What is Your Rate?
I get asked this question every day. Every day, my answer is the same, “it depends, tell me about your deal”. The reason is very simple, commercial is not like home mortgages, everything depends. If Bill Gates, and Karen Schimpf were both buying a house, we would both get the same good rate-FNMA rates are what they are. In commercial, the type of property matters. If Bill Gates was buying a grocery anchored shopping center for $13 Million he may get a fixed rate in the 3’s. If Bill Gates was buying a class C shopping center with no anchor tenants for $1 Million, he would struggle to find a rate below 4.5%. The property matters.
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Conversely, if Bill Gates had never owned a multi-family property, and was buying a Class A multi-family product in Topeka, KS…he would probably get a rate in the low 4’s but John Smith, who owns 4 multi-family properties already, buying that same complex in Topeka, KS might get a fixed rate in the 3’s Non-recourse even though he has a fraction of the financial strength of Bill Gates. The borrower matters also. So honestly, without knowing all these factors-IT IS IMPOSSIBLE TO ETHICALLY QUOTE RATES. However, I am going to endeavor to give you ranges in this ezine today so you can have a general idea-hopefully this will help give some guidelines. AS MENTIONED EARLIER, this is only a general range by product/asset type and NOT set in stone rates.
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INVESTOR DEALS (size matters)
– Larger class A/B deals in major metros can get fixed rates in the 3’s and low 4’s.
-Once you go below $1 million, rates will generally be in the 4’s best case even for solid properties
– Class C deals under $750K and/or tertiary markets may see rates into the 5’s
*** All of the above assume 75-80% occupancy and cash flow above 1.25 DSCR***
OWNER OCCUPIED DEALS (Borrower strength matters)
***Owner occupied deals are where the business occupies the property, there are really two main options-Conventional and SBA. Both assume DSCR of 1.2 or higher***
– Conventional-ONLY FOR THE STRONGEST OF BORROWERS-will see fixed rates in the 3’s and 4’s and LTV‘s between 65-80%. An 80% conventional loan with a fixed rate in the 3’s needs to be perfect essentially. For this type of loan, VERY few borrowers qualify.
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SBA – 2 Types – 504 and 7a
-504 Loan is only for Real Estate and equipment deals and generally have a Fixed rates with a 1st and a 2nd loan blended rates in the 4’s. We can do these in house for clients. Special purpose propeties like hotels and gas stations will generally see blended rates in the low 5’s.
-7a Loan can be used for start ups, working capital, business only purchases, RE and equipment deals. Floating rates generally fall between high 5% to 6.25% depending on strength of the borrower/property/business/etc.
ALT – A – Deals ( Just miss qualifying for the above mentioned deals for whatever reason – property type, location, credit score, vacancy rates, etc. Generally rates will be between 6.5% to 9% on these type of deals. The deal must cash flow which is key for Alt-A deal.
Stated Income is available and you are likely to be closer to 9% to 12% for that type of product. These are fixed rates for 3 -5 years with 30 year amortization period likely. The higher rate is typically fixed 25 years with 25 year amortization. The fixed 25 year is unusual in the commercial market.
Bridge Deals/Private Money ( This is generally for properties that do not cash flow right now, or they are rehabing the property, or need a fast closing in 30 days or less, or they have a major credit hiccup like tax liens.) Rates for these deals rely heavily on property type. For example larger multi-family possibly can get rates starting in the 7’s and raw land going as high as 15% or more. Most deals fall in the 8 to 12% range. The term is generally for 1 to 3 years and might have an interest rate only payment. These loans are stop gap measures, they are only for a time to get the deal done NOW, so that it can be re-positioned and refinanced or sold off latter.
The Above List is in No Way All Encompassing. There are subtle nuances to every deal that may change the game. There is no way to go over every type of property and situation. To get an accurate quote give me a call at 512-650-8630.
Wishing You the Best,
Commercial Capital, Ltd.