycare centers funded.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial real estate loans or daycare center loans or commercial loan rates

Commercial Mortgage Broker Publishes Training Book

2008-10-25T07:18:00.000-07:00

A national commercial mortgage broker, Commercial Finance Advisors, publishes the second edition of their commercial mortgage training book. The book focuses on sales, marketing, underwriting and most importantly, prescreening commercial loan requests.

“Being an expert at pre-screening deals is critical to your success as a broker.” President, Jeff Rauth of Commercial Finance Advisors says. “Approximately fifty percent of all commercial real estate loan requests are simply not doable, maybe 70% in this market. Aspiring commercial brokers that work on these deals will waste weeks or even months on loans that have zero change of closing. You need to be able to look at a deal and figure out in the beginning if its doable and if you want to work on it or pass. We discuss this in depth.”

The book offers a unique perspective from the “front lines” of the commercial mortgage broker’s point of view. Again topics include such as sales, marketing, underwriting and pre screening deals.

Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial loans from $400,000 to $5,000,000. They also have an online store where they sell fee agreements, training materials and dvds, etc.

Commercial Mortgage Refinancing

2008-10-23T13:52:00.000-07:00

There are many pitfalls that can eliminate or create problems on a commercial mortgage refinance. Whether or not your particular situation will qualify, depends on several factors. Understanding your potential loans strengths and weaknesses will save you time and ensure your best chance of a successful commercial refinance. Below are some basic questions and concepts to keep in mind regarding your commercial mortgage refinance.

Commercial Mortgage Refinancing - Ownership

First, how long have you owned the subject property? Has it been less than 12 months? The lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value. Many borrowers are often surprised by this, and this rule is getting more and more prevalent as the credit crisis continues. It’s often referred to as a seasoning issue. For example, if you bought the subject property 9 months ago, and put down 20%, you will not have sufficent equity, even if you’re convinced you “stole” the property. The banks will look at your loan request at 80% and most will only consider commercial mortgage loans refinances at 75% loan to value or less.

Commercial Mortgage Refinance – Value

Related to above, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn’t go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you’ve got a problem.

In addition, the problem is dynamic in that commercial real estate values are tied to financing.
For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.

If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing, there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price. This sale will be registered with appraisal companies and have an impact on the general commercial real estate values in the properties city.

Commercial Mortgage Refinance, Current terms

What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization and or fixed period? Want to pull cash out? Or do you have a ballooning loan? One of the biggest questions to ask yourself is, “what are my prepayment penalty?” This clause can kill your deal.

Prepayments come in a couple of different forms. Some are fixed or declining but all are tied by a percentage to the existing loan balance for a certain amount of years. For example a 5% flat, 5 year prepayment is common. Another example is a 5% declining. Meaning 5% in the first year, 4% in the second years… down to zero.

Lockouts are another issue. They are a form of prepayment penalties but are normally harsher.
For example on a 3 year lock out you would owe the lender 3 years worth of interest if you were to sell/refinance the property. Which often, adds up to hundreds of thousands of dollars or more depending on the loan amount.

Commercial Mortgage Refinancing, Property Charteristic

What type of commercial property are you refinancing? Different building types get of vastly different terms. 75% loan to value on a restaurant refinance will not fund, while a 75% loan top value on an office building will.

If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occupied if your business occupies more than 51% of the subject building, which will often give you better terms.

Despite the credit crisis commercial mortgage refinancing is still viable. Take your time and work with experienced professional to make sure you get the best terms available.

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Survival Tactic - Commercial Hard Money

2008-10-10T10:10:00.001-07:00

Commercial hard money loans should only be thought of as an option after you have exhausted all other sources and have come to the conclusion that you just won’t qualify for a conventional commercial real estate loan. The choice, though hard for many borrowers, is normally simple. Either lose your business or building or accept the terms offered by the hard money lender.

It’s a survival tactic. You’re giving yourself something very valuable in exchange for the expense of the loan – time. Time to repair, time to restore whatever the issues are. Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc. We see so many borrowers let the egos get in the way and end up turning this into something it’s not.

