Current Issues That Kill Commercial Property Loans

Working on a commercial property loan?  Below we discuss some of the most common issues that kill borrower’s commercial mortgage loan requests and what you should watch out for.  The last thing you want is to blow 4 months and $6,000 on third party reports only to have your bank “pass” on your deal.



Value - Commercial Property Loan

Value now tends to be one of the biggest issues.  As real estate values continue to decline in most sections of the county, and within all property types you should be very aware of what your property is now worth and what the maximum loan to value requirements are from the banks that you are considering working with. 

Loan to value is a ratio used to reflect how much equity you have in your property and how much equity you would lose if you walked from the building.  For example, if your building is worth $1,000,000 and your existing loan amount is $700,000, your loan to value ratio is 70%.  Obviously, banks want lower loan to value ratios as it lowers their risk. This is one of the main areas that have been tightened since the credit crisis began.  Most lenders have lowered their max loan to value ratios by at least 10% in the last year.    

A more subtle issue here is if, or to what degree your bank will “tamper” with your appraisal report.  It’s common that they will review the appraisal report and alter the value before it is reported to you (I am not implying there is anything illegal here).  They will lend based on what they think it your property is worth.  If your loan to value is high to begin with, you’ll need to know what their reputation is with this.  You will only be able to find this out by working with experienced third party professional that has closed multiple transactions with the bank in question.  The loan officer at the bank will not reveal this.  A commercial mortgage broker will, as they get paid when your loan closes.

Commercial Property Loans - Wrong Bank to Begin With

This ties into above, but it’s never been more important to know how strong the bank really is, and what their real appetite is for your commercial property loan.   Most banks are now on the “sidelines” and not funding commercial loans.  Many of these commercial lenders simply don’t have any money to lend and others are being conservative and want to see the general economy turn around before they start to lend again. 

However loans are still closing loans.  It is imperative that you deal with the banks that are still actively funding loan requests.  For example, SBA commercial loans and the participating lenders have weathered the storm fairly well, as they were down by only 30% in 2008 from 2007.  Compared to conventional or CMBS loans that have come to a screeching halt, this looks pretty good.    

The best way to know which banks are really interested in your commercial property loan and which ones will have the highest chance of closing is to get an unbiased third party referral.  Talk to your CPA, Attorney or an experienced commercial mortgage broker (like us).  Make sure that whoever you talk to has recently worked with the lender they recommend.  When working with a broker, make sure they are experienced and have recently closed a loan with the bank. 

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