Determining Your Commercial Mortgage Interest Rate
What is Your Rate?
I get asked this question every day. Every day, my answer is the same, “it depends, tell me about your deal”. The reason is very simple, commercial is not like home mortgages, everything depends. If Bill Gates, and John Smith were both buying a house, we would both get the same good rate-FNMA rates are what they are. In the commercial, the type of property, loan size, the borrower’s net worth, location, how close the property is to a major metropolitan, quality of the property, occupancy rate, and experience matters. If Bill Gates was buying a grocery-anchored shopping center for $13 Million he may get a fixed rate in the 4’s. If Bill Gates was buying a class C shopping center with no anchor tenants for $1 Million, he would struggle to find a rate below 4.5%. The property matters.
Conversely, if Bill Gates had never owned a multi-family property, and was buying a Class A multi-family product in Topeka, KS…he would probably get a rate in the low 4’s but John Smith, who owns 4 multi-family properties already, buying that same complex in Topeka, KS might get a fixed rate in the 4’s non-recourse even though he has a fraction of the financial strength of Bill Gates. So honestly, without knowing all these factors-IT IS IMPOSSIBLE TO ETHICALLY QUOTE RATES. However, I am going to endeavor to give you ranges today so you can have a general idea-hopefully this will help give some guidelines. AS MENTIONED EARLIER, this is only a general range by product/asset type and NOT set in stone rates and rates are subject to change.
INVESTOR DEALS (size matters)
– Larger class A/B deals in major metros with loan amounts above $1MM can get fixed rates in the 4’s and 5’s.
– Once you go below a loan amount of $1 million, rates will generally be in the 5’s to 6’s best case even for solid properties
– Class C deals under $750K and/or tertiary markets may see rates into the 6’s
*** All of the above assume 75-80% occupancy and cash flow above 1.25 DSCR***
OWNER OCCUPIED DEALS (Borrower strength matters)
***Owner occupied deals are where the business occupies the property, there are really two main options-Conventional and SBA. Both assume DSCR of 1.2 or higher***
– Conventional-ONLY FOR THE STRONGEST OF BORROWERS-will sees fixed rates in the mid 4’s and LTV’s between 65-85%. An 80% conventional loan with a fixed rate in the 4’s needs to be perfect essentially. For this type of loan, VERY few borrowers qualify.
SBA-2 types-504 and 7A
– 504 Loan is only for Real estate and equipment deals and generally, have FIXED rates blended in the 4’s. We can do this in-house for clients. Special purpose properties like hotels and gas stations will generally see blended rates in the low 5’s.
– 7A Loan can be used for business only purchases/startup/refinance for real estate, tenant improvements, inventory, equipment, furniture, fixtures, and working capital. The rate for a 7(a) for loan amounts above $250,000.00 dollars are prime + a margin up to 2.75. There are fixed rate is an option depending on strength of the borrower/property/business/etc.
Just miss qualifying for the above-mentioned deals for whatever reason-property type, location, credit score, vacancy rates, etc.) These are fixed rates for 3-5 years with a 30 year amortization period likely.
BRIDGE DEALS/PRIVATE MONEY
(This is generally for properties that don’t cash flow right now or they need a fast closing under 30 days or they have a major credit hiccup like tax liens). Rates for these deals rely heavily on property type with larger multi-family possibly getting a 7% rate and raw land going as high as 15% or more. Most deals fall in the 8-12% range and generally are for 1-3 years and often interest only. These loans are stop-gap measures, they are only for a time to get the deal done now so that it can be re-positioned and refinanced or sold off later.
is available and you are likely to be closer to 9% for that type of product. These are fixed rates for 3-5 years with a 30 year amortization period likely.
THE ABOVE LIST IS IN NO WAY ALL ENCOMPASSING. There are subtle nuances to every deal that may change the game. There is no way to go over every type of property and situation. TO GET AN ACCURATE QUOTE.
Give me a call today at 512-650-8630 or get started by filling out this form.