Commercial Bank loans are underwritten:

• based on the income generated from the property being financed and
• based on the federal income tax returns for the property being financed

Commercial Bank loan underwriting also considers income the property owner earns from other sources, such as salary income or net income from other real estate sources. In addition, Commercial Bank loan underwriting considers the income from other commercial properties and businesses owned by the borrower. As a result, commercial bank loan underwriting can be cumbersome if the property owner owns many properties and businesses.

The typical structure of a commercial bank loan is a term of 3, 5, 7 or 10 years, with payments made based on a 20- or 25-year amortization schedule.

The following types of leased income-producing real estate are eligible for commercial bank loans:

• Multifamily
• Manufactured Housing Communities
• Retail
• Office
• Industrial
• Hotels
• Self-Storage

In addition, the following types of owner-occupied commercial real estate are eligible for commercial bank loans, including multi-use owner-occupied properties (industrial, office, medical office, office/warehouse, and retail). In addition, semi-generic owner-occupied properties are also eligible, including automobile dealers, light automotive services, tire and brake centers, funeral homes and schools and day care centers. In certain situations, high performing Special Use properties are eligible for commercial bank loans, including restaurants and specialized manufacturing facilities.

Within these income producing property categories, the following sub-categories are also eligible:

Eligible Multifamily: Student Housing, Age-Restricted (Seniors) Multifamily, Furnished Multifamily, Multifamily with Section 8 voucher tenants, Multifamily with HAP contracts, Multifamily with IRS Section 42 tax credits.

Eligible Manufactured Housing Communities (MHCs; also known as Mobile Home Parks): MHCs with up to 20%-25% landlord-owned homes and MHCs with single-wide homes.

Eligible Retail: Malls, Anchored Multi-tenant Retail, Neighborhood Multi-tenant Retail, Unanchored Multi-tenant Retail, Single-tenant Retail (with long-term — 5-plus years — to a credit tenant and high likelihood of lease renewal).

Eligible Office: Multi-tenant Suburban Office, Multi-tenant Urban Office, Single-tenant Office (with long-term — 5-plus years — to a credit tenant and high likelihood of lease renewal), Government Office with no lease cancellation clauses.

Eligible Industrial: Multi-tenant Warehouse/Distribution, Multi-tenant Light Industrial, Single-tenant Industrial (with long-term — 5-plus years — to a credit tenant and high likelihood of lease renewal), Multi-tenant office/warehouse (office in front/warehouse in rear).

Eligible Hotels: Full-service, Select-service, Limited-service and Extended-stay hotels that are Mid-scale and higher franchised hotels as defined by Smith Travel Research (click here for STR hotel chain scales). Independent hotels located on/near beaches, Boutique hotels in urban/suburban locations with ADR over $100/night.

Eligible Self-Storage: Independent and franchised self-storage, climate controlled and non-climate controlled.

Construction and substantial rehabilitation projects are generally not eligible for commercial bank loans.

Healthcare (defined as real estate with meals and health services provided) are generally not eligible for commercial bank loans.  Properties with well below-market occupancy are not eligible for Commercial Bank loans (but may qualify for a bridge loan).

Commercial bank loans are available for loan amounts from $1 million to $100-plus million.  Loan amounts from $500,000 to $1 million are available on a case-by-case basis.

Yes. In certain instances, secondary financing is allowed to be subordinate to a commercial bank loan.

Class A, Class B or Class C properties are eligible for commercial bank loans.

Classifying commercial property is subjective, but some general criteria that may qualify a property for a commercial bank loan include the following: less than 20 years old or recently renovated; limited or no deferred maintenance; and/or competitive within its market. The best way to qualify a property is to contact your ValueXpress representative with the property address. Together, you can consult Google earth to look at the property and determine its eligibility.

Commercial bank loans are available for properties in all 50 states and Puerto Rico. Properties must be located in a major metro, secondary or tertiary location.

Properties located in a rural area (except for hotels located on a major highway) are generally not eligible for commercial bank loans.  Determination of a rural location is subjective, but one general criteria is a population of less than 20,000 persons.  Please contact your ValueXpress representative with the property address to determine if the property is ineligible for a commercial bank loan due to its potential rural location.

The majority of the costs to obtain a commercial bank loan is the fees for an appraisal, property condition report, and Phase I environmental site assessment and lender’s legal charges.

In addition, typical commercial real estate loan closing costs include title insurance costs, survey charges and borrower counsel fees.  The typical expense deposit to cover these costs is $10,000-$15,000.  Should the borrower cancel the loan during the underwriting and closing process, any unspent deposit will be returned to the applicant.

The prepayment penalty for a commercial bank loans is typically a declining structure, such as 5%-1% for years 1-5 with a 5-year term.

This means the prepayment penalty is 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and 1% in year 5.  In year 5, a window of 3-6 months is available to prepay without penalty.