Large Commercial Loans Today Are Being Written as Floaters with Collars
The days of long-term, fixed rate commercial loans are gone for awhile. Sure, a few life companies will still make commercial real estate loans between $5 million to $25 million at a long term, fixed rate; but commercial loans from life insurance companies seldom exceed 55% LTV today.
Most large, commercial loans getting funded these days are floaters - adjustable rate mortgage loans - on standing properties. Very few large commercial construction loans are getting funded these days, unless the loan is an apartment construction loan from the FHA.
Large land loans (over $2 million) are essentially impossible today too. No one is making them. In the years leading up to The Great Recession, large land loans were usually made by hard money lenders with large commercial mortgage pools. Unfortunately, almost every large commercial mortgage pool in the country is now either in bankruptcy or winding down.
The only large commercial loans being made today are loans on standing and almost fully-leased commercial properties.
When these loans are made, they are using being made by the money center banks as floaters. Floaters are adjustable mortgage loans with a term of usually only five years. They are usually readjusted monthly according to changes in one-month LIBOR. A typical margin is 300 to 400 basis points.
The borrower will usually want some sort of interest rate ceiling or cap. The lender will usually want some of floor on the loan. These interest rate caps cost money - usually an extra point or two. Sometimes a borrower can "pay" for his cap by agreeing to a floor. For example, a borrower can pay two extra points for a 4% ceiling; but if he agrees to a floor equal to the start rate, the lender might waive the two-point cap fee.
A loan with both a cap and a floor is said to have a collar.
If you need a large commercial loan today on a standing property, please write to me, George Blackburne, at george@blackburne.com or call me at 574-360-2486.