Commercial Real Estate Loans: A primer
Sunday, January 25th, 2009
Commercial Real Estate Lending has gotten a lot less complicated, so this won’t be too long a post.
It used to be that there were dozens of “conduit” lenders and life insurance companies battling to make loans. The loans came without personal recourse (ie default and all the lender can do is take the property, they can’t take anything else of yours). The loans ran at amounts of up to 80 percent or more of the purchase price. I saw loans with 10 years of interest only at rates down in the low 5 percent range. This kind of lending — which surprise, surprise, largely originated on Wall Street — fueled an unsustainable run-up in property values.
Now that we’re down in the dumps, your source for a commercial real estate loan is in all likelihood going to be with a bank. These loans are going to feature lower loan to value ratios, amortizations in the 20 to 25 year range, and terms of 5 to 10 years with little to no interest only periods.
The good news is that with benchmark rates so low (for instance, the 10 year treasury in mid-2s) that rates are going to be relatively inoffensive, though loan constants of between 7.5 and 9 are going to be the order of the day.
Often these banks are going to want personal recourse, and they may want to do all your banking business.