What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it. And no matter how bad it is, you can still have some pride in that. Many people simple hide and let the problems overwhelm them.

Remember the old saying of comparing apples to apples. You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago. You have to be realistic and compare it to your current alternatives. And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building.

Say you have a building worth $2,000,000 and owe $500,000. You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan. Or say you take on the wrong partner because you are pressed for time and need cash. Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner. And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender.

Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive. Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000. You would pay $60,000 in fees… Versus losing $1,500,000. It’s hard, but simple. Don’t let your ego get in the way of this one. Face the problem head on, and fix it.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5.

Commercial Hard Money – Hay Day

2008-10-08T15:54:00.000-07:00

Commercial hard money is in its “hay day” at the moment. As conventional sources continue to tighten their underwriting guidelines commercial hard money is, for the most part flourishing. Never before have private money lenders been in such a strong position to “cherry pick” deals. In fact, many commercial hard money lenders are raising their underwriting criteria to the point that they match previous conventional guidelines.

Many commercial loan requests that fit the conventional underwriting box 6 months ago, now find that there only viable option is hard money. Borrowers are often shocked and or angry at the terms offered. Interests in the teens with 3-6% points are market. You can’t blame the borrower for being outraged. It just seems ridiculous.

But the reality for many borrowers that have already exhausted all other options, face either losing their property, losing their business (or both) or have to take on a partner. All of these alternatives are more expensive, often much more expensive, than a commercial hard money loan. For example if you have a building worth $2,000,000 with an existing $500,000 loan and are requesting a $1,000,000 loan amount, you’ll pay out $30,000 – to $60,000 in fees vs. losing $1,500,000 in equity. It’s that simple.

Taking on a partner is often thought of as a viable alternative. However, there are many challenges with this strategy as well. First of all you have to find a partner... that has cash and that will blend with the company and your business goals. How much control and ownership of the property and business will you have to give up? The math is as simple as the above example. Give up 50% or pay 6% in fees…

Nobody likes the terms offered. Hard money lenders have much at stake as well and stand to lose millions on one bad deal. Taking borrowers through foreclosure is no cake wake and is very expensive for the lenders, which is a very likely outcome that they often face. Commercial Hard money will likely remain in a very strong position for as long as our credit crisis continues.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out

Commercial Mortgages – Ignore Your Way Through It

2008-10-03T13:31:00.000-07:00

If you’re a commercial mortgage originator like myself, my unsolicited advice to you is to ignore your way through this giant heaping mess. “Ignore your way through it”, it’s my new slogan. Perhaps I’ll make a bumper sticker.

As the Politician’s continue to do what they do best, cover their own ass to protect their jobs, we have to continue on. To me it’s comical that no one has the courage to remind the politicians or the people that they pushed the fair housing acts, and other government sponsored program that promoted high leverage to begin with. The SBA programs are another example.

What about all this talk of the “greedy, evil and corrupt” lenders that pushed stated income loans and the like on the poor innocent borrowers. Give me a break, like the borrowers are little lambs that are complete victims. I’ve been in this business for 10 years and have seen it all, including many borrowers that have attempted to commit fraud under my license. Most borrowers know exactly what they are doing! Many of these borrowers where not “mortgagable” and should be grateful they had a shot at home ownership.

There are many people out there that lost their jobs or have had serious medical issues and the like; I’m not referring to these people. I’m talking about the masses of borrower’s that defaulted, simply because they borrowed more than they could afford. Or because they went underwater.

Guess what? If you took on a loan you couldn’t afford in the first place, than you screwed up. You’re responsible for it! If you make $50,000 a year and took on a $400,000 mortgage just because you could get a loan, you are 100% responsible for that mistake. And now we as a country are paying for it. And we don’t want to pay for it.

We are a nation that has been living on borrowed time and borrowed money and now we’re paying for it. The idea of living within our means is on the comeback. I’m confident that had the banks been left alone, they’d still be doing 80% financing max and this issue would not exist.

