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Military Veterans Association of Real Estate Professionals
Loans for

Commercial Investors

Loan terms for commercial properties vary by property type. Multi-family properties receive the most favorable terms; special use properties receive the least favorable. Refer to the Property Guidelines for more information.

Please review the loan program information below and give us a call to discuss which option best meets your needs.

Traditional Loan

Traditional loan programs offer variable and fixed interest rates for both purchase and refinance transactions. Most have prepayment penalties that are a percentage of the remaining loan balance. The percentage typically is constant for or declines during the period when the loan's rate is fixed. Best rates are available for properties in urban areas with debt service coverage of at least 1.20.

♦  Advantages ♦  Available for most property classes
♦  Debt service coverage as low as 1.0
♦  Interest-only programs available
♦  Disadvantages ♦  Penalty for prepayment
♦  Under-$250,000 - higher interest rates
Max LTV ♦  75% to 80% Assumable? ♦  Yes
Rate spread ♦  175 to 300 bp Non-recourse? ♦  No
Closing costs ♦  $3,000 to $6,000 Seller contrib.? ♦  Possible
Min loan amount ♦  $100,000 Prepayment penalty ♦  Declining rate

Conduit Loan

Conduit loans are pooled and sold to investors in the CMBS markets. A financial intermediary, the conduit, underwrites and documents the loans using standardized terms to manage the risk for the investors. As a result, conduits generally require higher quality properties and borrowers. The borrowers generally must have previous investment experience with the property type. Because of the controlled risk, conduit loans typically have lower rates.

♦  Advantages ♦  More aggressive interest rates
♦  Longer fixed-rate terms
♦  Disadvantages ♦  Higher closing costs
♦  Pickier about quality of property and borrower
♦  Investment experience required
♦  Heavy penalty for prepayment
Max LTV ♦  75% to 80% Assumable? ♦  Yes
Rate spread ♦  125 to 225 bp Non-recourse? ♦  Yes
Closing costs ♦  $15,000 Seller contrib.? ♦  No
Min loan amount ♦  $1,000,000 Prepayment penalty ♦  Defeasance
♦  Yield maintenance

Second Lien Program

Some lenders allow a borrower to combine a first and second lien to achieve higher leverage. The second lien may be a mezzanine loan offered by the lender or may be carried by the property seller. Since the second lien is against the same property, the property's cash flow must be sufficient to service the debt for both loans. The maximum LTV for the first lien is typically between 70% and 80%.

♦  Advantages ♦  Higher leverage
♦  Lower coverage may be allowed for combined debt service
♦  Disadvantages ♦  Higher leverage may increase first lien rate
♦  Must negotiate second lien terms with seller
♦  Second lien rates are higher
Max CLTV ♦  85% to 95% Assumable? ♦  Yes
Rate spread ♦  175 to 300 bp Non-recourse? ♦  No
Closing costs ♦  $3,000 to $6,000 Seller contrib.? ♦  Possible
Min loan amount ♦  $100,000 Prepayment penalty ♦  Declining rate

High Leverage Program

If the seller will not carry a second lien, it still is possible to achieve high leverage financing from a high leverage lender. Up to 90% financing is possible on many property types for borrowers with good credit. The property must generate good cash flow because it has to be sufficient to service the higher debt. The biggest drawback to high leverage loan programs is they carry much higher interest rates than traditional programs.

♦  Advantages ♦  Higher leverage than traditional program
♦  Debt service coverage as low as 0.8
♦  Disadvantages ♦  Higher interest rates than other programs
♦  Achieving debt service coverage more difficult
Max LTV ♦  90% Assumable? ♦  Yes
Rate spread ♦  450 to 600 bp Non-recourse? ♦  No
Closing costs ♦  $2,500 to $5,000 Seller contrib.? ♦  Yes
Min loan amount ♦  $100,000 Prepayment penalty ♦  Declining rate

100% Program

Similar to the Second Lien Program, the 100% Program usually requires a mezzanine loan or the cooperation of the property seller. The borrower combines the first and second liens with an unrelated loan for the remainder of the purchase price. The unrelated loan may be a signature loan, a loan against another asset (e.g., stocks), or some other loan that doesn't encumber the property. A limited number of lenders allow this type of financing, and only borrowers with financial strength will qualify. The borrower's financial statement must demonstrate the ability to service all the loans.

♦  Advantages ♦  Highest leverage
♦  Disadvantages ♦  Borrower must be financially strong
♦  Unrelated loan typically short-term
♦  Declining property value could be disastrous
Max CLTV ♦  100% Assumable? ♦  Yes
Rate spread ♦  175 to 300 bp Non-recourse? ♦  No
Closing costs ♦  $5,000 to $10,000 Seller contrib.? ♦  Yes
Min loan amount ♦  $500,000 Prepayment penalty ♦  Declining rate

No Prepayment Penalty Loan

Most commercial loan programs penalize the borrower for paying off a loan early. A small number of lenders offer programs with no prepayment penalties and with competitive interest rates. These programs typically have lower maximum loan-to-value ratios and shorter terms. The loan may balloon in as little as 5 years.

