Commercial Loans and Fun Blog

Bridge Loans Last week I wrote a blog about how historically aggressive private money commercial bridge lenders are getting. This month George Smith Partners, the big commercial mortgage banking company (the original founder started George Smith & Company decades before I founded Blackburne & Sons forty years ago) released a newsletter, FinFacts, containing the following tombstone:

Police Dog

"George Smith Partners ("GS P") placed a $10,900,000 non-recourse loan for the refinance of an underperforming stabilized 50-unit multifamily community in Los Angeles. The Sponsor recently acquired the asset at approximately 50% below market from an affiliate party, and GSP was able to facilitate approximately $3,000,000in cash out proceeds at closing."

"A portion of the loan proceeds will be used to renovate units as they become vacant in order to achieve current market rents. GSP identified a non-institutional lender (private money lender) who was comfortable with the cash out proceeds and who understood the history and dynamics of this non-arms-length acquisition. The non-recourse loan is fixed for 1.5 years with a 7.99% interest rate and 4.99% pay rate."

Bear Kisses

Terms:

Interest Rate: 7.99% with 4.99% pay rate
Term: 18 months
LTV: 70%
Recourse: Carve-Outs Only
Fees: 1.0%
Prepayment: None; no exit fee

The reason I brought this closing to your attention is because the Big Girls (the originator of this commercial loan at GSP was a lady) are arranging large commercial bridge loans with less than interest-only payments.

Retirement

Did Dishes

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.

COMMERCIAL BUILDING FOR SALE 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?

A: Yes

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.

Got a deal? Please call Tom Blackburne, loan officer for Blackburne & Sons, at 574-210-6686 or email him a package at tommy@blackburne.com.