Gas Station Loans Have Gotten the Worst of It

2008-10-03T12:48:00.000-07:00

Many businessmen that are looking to either refinance their gas station loan or purchase a new facility are now facing serious challenges with securing capital. And similar to the bride that leaves you at the altar, the SBA has all but pulled out of this sector that prior too was the back bone loan to the industry. At the end of the day you could normally rely on the SBA loans to get something done.

Now this isn’t to say that the SBA has pulled out completely, they’ve just made it so cumbersome and expensive on the front end for the borrower that, for many it’s just not worth it. Take for example, that all deals have to have a full phase two completed, no matter the age.

Say the property is a 2 years old, with state of the art tanks and equipment it doesn’t matter. They want a full phase 2 which runs the borrower at least $10,000. If any issues (or hints of issues) are discovered, the costs can easily exceed $100,000 for clean up, legal fees, consulting fees, etc.

Local and regional banks normally either have an appetite for this industry or not. Due to the complexity of the deals, banks just don’t dabble in this sector. What we’re seeing is that many established players have or are pulling out of gas station funding. They’re shifting their focus to more general properties like office, retail etc, or just waiting to see what happens with Wall Street before they throw any more cash around.

Where’s the happy ending in the commercial mortgage industry? There are still a few portfolio lenders (and SBA lenders) that have an established niche and continue on. Borrowers should be spending their time trying to figure out if the bank they are working with is really going to fund their deal, rather than trying to save a few basis points on rates. The question isn’t what’s your rates, its are your going to waste 3 months of my time and $10,000?

Put your detective hat on and dig deep. Figure out if the bank in questions is really serious about the project. Question like “how many gas station loans have you closed year to date? What is your personal outlook on the stability of the bank? What’s the banks history with gas stations loans?” Remember that the bank representative has quotas like, filled out application per week, phone calls per day, meeting per week, etc. So even if the bank loan officer doesn’t really think he can get it done he may waste your time, to protect his job.

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Triple Net Deals, Financing Options

2008-10-01T14:50:00.000-07:00

The overall credit constraints have restricted all commercial mortgages and triple net financing is no exception. More important know than ever is the strength of the tenant(s), global income, post close liquidity and other traditional underwriting criteria that I’ll discuss here.

“Post close liquidity” seems to be the new buzz word of the day (sounds pretty slick, right?). But what the lender wants to know is, after the buyer purchases the property and injects 30% - 40% cash into the deal, how much cash will he have left over? Is he throwing everything he’s got into the deal? Many banks now want to see between 4 -6 months of reserves. Meaning, 4 to 6 months of cash, that could be used to pay the mortgage if the tenant defaulted on the lease. Of course the level of this restraint is tied directly to the strength of the tenant.

“Who’s the tenant? Are we talking a regional player with 25 locations or a public company? What are their trends? Are gross revenues over the last 3 years declining, stable or increasing? How are the trends of the net income? Again stable, declining, or increasing? The funding bank will want to see three years of business returns and year to tax financials at a minimum. These questions are just the beginning. The tenant is in a way, the real borrower and will be underwritten accordingly.

Loan to values have been one of the more obvious restrictions. A year ago we were closing fast food restaurants (like KFC, Arby's, Taco Bell's) at 75% loan to value. Now we’re seeing 65% max, with most lenders at 60%. Couple this with declining cap rates in many markets and we’ve got a bit of a problem.

Debt coverage ratios have also been bumped from a 1.2 to a 1.3 by most sources. Perhaps a little more sneaky, is that many banks have also bumped up underwriting vacancy and management percentages which further reduces the NOI. Traditional banks would use 2-3% for vacancy (even if there isn’t any) and 2-3% for management (even if the borrower manages the property himself). These percentages in many cases have been risen to 3 -5% on both.

Global income is more and more looked at. Many sources didn’t really look that hard at the borrower’s personal financial situation. Now personal debt/expenses and other sources of income beside the property are examined. Overall, what’s the level of cash flow that the borrower has?

