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Commercial Mortgage Types

By: Brandt Stohr

A commercial mortgage is any loan that is secured by either a rental (income-producing) property (including apartment buildings, shopping centers, and office buildings) or by a business related property (including owner-occupied buildings and manufacturing facilities).

There are a number of different types of commercial mortgages:

Permanent loan: The most basic of all commercial mortgages is the the permanent loan, basically any long-term first mortgage. 5 to 10 years is the standard range for commercial loans before they become due, but they are usually amortized over 25 to 30 year terms typically.

Takeout loan: A permanent loan that is used to pay off a construction loan.

Construction loan: When a developer is constructing a building, the first type of loan he'll typically look for is a construction loan, which will cover development costs until the property is user-ready (at that time the construction loan is typically paid off with a takeout loan).

The most typical construction loan today is an uncovered loan under which the lender does not require a forward takeout commitment. In the past, lenders would require takeout commitments- agreements between the developer and the lender that the lender will pay off the construction loan as long as construction proceeded according to the plan.)

Forward takeout commitments may help a developer sleep easier at night, but they typically cost 1-2 points, plus an additional point (at least) if the takeout loan funds. There is so much commercial mone available now that a uncovered construction loan is usually sufficient.

Bridge loan: A short-term loan, typically in the 6-month to 5-year range (3-year terms are the most common).

Mezzanine loan: A mezzanine loan is the commercial alternative to a second mortgage (few commercial real estate lenders offer second mortgages). In contrast to a second mortgage, a mezzanine loan is secured by stock in the company that owns the property rather than by the property itself.

Who sells commercial mortgages?

Commercial mortgages are typically offered by banks (both small and large), CMBS (commercial mortgage-backed securities) lenders, life insurance companies, and hard-money lenders.

CMBS lenders have very specific guidelines so that they can put the loans in large pools and sell them as securities to investors. CMBS lenders typically offer attractive interest rates, but also usually add in lock-out clauses and large pre-payment penalties.

Life insurance companies typically only look at the most desirable properties in a given region, and often lend no more than 60-70% loan-to-value.

The flexibility and the speed of Hard Money loans is the only advantage over loans made by banks, CMBS lenders or life insurance companies, but this can be a huge advantage sometimes. Developers looking for fast cash or loans on distressed properties - or those developers turned down by other lenders - can typically find a loan with hard-money lenders.

Article Source: http://www.articlemanual.com

Brandt Stohr helps clients obtian comercial loans of all types, for more information or to check out the website click Commercial Mortgage To apply for a commercial mortgage click Commercial Mortgage Apply



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