How To Refinance Commercial Building Or Refinance Commercial Property

By Author: Constance Black
Total Articles: 6
Comment this article

If your commercial investment property's note is coming due and you are having difficulty for any reason finding a new lender to pay off the mortgage on your property you're not alone.

For almost 20 years we have been arranging loans for property owners who CANNOT obtain a new mortgage lender for any reason, including credit problems, vacancies, poor credit, bankruptcies or situations where the value of the property has fallen lower than the mortgage amount to be paid off. There is absolutely NO Cost or obligation to receive a loan proposal.

"Over 80 percent of applicants we work with are refinancing their commercial building for the first time. Many come to us with a basic level of knowledge of commercial real estate, which is often limited to residential only," says John Nagle, senior vice president and regional sales manager for The Sterling Fund. "These building owners learn their objectives are consistent with those of the lender. The applicant wants a loan to purchase a sound economic asset that has utility and tangible value, and the lender wants to have collateral for their commercial loan the exact same ...
... thing."

The Sterling Fund spoke with Nagle about what business owners should understand about the process of refinancing commercial real estate.

Who is a typically refinancing commercial real estate?
They are business owners who seek new financing for their business building About half the applicants request additional financing for consolidating debt or rehabbing their buildings. Most of them own closely-held businesses that are not publicly traded but are owned by one or two individuals or a group of family members. Often, they're looking to stabilize their occupancy costs, eliminate their exposure to escalating financing costs or are facing aballoon payment.

What types of businesses are looking for commercial real estate financing?
Banks work with all types of businesses, including manufacturers, service businesses, retailers, distributors, contractors and investors. These business owners have some commercial real estate objective in mind —refinanceing a building, improvements or repairs, or buy out a partner in the building. As owner/users, there is heavy emphasis on U.S. Small Business Administration lending. In that type of lending, the leverage, or debt to equity ratio, that's available to the borrower is high — up to 90 percent — which means you get more debt and require less equity. Yet, for many, they can't qualify or more often, they can't close financing with their bank. The SBA Loans are for highly qualified individuals with ZERO negatives. That's just not most business property owners.

When do the lender's and applicant's objectives coincide?
There are several that center on the property they're buying. The lender will review a title report and order an appraisal and environmental report and possibly structural or mechanical reports. These reports provide the lender with data that will support or reject the negotiated purchase price while providing a good sense of the integrity of the property. For buyers, these reports will give them assurance that what they're buying can, at some point, be sold and financed by a new buyer, thereby returning their initial investment; though that hinges on the market conditions at the time.
The lender's approach to analyzing the property and assessing its value will involve quantifying the amount of rental income it can generate and reviewing the lease and sales comparables that are presented in the appraisal to confirm that they are suitable for valuing the property.
How can a business owner best prepare to purchase a commercial building?
The best way is with pre-qualification from your lender. In the case of a business owner, the underwriting and analysis focus on the business he or she owns. When they're trying to purchase a building to house their business, their commercial real estate broker will require them to get a pre-qualification letter, which will be submitted with an offer to purchase. Much like residential real estate, a prospective buyer who is prepared and can demonstrate his or her capacity to borrow will be better received by sellers and brokers.
Are there misconceptions about replacing a commercial mortgage ?
Even if your property has great cash flows and NOI -but your bank is in trouble and wants out- we can still help with an inexpensive replacement mortgage.

We are a national clearinghouse representing scores of non-traditional mortgage lenders who finance troubled situations (or into today's environment profitable properties). We represent many such lenders throughout the country who provide financing either secured by a first or second mortgage.

What does a commercial property owner need to understand about refinancing commercial real estate?
When selecting a lender, clearly you'll be looking at rates and fees, but first timers need to be educated on how they're qualifying, how the transaction is going to proceed and what's going to be asked of them. They can use the answers to those questions to set their expectations realistically regarding how much money they're going to have to invest on the front end and how they'll transition from a leased property to a purchased property.

The buyer also should be mindful of the fact that the due diligence performed by the bank during the underwriting process, like the appraisal and environmental reports, will server buyers' needs as well as the bank's needs. They can look to their lender to advise them on all those things. Specialty issues in refinancing a commercial building that we specialize in overcoming include:

* Commercial and Business Losses
* Negative Net Worth
* Chapter 11 Filing
* Personal Real Estate Foreclosure
* Tax Liens
* Less than 1 year in business
* Vacant or under-performing properties
* Acquisitions of Multi-Family, retail, mixed use, warehouse or office building properties

We can typically provide you with a loan proposal within 24 hours of receiving our completed loan worksheet. To have a loan worksheet faxed or emailed please call 1-800-578-4884.
John Nagle is senior vice president and commercial real estate refinancing manager for The Sterling Fund. Reach him at (800) 578-4884 or jnagle@sterling-fund.com. Information and web videos on Commercial Building Refinancing available at http://www.BuildingRefinance.com