NNN Loans are still doable! They are still closing, but as discussed, having a 20 year nnn lease in place is just the starting point. Banks will want to scrutinize all aspects of the deal so they can be more confident of the risks involved. Be prepared and have your package ready to go and clean up all issues (like your credit score) before you submit your file to a bank.

Automotive Property Loans – Credit Crisis

2008-10-01T14:44:00.000-07:00

If you own an automotive property or are thinking of buying one, such as an oil change facility, collision shop or general auto repair, you’ve got to have you’re “ducks in a row” as they say, to get the loan closed in this market.

Believe me I’m sick of hearing about the credit crisis and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking "clean". In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.

Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tell to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.

Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…

Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your commercial rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.

SBA Commercial Loans – Why the Drop in Funding?

2008-09-30T12:51:00.000-07:00

As the credit crisis began a year ago, many industry professionals predicted that the SBA commercial loans would become much more popular as banks would become more and more conservative and seek the guarantee that the SBA provides. However that has just not been the case. It seemed to be such a “no brainer” that banks would want the government assurance in such a time of uncertainty for their commercial real estate loans.

But year to date in 2008 we’re down from 2007. And not just down from what people predicted, but down in terms of both number of loans closed and aggregate dollar amount of closed loans. Why? Is it just another symptom of the credit crisis or something else?

Interestingly the SBA seemed quite proud to announce the streamlining of their monster procedural reference book for lenders and banks at the end of 2007. With over 800 pages, and in general legalese type language it was far from user friendly. They announced the new version in the beginning of the year and it was chopped down to fewer than 300 pages. Seemingly, a major improvement.

However despite their efforts the new manual has been widely criticized and has created more confusion as to what the rules are. Many SBA lenders in fear that they might get stuck with loans that the SBA wouldn’t guarantee have shied away from the SBA programs until the issues where better resolved. Basic questions, like whose names have to be on the appraisal on a participation loan, for example, have been left unanswered. All in all, it just creates more clutter and uncertainty.

The timing on this is obviously terrible(in no fault to the folks at the SBA), as the commercial mortgage industry in general is on its knees for a reliable source of capital. Ironically, what was considered the safety net, has been weakened by this blunder.

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Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans

Cash Wash Loans – Now

2008-09-30T08:51:00.000-07:00

If you own a cash wash and or are thinking of buying one, you’re going to want to make sure you’re prepared to deal with the new market realities for getting a car wash loan. Bottom line is that the property is going to have to show a good income and you as the borrower will have to accept an adjustable rate mortgage (most of the time).

As far as the cash flow is concerned the car wash will have to hit a debt coverage ratio of a 1.3 in order to be considered by the vast majority of lenders. Meaning that for every dollar of mortgage payments, the borrower will have to prove $1.30 of net income (before the mortgage) to qualify. So after the borrower pays all expenses and the proposed mortgage he will have $.30 left over. This income will have to be documented by both 3 years of tax returns (business and personal) and year to date financial statements (profit & loss and balance sheet).

Most banks and lenders that look at car washes want to take the deal through the SBA. If they’ll take a crack at it in house and go conventional, you’re often looking at a 15 or maybe a 20 year amortization schedule, which tightens the cash flow considerably. The cash flow on the property will have to be really strong to still meet the 1.3 on a 15 year amortization schedule.

So as far as the SBA is concerned your most likely (like 99% of the time) looking at an adjustable rate mortgage that’s amortized over 25 years. The program offered will be the infamous SBA 7a loan that is the most popular SBA product out there though it tends to get some bad press. The 3 biggest complaints are 1. (The obvious) that the rate is adjustable 2. The SBA fee is expensive at 2.75% 3. That the SBA process is still cumbersome, though many improvements have been made.

Overall, the borrower is going to want to make sure the deal is clean and that they do everything they can in the beginning to fix any issues (like bad credit), before they submit the file.

Click here to see current commercial loan rates

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans