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Real Estate Investing => Financing, Hard Money Lenders, Private Money => Topic started by: denver_dan on May 08, 2006, 11:37:12 pm

Title: Max LTV for commercial financing??
Post by: denver_dan on May 08, 2006, 11:37:12 pm
Hello,

I am trying to find commercial lenders who will lend above 80% LTV with a decent rate?  Does it exist?  90% LTV?

Thanks,
Dan
Title: Re:Max LTV for commercial financing??
Post by: mtgman46 on May 09, 2006, 05:43:30 am
Hi Dan,

Yes, you can get over 80% LTV, however, when you do that you have to realize that lenders are going to be very exacting on what they will and will not require and the rates that go with it. It is a matter of risk factoring. 90% financing on commercial loans is available but when doing your numbers you must look at what that 90% financing is going to cost you in the long run. It may be great for the downpayment portion but when you look at the rate and payments that go with it you'll have to decide whether or not the monthly costs is worth it. Good luck.

marc
Title: Re:Max LTV for commercial financing??
Post by: rbaxter on May 09, 2006, 07:52:09 am
I agree with the above post- 90% is available out there, but the underwriting requirements are strict (perfect credit, etc) and the rates are high- it is unlikely the rate will be below 10%.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 08:03:08 am
Not likely.  If a lender offers 90% (one loan) rates are going to be at or above 10%.

If you go with an 80/10/10 combo (1st and 2nd) you would be looking at 10 Year Treasury + 1.50% (or about 6.65%) on the first and 12.750% on the second....The catch is that the min. loan amount on the first is 2 million and the min loan amount on the 2nd is $250K.

In both cases you will need strong credit and assets.
Title: Re:Max LTV for commercial financing??
Post by: christopher w on May 09, 2006, 01:13:30 pm
EEM,

What commercial lenders are you using that are offering rates like that. I have looked around and have not had any luck finding rates like that. Any information you could provide would be great.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 01:16:07 pm
It's conduit.
Title: Re:Max LTV for commercial financing??
Post by: christopher w on May 09, 2006, 01:45:05 pm
What is "conduit"? I have been researching small balance commercial?
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 01:54:02 pm
It's the same as a CMBS (commercial baced security) the loan is securitized shortly after closing and sold directly to the market/investor.

Most of the time rates offered by conduit lenders are much lower than those offered by traditional commercial lenders.

Drawbacks are: higher closing costs.  Impounds (Taxes, Ins., tenant improvements, Leasing commissions, etc). Lock outs followed by Defeasance or yield maint.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 01:56:52 pm
Smallest conduit program I have ever seen is 500K...and they don't really want to do it with a loan amount that low, but they will.
Title: Re:Max LTV for commercial financing??
Post by: christopher w on May 09, 2006, 02:38:10 pm
okay gotcha.  thank you so much for the info. i learn something new every day. ;D
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 02:44:43 pm
No problem.

Conduit is hot. ;D

It's fun to quote someone conduit rates when another broker is quoting silverhill or met-west, etc. :grinyes:
Title: Re:Max LTV for commercial financing??
Post by: AaronSanDiego on May 09, 2006, 02:46:35 pm
stay away from conduit...its a nightmare and they usually want $15,000 up front.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 02:52:53 pm
Fees are higher on conduit loans and the loan process is not for the faint of heart, but for a borrower who has a loan amount over 2million the rate difference is no joke.

Would you want to pay even .5% more than you had to on a loan amount of $5 million?
Title: Re:Max LTV for commercial financing??
Post by: AaronSanDiego on May 09, 2006, 03:02:20 pm
The only time conduit is worth doing is when you client plans to hold onto the property for at least 10 years and understands how costly the defeasance or yield maintenance prepayment penalties are. Its rarely worth saving .5%
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 03:08:27 pm
Well if your going to defease...lol...you might as well hang it up.

I've never done a conduit loan for anyone who did not have a portfolio of commercial properties and did not intend to hold onto them.

I'll agree that if someone is not intending on holding the property long term conduit would not make much sense.  There are some agressive portfolio products out there.

I'm just now learning the life insurance ropes.  I still have yet to see what's so attractive about them....maybe I just have not found the right company.
Title: Re:Max LTV for commercial financing??
Post by: AaronSanDiego on May 09, 2006, 03:35:56 pm
really the only thing attractive is the rate and if you think about it, you could take that $15,000 that they charge in closing costs and pay discount points to buy down the rate from a regular commercial lender.

Oh and conduits are non-recourse as well so thats attractive to some people. There are plenty of conduit lenders tho so people are using them and they must be doing something to stay in business. I usually tell people to run the other way tho.
Title: Re:Max LTV for commercial financing??
Post by: christopher w on May 09, 2006, 03:59:02 pm
what is "defeasance"?
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 03:59:54 pm
I've seen a few conduits that probably won't be around to much longer and a fee that offer real value....column financial being one of them.

For instance:  I recently closed a retail refi.  where the portfolio lender was offering a rate of 7% on a 10 year arm amortized over 30 with a bullet in the 15th year.  Column offered 6.575% amortized over 30 with a 10 year bullet.  Columns fees were only 6k more.  The client did not like the idea of an adjusting rate after year 10 and did like the over 200/month savings with the conduit.  The additional closing costs will be paid off in the next 24 months...after that the borrower will save over $20,000 before year 10.



Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 09, 2006, 04:06:21 pm
instead of having a fixed pre-payment penalty the borrower must replace the "cash flow" the investor would recieve by paying what it will cost to buy enough bonds to replace the cash flow.  It's expensive...third party fees are often in excess of 50k not to mention the purchase price of the bonds (if bond prices have risen since securitization of mortgage)....if bond prices have droped signifigantly since the securitization of the mortgage there is the posibily of a "discount" on the principal balance refund...in other words it could in theory work out for the borrower.  

