I have been originating commercial loans for over 33 years now, and it has been my observation that commercial mortgage borrowers are very sensitive to points. Commercial mortgage borrowers will gladly pay a slightly higher interest rate, if by doing so they can reduce the size of the loan fee.
There is some logic in this position. Many commercial property investors trade up to a more expensive commercial property, one with even more depreciation, every five to seven years. Therefore it makes little sense to spend a lot money to obtain a long-term commercial loan, if that commercial loan is simply going to be paid off quickly.
Another example is when a commercial investor has a commercial property for sale. He needs cash now, perhaps to buy another investment property, but his older commercial building simply hasn't sold yet. A commercial bridge loan is perfect for such circumstances, as long as the points aren't too high.
A bridge loan is a fast, short-term, somewhat expensive commercial loan used to cover short-term cash flow needs. Most commercial bridge lenders will be very interested to hear the borrower's exit strategy.
Blackburne & Sons, my private money commercial mortgage company, therefore introduced this week a new commercial loan product, our one-point bridge loan product for commercial properties:
- Interest Rate: 14.9%
- Loan Fee: 1 point + $950 (nothing up-front)
- Term: Six months
- Prepayment Penalty: None
- Maximum Loan-to-Value Ratio: 65% (70% on purchases)
- Properties: Multifamily (5+ units), Commercial, and Industrial
Here are some Frequently Asked Questions:
Q: Can I use this program to fix and flip houses?
A: Sorry, but no. Home loans pay off too quickly to allow us to make any dough.
Q: Will you lend to foreign nationals?
Q: Why is the interest rate so high?
A: This bridge loan program is designed for borrowers who will only keep our loan for a few weeks or a few months.
Q: Can I get a 6-month or a one-year extension for a point or two?
A: It's usually not necessary to pay any extra points. If the loan goes past maturity, the interest rate simply goes up some. This way, if your borrower ends up keeping our commercial bridge loan for seven months, he doesn't have to pay some huge extension fee for that one extra month. We pass the entire interest rate increase on to our private investors, so usually they are quite content to keep receiving payments.
Q: What types of commercial properties will you finance?
A: Apartments, office buildings, retail buildings, strip centers, shopping centers, warehouses, industrial buildings, self storage facilities, hotels, motels, office condo's, commercial condo's, industrial condo's, marinas, health care properties, and gentlemen's clubs.
Q: Will you make your commercial bridge loan as a second mortgage?
A: We would be willing to consider a commercial second mortgage, but usually the underlying bank would prohibit our second mortgage. That being said, it wouldn't hurt to ask the underlying commercial bank if it would allow us to make a new commercial second mortgage.