♦  Advantages ♦  No penalty for prepayment of loan
♦  Disadvantages ♦  Lower maximum LTV
♦  Loan programs have shorter terms
Max LTV ♦  75% Assumable? ♦  Yes
Rate spread ♦  175 to 300 bp Non-recourse? ♦  Possible
Closing costs ♦  $15,000 Seller contrib.? ♦  No
Min loan amount ♦  $500,000 Prepayment penalty ♦  None

Stated Property Income Program

Stated property income loans are designed for properties that currently do not cash flow for reasons the borrower intends to correct, such as higher-than-market expenses or vacancies. Instead of providing operating statements to document income, the borrower states the net operating income of the property. The lender verifies the income potential through a property appraisal. As such, the borrower's personal financial strength is more important than with other commercial loan programs. High leverage and seller second liens are permitted.

♦  Advantages ♦  High leverage possible
♦  High vacancy properties okay
♦  Disadvantages ♦  Borrower's credit more important
♦  Underwriting based on borrower's strength
♦  Higher interest rates than other programs
Max LTV ♦  70% to 85% Assumable? ♦  Yes
Rate spread ♦  300 to 800 bp Non-recourse? ♦  No
Closing costs ♦  $2,500 to $6,000 Seller contrib.? ♦  Yes
Min loan amount ♦  $100,000 Prepayment penalty ♦  Declining rate

Stated Borrower Income Program

Stated borrower income loans are designed for borrowers that cannot provide personal income documentation such as tax returns and employment verifications. They satisfy a niche in commercial lending on smaller commercial properties for which personal guarantees are important. The lender underwrites the property based entirely on its historical cash flow and appraised value. High leverage and seller second liens are permitted.

♦  Advantages ♦  Low or negative 1040 income okay
♦  Seller second liens allowed
♦  Personal income documentation not required
♦  Disadvantages ♦  Borrower's credit more important
♦  Higher interest rates than other programs
Max LTV ♦  70% to 85% Assumable? ♦  Yes
Rate spread ♦  325 to 800 bp Non-recourse? ♦  No
Closing costs ♦  $2,500 to $6,000 Seller contrib.? ♦  Yes
Min loan amount ♦  $100,000 Prepayment penalty ♦  Declining rate

Rehab Property Loan

Rehab property loans, sometimes called bridge loans, are designed for the purchase of properties requiring rehabilitation. This includes properties with deferred maintenance or high vacancy rates and properties that have been poorly managed. These loans typically are short-term, three years or less. The lender expects the buyer to refinance the rehab loan once the buyer corrects the problems. Rehab loans with longer terms are available through programs offered by the government. These government programs offer very high leverage, but they require strong and experienced borrowers. The minimum loan amount typically is $2 million, and closings are expensive and lengthy.

♦  Advantages ♦  Typically interest-only
♦  High vacancy properties okay
♦  Properties in need of facelift okay
♦  High leverage possible on government programs
♦  Disadvantages ♦  Loans typically short term, 3 years or less
♦  Higher interest rates than other programs
Max LTV ♦  75% to 85% Assumable? ♦  No
Rate spread ♦  350 to 550 bp Non-recourse? ♦  No
Closing costs ♦  $3,000 to $6,000 Seller contrib.? ♦  Yes
Min loan amount ♦  $500,000 Prepayment penalty ♦  None
♦  Fixed rate

Hard Money Loan

Hard money loans are short-term loans designed for properties that do not cash flow and situations requiring quick closings. Hard money lenders are collateral-driven, meaning they are interested only in the quick-sale value of the property. Lenders typically don't even consider the property's cash flow or the borrower's financial strength. Often, hard money lenders will accept a recently completed appraisal or some other estimate of property value in order to close the transaction quickly. The tradeoffs are much higher interest rates, higher loan fees, and lower maximum LTV.

♦  Advantages ♦  Quick closings possible
♦  Use of existing appraisal acceptable
♦  Borrower's financial history ignored
♦  Disadvantages ♦  Loans short term, typically 2 years or less
♦  Higher interest rates than other programs
♦  Higher lender fees
♦  Lower maximum LTV
Max LTV ♦  55% to 65% Assumable? ♦  No
Rate spread ♦  650 to 1100 bp Non-recourse? ♦  Possible
Closing costs ♦  2% to 5% Seller contrib.? ♦  Yes
Min loan amount ♦  $300,000 Prepayment penalty ♦  None

Please note that commercial lending is not standardized as it relates to loan terms and program guidelines. Lenders and investors use their own risk profile analysis to set such parameters as loan index, margin, amortization, term, and fees. The numbers in the tables are estimates and depend on the quality of the property and borrower. The rate spreads are given as the difference in basis points (bp) between the loan's interest rate and the rate for the 10-year US Treasury bond. For example, if the rate spread is 200 bp, the loan rate would 2% higher than the US Treasury bond rate. The closing costs do not include our company's origination fee, which typically ranges from 0.5% to 2% of the loan amount.