COMMERCIAL BANK LOANS
Commercial bank loans are provided by our correspondent community banks located throughout the United States.
WHAT ARE COMMERCIAL BANK LOANS?
Commercial bank loans are conventional fixed-rate, first mortgage loans secured by stabilized or nearly stabilized income-producing and owner-occupied commercial real estate properties that are leased to tenants or are owner-occupied.
Commercial bank loans are provided by community banks, and non-bank lenders that have the capabilities to lend on commercial real estate properties. Most commercial bank loans are full recourse to all the owners of the property that is financed. This means the owners personally guarantee repayment of the loan. In the event of default and a loss by the lender on the loan, the owners are personally obligated to pay the loss to the lender.
The Fairfield Inn and Suites
$5,200,000 Commercial Bank Loan
How Are Commercial Bank Loans Underwritten?
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.
What Is the Structure of a Commercial Bank Loan?
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.
What Types of Income-Producing Commercial Real Estate Are Eligible for Commercial Bank Loans?
The following types of leased income-producing real estate are eligible for commercial bank loans:
- Manufactured Housing Communities
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.
What Types of Properties Are Not Eligible for Commercial Bank Loans?
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).
What Loan Amounts Are Available for Commercial Bank Loans?
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.
Can Mezzanine Financing Be Added to a Commercial Bank Loan to Increase Leverage?
Yes. In certain instances, secondary financing is allowed to be subordinate to a commercial bank loan.
What Property Condition Is Required to Be Eligible for 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.
What Is the Demographic Criteria for Commercial Bank Loans?
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.
What Are the Costs to Obtain a Commercial Bank Loan?
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.
What Are the Prepayment Penalties for a Commercial Bank Loan?
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.
Wingate by Wyndham
JFK Airport, NY
$9,000,000 Commercial Bank Loan
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