Check out "defeasance calculators" in google.
Title: Re:Max LTV for commercial financing??
Post by: christopher w on May 09, 2006, 04:22:23 pm
Man that is some complicated stuff. How long have you been doing commercial loans?
Title: Re:Max LTV for commercial financing??
Post by: AaronSanDiego on May 09, 2006, 04:49:14 pm
Here's a good article that explains deafeasance and yield maintenance.

http://www.findarticles.com/p/articles/mi_qa3681/is_200107/ai_n8953948/pg_2
Title: Re:Max LTV for commercial financing??
Post by: amusedtwinkle on May 10, 2006, 03:12:35 pm
Hi all, what you all have said is very interesting...because I have a lender that will do a 90% loan no problem no conduits or anything...of course you have to have good credit (at least 680 FICO)  and loan must be above 100,000 up to 1.2 Million also property must be able to carry itself of purchaser must prove ability to carry....loans close in 30-45 days.... a variety of ammortorizations available...interest rate between 10-11% rates aren't the best but could be worse....

You all are probably saying....SURE what's the catch....no catch....
Title: Re:Max LTV for commercial financing??
Post by: AaronSanDiego on May 10, 2006, 03:26:42 pm
yeah there are several lenders doing those...but there is only one that buys all that paper.
Title: Re:Max LTV for commercial financing??
Post by: Mortgage Mark on May 11, 2006, 10:17:40 am
You have to consider the loan amount when asking this question.  

90% is doable near 10%, even a little lower with excellent credit.   And this is on a stated loan


I didn't read all the posts, this is a long forum, but if I'm wrong tell me.  Ill look through my stack of companies to find who it is that offers this, but I know it's available.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 11, 2006, 11:48:21 am
90% is easy.  Getting a good rate is not.  A borrower can get 90% on a million dollar loan, but the rate is going to be ugly.  If they want a better rate they are going to have do 90% on a "multi-million dollar" property.  There is a big difference between a 10% DP @ 100K vs. a 10% DP a 500K.

I have yet to see a 90% small balance loan with a rate under 10% and a fixed term over 5 years.
Title: Re:Max LTV for commercial financing??
Post by: silverhilljohn on May 11, 2006, 04:36:51 pm
How about 90% for 5% interest rate (you all know I am kidding)  Everyone wants everything for nothing, we need to be realistic.  

Through residential brokers, Silver Hill Financial offers 90 % LTV on Tier 1 and Tier 2 property types for strong borrowers seeking loans from $100k to $1,500,000.  Will the rates be in the 10's or 11's for 90%, YES THEY WILL, sorry.    

The Silver Hill program features competitive pricing, long terms and high LTVs.  We finance up to 90% LTV on multifamily, mixed-use, warehouse, self storage, retail, office, bed & breakfast, light industrial and mobile home park properties with 30 year terms on all qualifying property types.

Call Al H at 630-303-8834 and have him connect with me.  He is Chicago based, but will write a commercial deal across the country, we can close locally.  Our loans do not have balloons associated with them, we amortize 15-20-and 30 years (which provides for very good cash flow to the intelligent investor, even in the 10's)  Our lower LTV loan rates have been lowered to be more bank competitive.  Al is a mortgage broker of mine that is as reasonable as I have seen, his fee is almost always under 1%, and SHF only charge $500 to close a loan.  Very few surprises with us.  
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 12, 2006, 08:30:44 am
Silverhill is better than say....Velocity, but there are other lenders with much favorable rates on 90% who do not have a 10% prepay.
Title: Re:Max LTV for commercial financing??
Post by: silverhilljohn on May 12, 2006, 08:42:12 am
Who says we have a 10% prepay?  Our standard is 5% for 5 years, even on our fixed rate program(which actually declines .5% every five years).  We can get our pre pay down to 3 years.  As noted, we have virtually no fees to do a loan on the front.  Are we perfect for every deal, heck no, but we do offer a solid program for a large number of borrowers.  All we say is get all the details of these lower rate programs and compare the entire deal.  We do DTI and/or DSCR underwriting, if a property is break even or making just a few percent profit, find another borrower that will get the deal done based on personal DTI and let me know about it.    
Title: Re:Max LTV for commercial financing??
Post by: silverhilljohn on May 12, 2006, 08:44:14 am
I meant to say find another Lender, not borrower above, Sorry.
Title: Re:Max LTV for commercial financing??
Post by: 4EEM on May 12, 2006, 08:46:57 am
Your right....I just checked...the prepay is only 5% now.  Last time I tried to run a deal with Silverhill there was a 10,9,8,....
Title: Re:Max LTV for commercial financing??
Post by: silverhilljohn on May 12, 2006, 09:03:34 am
We got rid of the declining pre-pay on the long term fixed loan, boosted our max loan amount to $1.5M, offering 85% LTV with A- credit, giving a reduction for lower LTV deals with A credit and good DSCR, giving 80% 30 amortizations on Tier 3 properties, and 75% 30yr ams on Tier 4 properties.  No defeasance, no yield maintenance, I believe it is a straight forward program.  We are not built for the buy/fix/flip 6 months later borrower, our focus is on moderate long term positive cash flow investors that may way to purchase more than one property, thus the 10% down.  When our brokers understand the products, the market to the correct investors, the results are very good.  When we see a borrower that is only hunting for the best rate and does not look at the entire scenario, we watch lots of train wrecks occur.