Commercial Real Estate Financing 101

It is advisable to have a plan in place prior to contacting lenders in your search for suitable commercial real estate financing. 

Commercial real estate financing is far less standardized than getting home financing, and has a whole language of its own. You and the commercial loan officer will generally discuss the tenancy and income of the property, if it is rented, and the property type, before getting into the borrower’s qualifications. As you will find commercial real estate financing options will vary as much as the loan amount and terms which vary greatly, depending on different property characteristics. 

When you contact the lender for commercial real estate financing, try to have as much of the following information as possible available:

1) The sales price or estimated value of the property

2) The loan amount desired

3) The property type, including approximate age of the improvements, square footage, lot size, and in the case of apartment buildings, the number, size, and types of apartments, who pays utilities, and what the parking arrangements are. In the case of commercial real estate financing and commercial properties, the tenancy, and when leases expire. If the building is occupied by, or being purchased by an “owner user” type of business/borrower, try to find out what the same space would rent for on the open market.

4) The income, and what expenses the owner pays.

5) The borrower’s credit, overall financial situation, and other properties owned.
Lenders are interested in how much other property your borrower owns, and what, if any, experience your borrower has in managing the type of property being purchased.

6) If the property is owned by an LLC, Corporation, or other entity, be ready to
provide basic information about the financial standing of that entity, as well

7) If possible, try to find out what properties are adjacent to the subject property. This can be helpful in identifying possible environmental concerns. (Relating to chemical seepage from adjacent properties.) This is often times a deal killer in commercial real estate financing transactions.

With this information, the lender can indicate if the loan request fits their lending criteria, and if so, what other information is required. In many cases, the loan officer will prefer to drive by the property before any more information is gathered, and sometimes before loan terms are even quoted.

Want to get the commercial loan officer or broker on your side right from the start? Of course you do. Commercial real estate financing is difficult as it is so it's best to have the cards stacked in your favor.

Try this: Take some digital photographs of the front, rear (if possible) and sides of the building. Then, take a photo of what’s on either side of, across the street from, and in back of the building. Type up a brief two page narrative description of the property and your commercial real estate financing request. This gives the loan officer a simple description of the property, the borrowers situation, and the need for financing. You can even provide rent rolls on apartments and information about leases and expiration dates on commercial buildings. This in not only advisable but recommended so that you can demonstrate your knowledge of the commercial real estate financing process.

E-mail this information to the lender or your broker, requesting a response. By providing this information
up front saves you and the lender a lot of time. Not only will the lender see that you know what you’re doing, you’ll most likely get a faster, more accurate response to your commercial real estate financing request.

As you work repeatedly with the same lenders, you’ll learn what type of information they require to consider a loan request. Building relationships with your commercial lenders will be a great help in closing commercial loans. You’ll find that many commercial loan officers have a significant say in the final approval of your loan request.

By: Ray Wateska 

Ray Wateska provides commercial real estate financing services and commercial real estate project consulting and insight for commercial property buyers, real estate investors and investors in mortgage loans. He's Federally registered and approved and licensed by the Florida Office of Financial Regulation as a Mortgage Loan Originator. Ray has been in the industry for more than 18 years and he’s also served as an expert witness in mortgage related litigation matters. Contact Ray for your commercial real estate financing matters.