I'm in the maket for a commercial real estate loan in Northern, California. This loan is for a building zoned light manufacturing, and it will be used for my electronics service company of 15 years. I am a professional real estate investor, and business person with several corporations, and a nice property protfilio including one commercial office building. How come it is such a pain to get a commercial real estate loan under 250K, and better than 70% financing? I have several hundred thousand dollars of unsecured credit lines between 0 & 4% interest, and banks are beating down my door to give me more unsecured credit. I can get low interest, 10% down no doc on any type of residential property. Yet when I ask for a secured loan on a commercial building no one is interested. Maybe I'm not lookng in the right place. Any suggestions?

Hey Dennis,
I live and work in Northern California. Actually Sacramento. Email me at jandgbl1@yahoo.com or call me at 916.208.4278 and we can talk about your frustrations.

Jason Andrews

Dennis:

Bank lenders are subject to many regulations. One of those regulations is that a commercial lending policy is created that will provide for loan-to-values on different types of commercial properties. The fact is that commercial real estate loans go bad at a much higher rate than residential loans and that the process of foreclosing can be expensive and time consuming.

70% sounds kind of strict. I know many banks that do 80% on owner occupied properties. You might even be able to get a higher loan-to-value from a non-bank lender.

Good luck

Dennis:

I agree with the moderator. I know of banks that offer upto 80% for stablilized properties. Assuming you have good personal networth, try WAMU. Washington Mutual. If they are strict about the type of property you are intending to purchase, try smaller community banks that have fewer restrictions on commercial property types. Trying a non banking lender is also a good option. Bcause very often, its presentation of the deal that can make a huge difference with any lending institution.

If you have any questions or need any further advice, dont hesitate to contact me.
Good Luck!
Riti Madugula
SVP

Thank you all for your input thus far for your input. Yes, I've tried WAMU and their commercial department gave me some line that they only do commercial loans above one million. I am primarily an investor, but also a licensed Realtor, and manager for a mortgage company to assist my investment needs. I'm not trying to get any business for my organization here so it will remain nameless. I read all these investment books that tell you to develop a relationship with a banker to accomodate your loan transactions. The fact is that I have personal and business bank accounts at several major banks, and several local banks. In addition my organization has over 90 other lenders to access. Even with all these lender contacts, and bank relationships I don't get a friendly response in regard to commercial loans. I would like to purchase more commerical properties. How do I establish the banker investor relationship that I keep hearing about? How do I get loans based on my protfolio and track record? How does Trump do it? Is the personal touch in banking gone? Has it been reduced to computers, rules, and some college guy that can't make a decision?

How do I establish the banker investor relationship that I keep hearing about? A good start would be not going to WAMU. No offense to any WAMU employees reading this, but I would think you would have a better choice with a smaller community bank. Look for any community bank with assets between $100MM and $10,000MM.

How do I get loans based on my protfolio and track record? How does Trump do it? To be honest, right now your track record with any banker is 0. It does not matter how Trump does it his avenues of getting financing are closed to most regular investors.

Is the personal touch in banking gone? Has it been reduced to computers, rules, and some college guy that can't make a decision? Nope commercial lending is a custom job most of the times.

First, WAMU has been exiting commercial lending all together in much of its footprint and appears to be restructuring itself as a straight consumer lender.

Second, there is a big difference between commercial and residential properties. Residential properties are generally much more liquid, stable, and less risky then commercial properties. The lending laws are also different. Consumer mortgages are driven by the FHA commercial loans are regulated by the OCC and FIRREA. As a result consumer mortgages are easier to get and at higher advance rates. We are also experiencing a market dislocation with low interest rates where lenders are taking much higher risk in consumer real estate than was historically taken. Most people get into homes with little to no money down.

Based upon your previous comments I assume the property will be owner occupied, you have good credit, your business is viable, and you have some money for a down payment. Less than $250M is a small loan. I recommend a small to medium sized community bank or even a credit union. They will give you the best rates, terms, and service on this size of loan. Most banks will lend the lesser of 75% of appraised value or purchase price, some will go to 80%. If you cannot put 25% down, consider an SBA 504. You can generally get an advance rate of 90% and a longer loan term. Fees, paperwork, and costs are not bad (unlike SBA 7a loans). Check the tax assessed value of the land and building. If this value is in line with the purchase price and the building is owner occupied you may not need an appraisal, per FIRREA.

I’m surprised that you’re struggling to find a commercial lender, almost all banks have them. I assume that most of your contacts are on the consumer side and are either back office in larger banks or are consumer lenders like Countrywide. None of these people would know how to refer you to a commercial lender. Go into a bank branch and ask for a commercial lender. If they do not have one, then the branch manager acts as the commercial lender on a loan this size.

Good Luck

Bankpro makes a good point about the 504 program. I did not mention it because I was under the impression that CDC's minimum was $250,000. But I just looked at the manual and the minimum is $125,000. I normally don't see loans of this amount anymore.

Hey Guest_Dennis,

Call me at 916.208.4278 and I will give you names to AE in Northern California who can possibly close your commercial deals. Email if you want and I will send you a list as well.

Jason

Strangely enough, my experience has been that you can get a different answer or response from the same bank/lender depending on who you talk to. I would try different avenues or branches, then the 1-800 number. I had several tell me they couldnt do it, then one guy at one branch say he could, only to strike out a few weeks later, then i called the 1-800 number and got a guy who said yes we can, and we closed two months later. UNREAL!

JP

Dennis,

I work with an agressive non-bank lender on both SBA and conventional loans. It should not be a problem to get 90% financing assuming your company will occupy 51% and you have the cash flow.

Give me a call or drop me an email with the specifics and I'll have details back from the lender in less than 24 hours.

Tim Lawless

You may be having a tough time finding small commercial financing. One of the reasons is that almost all (non brick and mortar bank) commercial loans under a million are securitized. They are packaged up and sold off. The outfits/lenders that have been doing this have developed such expertise and economies of scale (and as a result, volume), that other traditional lenders are either unable or unwilling to get into small commercial lending. There has been and will be a continued surge in demand for small commercial loans and securitizations and this will last thru 2006. As far as traditional banks go, some will only do small commercial financing locally others will even stay away from refi’s. One of the major problems with traditional banks is that they usually will only finance properties with good curb appeal and great debt service. Non traditional lenders are able to either bend financing parameters or have a different set of parameters.

The best solution for an investor is to hook up with an experienced commercial financing broker who knows what he/she is doing. When it comes to commercial, there are a lot of mortgage brokers out there that don’t know what they are doing. I have dozens of stories of how incompetent or uninformed brokers have actually sunk deals. Having said that, ask a fellow investor, accountant or lawyer for a reference. The infamous “we have relations with 700 lenders” is NOT the answer you want to hear. An experience broker can look at a deal and tell you what he can and cannot do.

Dealing with a lender directly is also good. If you are in the market for one type of product or property i.e multifamily or warehouses etc, you will have a better experience with a lender. At the same time do NOT underestimate the value of knowledgeable broker. You may pay a little more to go thru a broker but it’s worth it. There is more to financing than just a rate. It’s better to pay a little more now than be stuck with unfavorable terms/option that you are not familiar with. There a many ways to save money in the long run, something that experienced brokers are well versed in. Feel free to email me if you have any questions. Thanks, Naj