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 straightforward commercial
mortgage is the permanent loan - really any long-term first
mortgage. Lenders typically issue permanent loans in the
5- to 10-year range, amortized over 25 years.
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. (It used to be that lenders often
required forward takeout commitments - agreements between
the developer and the lender that the lender will fund the
takeout loan to 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.
With so much commercial mortgage money available today, an
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.
A CMBS lender makes a loan according to very specific
guidelines then assemble that loan with others like it into
a large pool and issue 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.
Hard-money loans are typically very expensive, but can be
much more flexible than loans made by banks, CMBS lenders,
or life insurance companies. 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.
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Advisory Capital, Inc.
http://www.advisorycapitalinc.com
Apply for a commercial mortgage online at
http://www.advisorycapitalinc.com/commercial_applications.ht
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